An Expensive Year Ahead for Remodeling Contractors

By Phil Peach, President & CEO,

Oregon Remodelers Association, Portland,

It is no secret that the home construction industry is taking a pretty big hit with the current economic downturn. Although home remodeling currently seems to be doing better than the new housing market, there is a definite slowdown, and contractors are doing everything they can to weather the storm. One would think this might be a good time for the government to do everything it can to help the industry thrive, preserving jobs and boosting consumer confidence. Instead, state and local government officials are apparently immune to recession, as they continue to push forward with expensive programs and new fees that could negatively impact the building industry.

Construction Excise Tax for Schools – The 2007 Legislature passed a new law allowing school districts to add a construction excise tax to building permits for new construction, including additions to existing structures (considered remodeling). The tax may be up to $1 per square foot on residences, and .50 cents per square foot on commercial buildings, up to a maximum of $25,000 per building permit or structure. Public improvements are exempt from the tax, as are private schools, low-income housing, hospitals, religious and agricultural facilities. Most local jurisdictions wasted no time implementing the new tax earlier this year. More information at http://www.portlandonline.com/shared/cfm/image.cfm?id=178381

Sprinkler Systems – The State Building Code Division’s Residential Structures Board is expected to pass a new rule allowing local jurisdictions to require fire sprinkler systems in homes. The estimated cost for installing such a system in a new home is $6000. Although initially intended to apply to new homes, the rule will likely impact remodeling as well, at least in the case of additions to current homes. The extra cost for installing sprinklers and upgrading plumbing and street connections to provide sufficient water pressure could easily double the cost of a simple addition, discouraging some homeowners from going through with home improvement projects. More information at http://www.cbs.state.or.us/external/bcd/notices/Hearings/res_sprink_notice/20080516_fire_sprinklers.pdf

Street Maintenance – Both the City of Portland and Multnomah County are considering separate business taxes to raise funds for road improvement. The estimated tax for Mayor-elect Sam Adams’ $434 million project alone is $33 per month for every Portland business, and even more for large corporations. No estimate is available yet for the county’s separate $164 million program. Approximately 73% of the money for the city project would be spent on paving, with the balance going toward administration and programs such as bike paths, traffic enforcement, and neighborhood coalition projects. More information at http://www.commissionersam.com/node/3372

Environmental Policy – The City of Portland is considering various “green building” proposals designed to reduce greenhouse gas emissions. Ideas being considered include higher performance standards for residential and commercial structures, both new and existing. The new policy will include a carbon “fee-bate”, designed to act as a financial incentive to compel remodelers to design and construct buildings to minimize carbon emissions. The “fee-bate” is a clever bureaucratic invention where a business is penalized by not qualifying for a rebate that is available only to those who comply with the “voluntary” program. The proposal also calls for existing homes to conduct an environmental performance rating that would inform owners and prospective buyers or renters about building performance. More information at http://www.portlandonline.com/osd/index.cfm?c=45879

State Licensing Requirements – Other new costs for remodeling contractors include the 2007 Legislature’s increased minimum bond requirements to be a licensed contractor, adding to the already prohibitive cost of mandatory liability insurance. Another bill requires remodelers who work in certain commercial buildings to secure separate, even higher bonds and dual licensing categories. New requirements for contracts and various consumer notifications have also added to the paperwork and necessitated legal expenses to revise construction contracts.. More information at http://ccbed.ccb.state.or.us/webpdf/CCB/Legislation/2007%20Legislative%20Guide%20-Web.pdf

We all know that Oregon is a special place to live, but at an increasingly expensive cost. The various philosophies on what makes Oregon great and how to keep it that way sometimes make things challenging for business owners. It seems like the building industry is targeted more than most businesses to help pay for government infrastructure, environmental protection, and a variety of public programs. Those contractors who weather the storm and get through the current economic slump may have only seen the beginning of their challenges.

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