Looking behind the numbers
CPAs discuss how economic issues are affecting Virginia businesses.
To better understand the top issues highlighted in the survey, Virginia Business and the Virginia Society of Certified Public Accountants held a roundtable discussion in September at VSCPA’s Richmond headquarters. The panelists were Charles Equi, owner and managing partner of Equi & Co. in Roanoke; Greg Lawson, partner at Dixon Hughes Goodman in Newport News; Ryan L. Losi, executive vice president of PIASCIK in Glen Allen; and Colette Wilson, chair of the VSCPA board of directors and former partner at Cotton & Co. in Alexandria. An edited transcript of the discussion follows.
Virginia Business: Looking at the results for the past two years, why does the survey continue to show that many CPAs believe a full recovery is still several years away?
Equi: Within my practice, I’ve had a handful of clients who have had the best years they’ve ever had the last three years, just astounding years. But the majority of them are just barely getting over the hump. They’re just moving along. I think a lot of the practices from my sector are seeing that … We haven’t had that breakthrough, that innovation that’s going to move the whole country forward. And usually when we came out of these economic downturns, we saw something that moved us forward …
VB: Is sequestration taking a toll on companies in the state?
Wilson: Absolutely, I think it has. In terms of this question [which was, “Has the region done enough to lessen its dependence on federal spending?’’] I think for the respondents to say Virginia hasn’t lessened its dependence on federal spending — it’s kind of hard to lessen your dependence on that spending when the spending doesn’t stop. The federal government continuously … spends. And with our proximity to the nation’s capital, I just think it’s obvious, and it’s hard to lessen that dependence
VB: Should the Affordable Care Act be reformed or repealed?
Losi: Well, if I were running for office, I’d be really stuck. It’s 50/50 across the commonwealth. Certain areas it’s a little bit more skewed … I am a business owner, small-business owner, so I understand the burdens that businesses have, a lot of compliances.
Red tape is what you’ll hear. A lot of paperwork and red tape and things that require administrative resources are put upon us because of regulation. And so, for instance, why are we withholding-tax agents that are unpaid when it’s really not our responsibility? Well, these are things that add on to it. So, the business community gets, a lot of times, forced to be the responsible agent for these plans, whether we like it or not. From a business standpoint, I don’t like to see more administrative burden. It distracts us from our core businesses.
But when you look at it from a global standpoint, we have an aging population. We’re one of the few developed countries that doesn’t have a national policy regarding health care. I can see that argument right there.
Personally, my opinion is that … a business shouldn’t be responsible for the health care of its employees. It should be responsible for …paying them a fair compensation, and then they can choose.
Equi: [The ACA] is very cumbersome for us — any law that’s passed, any tax law the business community has to deal with. But what readily happens is that the CPAs at the end have to deal with it. We’re the one who has to finalize it on the tax return, collect the money and submit it back. So it always comes back on us no matter what ball it is. Health care, you name what entry, it’s going to come back on us. We pretty much have to enforce the law. So there’s a theory, go ahead and just implement it because it’s just causing so many problems right now for us … and it’s a moving target. Every time I think we’ve got it, they change it or delay it.
I don’t know if there is a right answer for that, but it is going to be very costly. Whether my personal opinion matters or not, whether you want it or not, I think it’s coming. And whether different parts of it will be changed, I think it will be. But from a CPA standpoint, just trying to handle these, it needs to be moved on, implemented so we can tell clients what to do instead of trying to guess all the time.
Wilson: The answer to the question for me is reform. I think, like Ryan said, it has gone so far: It’s coming, it’s here, reform is needed. I think to … repeal it would … make things completely worse. But it does put the onus on the CPAs, and that is something they should be looking to us for. We have to deal with the businesses, or we have to deal with the individuals, and we’re the ones who are going to put forward what we feel needs to be right, what we feel needs to be consistent in how to handle these issues. But, I think, repealing it would just cause more harm than it already has done thus far.
VB: [Virginia has dropped in CNBC’s “Top States for Business” from No. 3 in 2012, to No.5 in 2013 and to No. 8 this year. What, in your opinion, is the reason for this continued drop?]
Equi: Taken from a sports [comparison,] if I go from No. 3 to No. 8, I’m still happy, but … over the past years, we’ve had issues within the political realm — trying to solve the budgets, trying to meet the funding and things of that nature. I think that has had a big part to play in it.
Lawson: Some of the other states in our surrounding markets have discovered the advantage of being aggressive in attracting business locations. South Carolina has been very aggressive in that area with large incentives and has been successful in getting some major manufacturing facilities to locate there that were also looking at Virginia as a possibility. So, I think that’s one thing — just the field of competition has expanded.
I think secondly, a broader comment, Virginia once was known [for its] genteel, collegial legislature that could get things done, and we enjoyed that benefit for decades. The last decade or two, it has become much more partisan. And I think that has adversely impacted on how businesses in surrounding states see us from a competitive standpoint …
VB: Infrastructure was identified as the most pressing issue facing Virginia. … What do you think are the critical infrastructure issues we have?
Losi: My take is … that it’s our roads. Everyone has experienced or read the news headlines where we’re experiencing record exports … Our roads were not built to handle the container volume that they’re currently handling … And cars don’t really beat up interstates and highways; trucks do. And so that has been a big challenge. …
Lawson: Yes, I think Ryan is right on point on that. And me, being from the Southeast, [it’s also] transportation … The I-64 corridor from Hampton up through Richmond is critical, as well as solving the tunnel issues getting from Hampton into Norfolk and Virginia Beach. Those are critical factors. And they’re not only critical for our commercial enterprises and our ports … They’re also critical to the military.
Sequestration is the law of the land right now. We’re going to have another [round of] BRAC [the Base Realignment and Closure process]. It will probably be in 2017. And I can tell you there are a concentration of military bases in the Southeast. They’re looking very closely at that issue. And if we can make some progress in solving the 64 corridor between Hampton and Richmond, get some shovels in the ground on that project, having a plan as it relates to the Hampton Roads Bridge Tunnel, then that is going to be critical in any considerations from the BRAC perspective. …
[Naval Station Norfolk] has the capacity and the technology, including nuclear engineers to house the entire Atlantic Fleet. Naval Weapons Station Yorktown has the infrastructure capacity to merge with other two naval weapons stations. Those issues would be tremendous … save billions of dollars in the national defense budget. SEALs, special [operations], are an increasingly important element in our national defense in addressing critical problems. We have the facilities and the commands in place to consolidate those activities.
VB: Our tax climate was identified as one of the top issues that needs to be addressed at next year’s General Assembly session … What are the specific tax issues that businesses are going to face next year?
Lawson: From a state legislature level, Virginia still enjoys a relatively low individual tax rate and a relatively low corporate tax rate. … Those tax rates have remained unchanged, I think, probably for a couple of decades. So, I think that’s positive. That brings some certainty. It’s still a very friendly state from a tax perspective for businesses to operate in and relocate to.
There are some issues around the margins as it relates to the level of funding we’re going to get for business incentives, tax credit programs and some of those things that have to be reauthorized every year, so we watch those very closely.
Losi: I would just add in that certainly the VSCPA has done a great job of helping tax policies stay simple compared with other states. We try to conform as much as possible to make it simple from an individual’s compliance standpoint as well as a corporate compliance standpoint. And also having, for the most part, a fixed rate. There is a little bit of graduation on the individual side, graduated rates, but pretty much a fixed rate so you can plan … I think those are things that boded well for Virginia. I think the VSCPA has been very active with the General Assembly sessions explaining, reinforcing and ensuring that stays pretty much solid.
Wilson: Like Ryan said, when we go to the General Assembly, it almost seems like no matter what the issue is related to taxes, we’re always talking about conformity because this is the burden on the taxpayer, the burden on the businesses, and just understanding what Virginia needs to do as compared to the federal government. Passing [a bill] late and not having it conforming on so many different issues is just a burden in itself no matter what the specific issue is …
VB: Access to credit continues to be a problem, the survey shows. Are loan requirements too strict?
Equi: I’ve seen some relaxation there. If you move it from a business standpoint to an individual standpoint, it’s still pretty difficult to get a home mortgage loan. Difficult is not the word. It’s a challenge to go through the process is what I want to say. … From a business standpoint … I have seen a little bit of loosening up. A line of credit is a little bit easier to get. The real estate is still a little bit dicey when you’re going in. It depends on where the property is, what kind of property it is, whether they’re going to give it to you. But it depends on the bank, and again, it depends on what area you’re talking about.
Losi: When a majority of loans are being dictated by [the Federal Housing Administration], that’s what’s going to cause it. When private lenders will not come in the game yet to lend, you’re going to have these struggles because you have one agency dictating loan terms. So, everyone has to conform to these really high documentation levels. And they don’t want to be sued like the court case that just got announced … for misrepresenting the loan portfolio that they’re packaging and selling [In September, Virginia filed a lawsuit seeking $1.15 billion in damages against 13 banks accused of misleading the Virginia Retirement System. The suit alleges the banks misrepresented the residential mortgage-backed securities it sold to VRS, which was forced to sell most of those securities at a loss of $383 million.]
VB: [What top issues need to be addressed in U.S. Congress?]
Losi: My thoughts are, we need a deal maker in the administration who will go to Congress and compromise … make a deal, and cut deals that help the entire country. We’ve had 14 years of close or either absolute control in … Congress and the Executive Branch … And there has been … two very opposite polar ends. If you had someone that could come in and just make deals and not worry about the next cycle, getting elected, we’d probably have some compromise.
I always think of it from a business [perspective] — if both parties are unhappy it was probably a good deal. If one is happy and the other one is not, then someone didn’t get a great deal and vice versa. That’s what I think we’re missing right now.
Everyone knows the issues this country needs to deal with. The debt one is huge, and it looks like that’s what’s kind of slowing things down because we’ve got to deal with it. But there are other things that would release the business community to go out there and really make some long-term investments. But you’ve got to have a CEO that makes the deal, and shakes hands, and says, “We’re going to do this because it’s for the greater good of the company” or, in this case, the country [and] is not worried about the board, or not being there when it comes time to campaign.
Wilson: Ryan, you said it very well. We need someone who can cause that kind of change … I don’t know what it’s going to be. But those partisan [differences] come up so severely in every single issue. It’s almost disgusting. And when you hear other people, other commentators or journalists in other countries talking about our country and how we can’t get along, how things can’t get passed, and who is going to stonewall the other person, there just has to be … I can’t think of another word other than a change in the culture of our Congress no matter who is in that seat.