eNews January 5, 2011

January 5, 2011

News Briefs

  1. Brazil, Once Belle of the Ball, Now Source of Debate over Prospects
  2. Obama Delays Debt Ceiling Increase Request
  3. Construction Activity is Back...Kind Of
  4. No New Countries Added to List of AGOA Beneficiaries
  5. Half-Dozen Lien Law Changes Ushered in with New Year
  6. Business Groups Split on Keystone XL Pipeline


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Brazil, Once Belle of the Ball, Now Source of Debate over Prospects

Over the last couple of years, an increasing number of market experts branded Brazil a, if not the, new place to do business. But those exporting, extending credit or pursuing joint agreements might be noticing that a growing number of experts don't seem to be quite as sold on the driver of economics in South America these days.

Newfound worry (but nothing close to panic) seems to be creeping over Brazil's potential challenges going forward following a few years of hot growth and its prominence as a member of the BRIC nations. A recently unveiled IPCA index found the forecasts for Brazil's economic growth cooling a bit of late, though still very much in the positive overall. Despite inflation forecasts being cut a bit, key concern stems from the threat of inflation, a problem that historically has hamstrung Brazil during past booms. Additionally, experts fret that problems with trading partners in the European Union could grow.

"The place to be for the last 10 years has been the emerging markets, like Brazil," said NACM Economist Chris Kuehl, PhD. "There was a brief moment in the middle of the last decade when some asserted that the emerging nations would be able to disconnect from the travails of the developed nations and base their growth on interactions with each other. That has turned out to be a real pipe dream."

That's not even taking into account the revelation that Brazil's government has found a spike in extremely poor, "slave-like" conditions for workers at upwards of 300 prominent companies based there. President Dilma Rousseff comes from a notably pro-labor/pro-worker background, something that worried market-watchers who thought that might make her tough on businesses, thus stymieing growth. Now, after one year in office, Rousseff's approval rating is high (above 70%) and she might have the cache to push a few pro-working class/pro-poor policies that will be seen as bad for the business and growth climate.

It all leaves more questions than perceived certainties for the present year than in 2011 and some years prior. "The question for 2012 is whether Brazil and the BRICs can regain their momentum," said Kuehl. "The bets are that there will be a more profound division between the haves and have-nots this year. Brazil could really struggle to handle the inflation that came with growth, a dilemma many other Latin states will face."

Still, many remain on the bandwagon that Brazil is one of the better bets for economic growth in the short- and long-term. To wit, a study from the Centre for Economics and Business Research released in December positioned Brazil as the sixth largest economy behind long-time powerhouses United States, China, Japan, Germany and France. Few nations besides India or maybe Russia appear to have much of a chance to knock it down the list for the foreseeable future.

Brian Shappell, NACM staff writer

Do You Know Someone Worthy of Recognition?

It's time to nominate your distinguished CBA, CBF and CCE colleagues, your favorite instructor or mentor, among others, whose professional life displays unquestioned integrity, outstanding and meritorious service in the field, and ongoing dedication to the highest standards of the credit management profession.

Find out more on NACM's Honors and Awards Program web page. Deadline for nominations is January 20, 2012.

Read the profile of a 2011 award recipient in the January issue of Business Credit, which features NACM's Mentor of the Year and Intructor of the Year awards. As an NACM member, you can also login to view the online version of this article and the entire January issue now!

Obama Delays Debt Ceiling Increase Request

President Barack Obama delayed a request to raise the country's debt ceiling last week, at the behest of both chambers of Congress.

Earlier, the president was expected to formally request approval for a $1.2 trillion increase in the country's borrowing limit, but Senate and House Majority Leaders Harry Reid (D-NV) and John Boehner (R-OH), respectively, asked the president to postpone the request. That's because, according to the Budget Control Act, passed last August after a bruising showdown between Congress and the administration, the House and the Senate have only 15 calendar days to respond to the request.

Had Obama submitted his proposed increase on December 30, as originally predicted, the 15-day limit would've expired before Congress had returned from recess. The House is expected to reconvene on January 17, while the Senate will return on January 23.

Since enacting the Budget Control Act, the debt ceiling has been raised twice, first by $400 billion, then later by $500 billion. The larger size of the next increase is meant to cover the government's expenses through 2012, and prevent the occurrence of another ugly debt limit battle in an election year. After the proposed $1.2 trillion increase, the nation's debt ceiling would rise from $15.2 trillion to $16.4 trillion.

The Budget Control Act stipulated that the president must submit a request for an increase when the nation comes within $100 billion of its borrowing limit, a threshold that was breached last week. After requesting an increase, Congress can issue a "joint resolution of disapproval" within the 15-day period. If no such resolution is approved by both chambers of Congress within that period, the debt ceiling would be increased by default. Even if such an effort is successful, the president can veto the resolution, and raise the debt limit unilaterally.

Jacob Barron, CICP, NACM staff writer

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Construction Activity is Back...Kind Of

New Commerce Department/Census Bureau statistics indicate total construction spending rose for the third time in four months in November, leading a handful of experts to proclaim the commercial and residential real estate recovery is finally here. The more likely reality, say economists polled by NACM, is that it's a bit early to pop the champagne corks, especially where commercial construction is concerned.

November construction spending statistics tracked at $807 billion, a 1.2% increase over the revised number from a slightly disappointing October. The figure also rivals that of November 2010, and the growth trend appears to be one that will continue. However, "improvement" is a relative term and, in this case, the rebound is expected to be fairly slow over the next 12 months at least.

"Construction spending may take a dip from here for a month or two, but certainly for 2012 we expect recovery in the construction numbers, but a slow recovery," said Moody's Analytics Senior Economist Andres Carbacho-Burgos. "Things are more likely to take off in 2013, especially with fairly strong growth expected in residential. Mainly, as the economy starts to recover and unemployment is reduced, you'll get better income growth which will release pent-up housing demand." There's also the notion that homebuyers are looking for smaller, more energy-efficient housing that isn't as widely available as the "McMansions" that were popular during the mid-decade housing boom, though such factors aren't included in Moody's forecasting tools.

Commercial real estate, while not likely to crash, probably will lag behind the expectations of housing activity and could be several years out from a hot recovery, said Carbacho-Burgos. The pent-up demand existing in residential simply hasn't come to fruition yet because commercial's boom-bust cycle occurred a couple of years later and most larger metropolitan areas still show above-average vacancy rates.

Still, despite the unlikelihood of a meteoric rise, Conference Board Economist Ken Goldstein told NACM there's less probability for upside/downside volatility on the commercial side. Goldstein fears "it might be too early to declare construction on the way back," especially for residential activity:

"I want to see if the positive numbers on construction are more than just, as Bill Parcells used to say, 'one in a row.' But, certainly, it would be welcome good news if this is indeed more than a one-month trend. In short, I'm still a wait-and-see skeptic. Lastly, and I hope I'm wrong, but I'm sensing that the new phase is still quarters, if not years, away."

Brian Shappell, NACM staff writer

Distressed Business Services

Many NACM Affiliates are involved in a national network to provide assistance in the rehabilitation (if possible) or liquidation (if necessary) of businesses in severe financial difficulty.

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No New Countries Added to List of AGOA Beneficiaries

U.S. Trade Representative Ron Kirk announced last week that no African nations would be removed from the list of countries eligible for benefits under the African Growth and Opportunity Act (AGOA) in 2012, but no new ones would be added either. Currently, 40 sub-Saharan African nations are designated as AGOA beneficiaries, and that list will remain the same for the foreseeable future.

"President Obama's determination today is good news for the people of these African nations, as well as for the American businesses and workers trading with these countries," said Ambassador Kirk. "We are proud to announce, after a thorough review by the Obama Administration, that all 40 of these important U.S. trading partners will continue to receive benefits under the African Growth and Opportunity Act—a vital and growing pillar of U.S.-Africa trade policy."

The president made the decision not to make any new countries eligible for benefits under the legislation following an annual review of whether current AGOA designees are complying with the Act's eligibility criteria. Countries benefitting from the legislation's array of trade preferences must establish or make continual progress toward establishing a market-based economy, a rule of law, economic policies to reduce poverty, the protection of internationally recognized worker rights and efforts to combat corruption.

AGOA was signed into law under President Bill Clinton in May 2000, with the intention of providing sub-Saharan African nations with trade preferences and better integrating the region into the global economy. Although the Act was primarily designed to allow African companies to export to the U.S. duty-free, it has also benefitted U.S. exporters by creating tangible incentives for African countries to implement economic and social reforms and forging stronger commercial ties with the region.

Previously, only 37 countries were eligible for AGOA benefits, but President Obama signed a proclamation last October adding Côte d'Ivoire, Guinea and Niger to the list. U.S. exports to the region have recently experienced an uptick, increasing by 13% from 2009 to 2010.

Jacob Barron, CICP, NACM staff writer

Best-in-Class Service from NACM's Mechanic's Lien and Bond Services (MLBS)

MLBS' newly redesigned Lien Navigator is a web-based service that provides up-to-date information for all 50 states and Canada, including notice, lien, payment bond and suit timelines, procedures and other relevant information in a state-by-state/province-by-province format.

MLBS also offers two preliminary notice to owner (NTO) services, deadline tracking, a lien and bond filing program and a suit against bond and foreclosure service. Both NTO services include, at no additional charge, a Next Action Notification Email. These reminders are sent automatically to ensure that your lien and suit deadlines are met during each step of the lien process.

For more information on NACM's MLBS, click here.

Half-Dozen Lien Law Changes Ushered in with New Year

With the new year came a handful of changes to construction lien laws, mainly in the western United States. And while none are game-changers, as Mechanic's Lien and Bond Services (MLBS) Director Greg Powelson characterizes them, "the devil is still in the details."

Perhaps the most consistent creditor-friendly changes come out of Texas. H.B. 1456 creates statutory lien waiver forms for progress payments and final payment on construction projects. "These standardized waivers typically make everyone's life easier; credit managers should begin using them immediately," said Powelson. Meanwhile, H.B. 2093 limits the ability of parties involved in a construction project to transfer risk to subcontractors when said subs are not at fault and bans broad-form indemnity clauses in both private and public construction contracts.

"H.B. 2093 was really for the protection of subcontractors versus suppliers, but indemnity should reduce the problems which could have filtered downstream as backcharges," Powelson noted.

Other changes that went into effect at the start of the year:

  • California's S.B. 293: Effectively caps retainage on subcontractors at 5% on state and local public contracts entered into through the start of 2016. The new law improves prompt payment law by requiring upper-tier contractors on public projects to pay lower-tier contractors within seven days of receiving a progress payment.
  • Oregon's S.B. 384: Intended to be a "clean up" of the private prompt pay statutes, and is not meant to make any major substantive changes to this area of law. The bill helps clarify the circumstances in which attorney fees for claims for "payment of interest" can be recovered and corrects an omission in which the established time for final payment, the fourth of the four established prompt payment deadlines, did not have an opt-out provision.
  • Oregon's SB 382: Changes the notices that construction lien claimants must send to lenders. First, it defines the term "mortgagee" to be only those persons whose names and addresses appear in the county's real property records. It can also include an assignee, but only if the assignee's name and address are shown in the county's real property records. The bill was proposed in part due to the issues surrounding the Mortgage Electronic Registration System. The bill also clarifies that a construction lien claimant needs to send statutorily required notices only to those mortgagees whose names and addresses are shown in the county's real property records.
  • Alabama's H.B. 56: Requires companies with state contracts to begin using the federal E-Verify system to confirm employees' legal status to work. It also provides that companies will have their business licenses suspended after a first violation and permanently revoked after a second violation of the law.

NACM staff

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Business Groups Split on Keystone XL Pipeline

A proposed pipeline from Alberta, Canada to the Gulf of Mexico has drawn both the ire and admiration of business groups.

The controversial Keystone XL Pipeline has risen to national prominence following the passage of a payroll tax cut extension, which included a stipulation that President Barack Obama must make a decision in favor of, or against, the project within 60 days. Proponents, like the U.S. Chamber of Commerce, claim that the $7 billion pipeline would be a jobs machine. The opposition, on the other hand, claims that the project will generate only modest job increases, and could end up costing more than it creates.

"If the president is serious about job creation and energy security, now is the time to act on the Keystone XL pipeline," said U.S. Chamber President and CEO Tom Donohue. "This is the perfect example of a shovel-ready project that makes sense for our economy. The strong, bipartisan support for a provision requiring a prompt decision indicates that the Congress understood that there is simply no reason to delay a decision on Keystone until after the election."

According to the Chamber, the pipeline will create 20,000 immediate jobs and an additional 500,000 barrels of oil from Canada, contributing both to job creation and presumably more affordable oil prices. "We strongly urge the president to move swiftly to approve the permit and move forward with this project, which is clearly in our national interest," said Donohue.

However, environmentally-minded business groups, like the Green Business Network, have argued just the opposite: that the pipeline will divert oil, and jobs, from Midwestern oil refineries to their counterparts in the Gulf of Mexico. Citing a study conducted by Cornell University's Global Labor Institute, the opposition has noted that consumers in the Midwest could end up paying 10-20 cents more per gallon once the pipeline is completed, ultimately suppressing spending and costing jobs. Furthermore, the environmental risks associated with the pipeline could create significant health and economic costs, thereby eliminating jobs as well.

The Keystone pipeline was originally proposed in September 2008 when TransCanada Keystone Pipeline LP filed an application for a presidential permit with the State Department to build it. Under Executive Order 13337, the State Department must review the application when it would cross an international border with the United States. The same executive order also directs Secretary of State Hillary Clinton to consult with federal agencies before issuing a decision as to whether or not the project is in the national interest. So far, no determination has been made.

Jacob Barron, CICP, NACM staff writer

To view past eNews issues or to visit the NACM Archives, click here.



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