It attacks a village

Posted: Jun 07, 2006 12:05 AM

Hannay Reels now grosses $42 million per year and employs 150 people in the little village of Westerlo, N.Y., but it all started when Clifford Hannay seized an unexpected opportunity.

 It was 1933. Hannay was doing plumbing and electrical work -- installing bathrooms -- when he walked into a supply shop in Albany.

 The man ahead of him was returning some parts. He was a heating-oil dealer tired of hauling 5-gallon cans. He had tried to build a reel to mount a hose on his truck so he could pump his product directly into customers' tanks. He failed.

 The man at the counter agreed to take the parts back. "But before I do," he said, "why don't you shake hands with Clifford Hannay. He's standing right next to you, and he can build anything."

 The heating-oil man handed his bag of parts to Hannay -- who had never built a reel in his life. Hannay did a splendid job. Reports of his craftsmanship got around, and he was soon taking orders for custom-made reels.

 "He met a need, and 73 years later we still do that every day," Clifford's grandson, Roger Hannay, told me this week.

 With the help of sons Dwight and George (Roger's father), Clifford ran the business until he passed away in 1962. Dwight ran it for three years, until he died in a helicopter crash. George ran it until 1990, when Roger took over. Two of Roger's children, Eric Hannay and Elaine Gruener, now work in the business and intend to run it someday.

 "All bets are off about the fifth generation. They are way too young," said Roger. "But the fourth generation has got the fire in their belly."

 The Hannays are an American success story, epitomizing what free enterprise is all about. Nonetheless, the federal government has placed a significant barrier in the path of this family and others that own and operate successful businesses. It is the death tax.

 In 2001, the "estate tax" (as the government calls it) was steeply progressive. A family could exempt $675,000, and faced a top rate of 55 percent for estates valued over $3 million. This year, thanks to the Bush tax cut, the exemption is $2 million, and the rate is a flat 46 percent. In 2010, the tax goes away. But in 2011, it snaps back to a top rate of 55 percent for estates over $3 million, with an exemption of $1 million.

 Roger's mother and father both died in 1997. In 1998, he testified in the House Ways and Means Committee about the death tax, and about the hope of his children to take over the family business.

 The family's solution has been to buy massive life insurance policies. They now pay about $335,000 per year in premiums. When Roger dies, the insurance money goes to the company, which will use it to help buy Roger's stock back from his wife, Sherley, who must then use the proceeds to pay the death-tax bill. That should allow the fourth generation of Hannays to keep Hannay Reels.

 But there are wildcards. At 64, Roger cannot readily increase his insurance coverage, and the business is growing. As the years go on, he says, the "spread widens" between the value of his insurance and his stock.

 The Hannays won't take the easy route and accept one of the unsolicited offers they have received for the company. "Actually, I would be better off," says Hannay. "But we ain't going to do that."

 Why not? "If any generation is forced to sell this baby, it won't stay in Westerlo, N.Y., because that's what companies are going to do if they buy it," he says. "They are going to move it. It doesn't make any sense to be here except to us."

 New York taxes are too high, and it is too expensive a place to do business for an owner solely focused on the bottom line.

 Hannay is wary of sounding "too corny and sappy," but his love for his town is clearly sincere. He recalls his children taking the 13-mile bus ride each way to the local high school, and friends who sold family businesses and regretted it. "Our employees are family to us," he says.

 "I want to be clear," he adds. "Not every single resident of this village works in Hannay Reels and vice versa. Some of them commute to Albany and have other jobs (which is a 50-mile roundtrip every day). But a lot of folks from the surrounding hills here … a lot of them, directly or indirectly, depend on us. So do some local businesses that we shop with and are vendors of ours. So, yeah, without being too full of ourselves, I say it would make a big economic impact."

 A Congress that maintains the death tax isn't just attacking families like the Hannays, it is also attacking the villages where they live.