On October 13, automation and system integration CEOs and executives gathered in Houston to participate in an exclusive, invite-only roundtable co-hosted by the Control System Integrators Association (CSIA) and alliantgroup, the nation’s premier provider of government-sponsored tax credits and incentives to the automation and system integration industry.
The event’s key speakers included former U.S. Congressman Rick Lazio, former Senior Counsel to the U.S. Senate Finance Committee Dean Zerbe, former IRS Acting Commissioner Steven Miller, Private Equity and M&A Advisor Neeraj Mital, CSIA CEO Jose Rivera, alliantgroup CEO Dhaval Jadav and alliantgroup Managing Director Michael Siegel. Specifically, the roundtable focused on the broader economic challenges facing automation and system integration companies, and policy proposals that would encourage greater productivity and broader prosperity within the industry and the economy at large.
U.S. Economic Outlook: Rebounding… But Underperforming
The event began with an overview of CSIA’s membership and of general industrywide trends from Rivera, followed by an economic update panel hosted by Jadav, Lazio and Mital. During the latter presentation, the panel reviewed the current state of the economy and provided deeper context into a number of key economic indicators. As noted by Lazio, the economy has made strides seven years removed from the recession, with unemployment down dramatically and other indicators such as the Dow Jones Industrial Average and the S&P 500 bouncing back from the depths of the recession.
However, while these statistics would seem to point to an economic rebound, the panel contrasted this with the general attitudes of Americans toward the economy, with polls showing that two-thirds of Americans feel that the country is on the wrong track and other polls citing that a majority still feel the economy is in recession. Digging deeper into the context of these negative perceptions, Lazio and Mital traced the anxiety back to subdued growth and overall economic underperformance. While the economy is growing once more, Lazio noted that the nation is in the midst of the weakest economic recovery from a recession since 1949, growing at a rate of just 2.2 percent.
“It doesn’t sound like much, the difference between 2.2 or 3 percent growth, but it’s an enormous amount of money when you talk about an economy the size of the United States,” said Lazio. “This translates to literally trillions of dollars in lost output, growth and income throughout the economy.”
The subdued recovery has meant that much of the economic gains have simply not been felt in the pockets of ordinary Americans, with many dealing with stagnant wages and stalled living standards. While the unemployment rate is at five percent, statistics from the U.S. Bureau of Labor show that many of the jobs created were on the lower end of the wage scale and that labor utilization and labor force participation numbers were not as strong, with the number of involuntary part-time workers at around 9 percent.
“That’s why you have a lot of grumpy Americans out there,” said Lazio. “They may be working at a part-time job or working at a fraction of what they had previously.”
Productivity and the Workforce: The Key to Sustainable Growth
The panel tied the reasons for subdued growth and the drop in labor force participation to the same culprit—a decrease in the number of qualified workers in the labor pool and an overall drop in productivity. According to the panel, much of the American workforce simply lacks the skills required in a 21st century economy, and in no area has this been more evident than in the science, technology, engineering and mathematics (STEM) fields, with CSIA members and other system integration executives in attendance echoing their personal struggles in attracting and retaining top-tier technical talent. As a result, many companies have been forced to offshore their work rather than hire American workers.
“I live in Chicago and our city has a large base in the machining of parts,” said CSIA CEO Jose Rivera. “I know some company owners in that space and they have had huge shortages in the number of technicians able to work CAD and technical skills of that nature.”
“The lack of labor is stunting our growth,” said Environmental System Corporation CEO Craig McCurdy. “We have tremendous opportunity, but we are not going to sell and commit to more work than we can provide. We have people full-time trying to get more talent at our company and it’s not there.”
Believing that the key to stimulating the automation and system integration industry (as well as the economy at large) is solving the productivity issue, the panel advocated for both long-term policy solutions that would expand the workforce further down the line (such as greater public and private investment in STEM education initiatives) and more immediate fixes such as tax policy that would provide companies the means to be more competitive when attracting the technical talent already on hand.
Federal Incentives for the Automation and System Integration Industry
Switching gears from potential to current policy, Zerbe and Siegel followed up with a panel on the federal policies and tax incentives currently available for the benefit of system integrators. In particular, the panel went into an in-depth discussion on the Research and Development (R&D) Tax Credit, which due to legislation that was signed into law this past December, was not only made permanent, but includes two major expansions beginning in tax year 2016 that will greatly increase the number of system integration and automation companies that can claim the credit.
The first—the startup provision—allows businesses with less than $5 million in gross receipts to take the credit (capped at $250,000) against their payroll taxes. The second—the turnoff of the alternative minimum tax (AMT) floor for companies with less than $50 million in annual gross receipts—represents perhaps the greatest expansion ever for a credit whose purpose is to not only reward companies for advancing new technologies and their internal processes, but for keeping high-paying STEM jobs such as those found in the system integration industry here in the U.S.
“I would like to thank our partners at CSIA for co-hosting this incredible roundtable and for everyone who took the time to attend this event,” said alliantgroup CEO Dhaval Jadav. “Our firm is fully devoted to educating the automation and system integration industry on these fantastic credits and incentives geared specifically for their benefit. It is my hope that we can play a role in supporting this industry that will be of the utmost importance to the future of our economy and in helping to keep high-paying technical jobs here in the U.S.”