After years of debate, the House of Representatives gave its blessing this week to sweeping legislation that overhauls the nation’s energy policy. Congress also forged ahead with spending bills that boost federal spending on transportation projects while reducing expenses for military construction. And meanwhile, the Financial Accounting Standards Board indefinitely suspended November 7 implementation of a new rule that would have virtually eliminated the net worth of many firms on their financial statements. How does this affect architects? Read on!

Congress moves forward with energy bill
After years and various incarnations of policy and months of intense negotiations, the House of Representatives gave its blessing this week to sweeping legislation that overhauls the nation’s energy policy. President Bush is expected to sign the Republican-drafted legislation if it clears the Senate.

Some Congressional Democrats, particularly in the Senate, objected to industry-backed provisions that they say rely too heavily on traditional energy supplies, including oil, gas, and coal, and not enough on renewable fuels such as solar and wind. Opponents could not muster enough opposition to stop the bill’s progress.

Of specific concern to architects, the legislation:

• Includes AIA-supported tax credits and incentives for energy efficiency in commercial buildings and homes
• Provides for a government testing lab for improvements in environmental sustainability in buildings and to provide data on environmentally sustainable structures
• Sets aside funds for research and development of energy-efficient technologies
• Authorizes a pilot program that would increase energy efficiency in buildings in low-income areas.

In the negotiations, the lawmakers abandoned plans to make grants available to states to improve energy efficiency in schools, but approved a plan to create a new category of tax-exempt bonds—the qualified green building and sustainable design project bond—for the development of brownfield sites.

Budget progress
Congress forged ahead these past two weeks with spending bills that boost federal spending on transportation projects while reducing expenses for military construction. Budget negotiators have upped funding for the federal highway program by 7 percent and the Federal Transit Administration by 2 percent while cutting the military construction budget by 13 percent for FY2004. The National Park Service’s construction budget will see a 3 percent increase in the coming fiscal year, bringing its total to $334 million.

In other legislation, the Transportation-Treasury funding bill gives federal employees the right to challenge, potentially in the federal courts, the General Accounting Office outsourcing decisions based on Office of Management and Budget Circular A-76 competitions. Circular A-76 is the Bush Administration’s initiative to turn public work over to private contracts to streamline costs through competition. Currently, only private-sector parties have the right to protest competitive sourcing decisions. In addition, negotiators dropped a provision of that bill that would have required job competitions involving architecture and engineering services to emphasize costs rather than qualifications. The AIA is working with other organizations to continue to emphasize the importance of maintaining qualifications-based selection in public projects.

A/E firms, other small-business concerns prompt delay of accounting rules
The Financial Accounting Standards Board (FASB) indefinitely suspended November 7 implementation of a new rule that would have virtually eliminated the net worth of many firms on their financial statements. In May 2003, the FASB released the FAS-150C to provide clarity of certain financial instruments that have characteristics of both liability and equity. The new rule stated that mandatory redeemable financial instruments (such as shares in a firm) shall be designated as a liability unless the instrument would only be redeemed after the termination or liquidation of the entity.

In an October letter to FASB Chair Robert Herz, AIA Executive Vice President/CEO Norman L. Koonce, FAIA, affirmed the Institute’s concerns with FAS 150 and urged the FASB to reconsider the rule that would have, in essence, made economically viable firms seem insolvent. He recommended that the FASB, at the very least, extend the deadline for implementation. Koonce said many of the AIA’s member firms, including small, privately owned architecture and engineering design firms, must have mandatory redeemable shares to satisfy lenders and bond issuers. In addition, the AIA has many members from states that require the firms to have professional employee ownership for state licensing requirements. To maintain professional employee ownership, the firm must mandate redemption of equity shares upon the death or termination of an employee.

The requirement of FAS 150 to recognize an immediate liability for a firm’s obligation to acquire all outstanding shares would have imposed an extreme financial burden on these firms because this new rule appears effectively to wipe out the net worth of non-public, employee-owned firms. Further, financial statement users have yet to be educated properly about the effects of this new and significantly different financial reporting rule, which may lead to the perception that these non-public entities are less solvent or insolvent when in fact they are healthy, thriving business operations.

Robert G. Packard III, Assoc. AIA, chair of the AIA Large Firm Roundtable (LFRT), stated that LFRT’s member firms are privately owned with offices and clients worldwide. Packard pointed out that a typical LFRT member firm is owned by its employees, who have a substantial personal investment in the firm. As such, once their employment has ended with the firm (through death, termination, or otherwise), the firm repurchases the equity interest to maintain ownership control. Additionally, Packard noted, some states require that professional-services firms have employee ownership.

The LFRT letter stated, “We are very concerned about the implications of Statement 150 on our financial statements, and the ability to effectively explain to our owners, clients and potential clients, financial institutions, vendors, and other users of our financial statements that the application of this new accounting standard will completely eliminate our recorded equity.” Packard made clear that LFRT is in strong disagreement with common shares being considered liabilities because that characterization fails a true conceptualization of the varying interest of the owners in the firm.

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