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Volume IX, Number 2 - June 2004In this bulletin: Capitol Hill Visits Build on Past SuccessOn April 27, nearly 300 members of the CCIM Institute, the Institute of Real Estate Management (IREM) and the Realtors® Commercial Alliance (RCA), traveled to Capitol Hill for over 175 scheduled meetings with Senators, Representatives and staff on a number of pressing legislative and regulatory issues, including banks in real estate, depreciation, terrorism risk insurance, tort reform, real estate mortgage investment conduits (REMICs) and bankruptcy reform. The following summarizes current activity on those issues:Tort Reform One of the contributing factors in the high cost of insurance has been a trend towards exorbitant jury awards and settlements in civil lawsuits tried in state courts. Hill Visit attendees discussed this problem with their representatives in Washington and urged their support for the Class Action Fairness Act, which will move large class action lawsuits to federal courts, which can more adequately address these cases with national impact. The Senate is slated to take up this bill in the next few weeks, as soon as it finishes with the Department of Defense Authorization bill. Banks in Real Estate In 2000, the Federal Reserve and the Department of the Treasury proposed regulations that would allow financial services holding companies and the subsidiaries of national banks to offer real estate brokerage, management, and relocation services, breaching the traditional separations between banking and commerce. For the past several years, IREM members have been asking their legislators to support the Community Choice in Real Estate Act, which would block the Treasury and Federal Reserve from finalizing these regulations. A temporary measure has been included in the Treasury/Postal Appropriations bill each year that would have the same effect, and we expect to have a similar provision in place for the FY 2005 bill. As a result of the Capitol Hill Visits, three more cosponsors have been added to the Community Choice in Real Estate Act, bringing the totals to 251 in the House and 25 in the Senate. The new cosponsors are Rep. Ben Chandler (D-KY), Rep. Jon Porter (R-NV) and Sen. Sam Brownback (R-KS). Terrorism Risk Insurance Availability In the wake of 9/11, the private insurance marketplace was failing to provide adequate terrorism insurance coverage. In response, Congress established a federal backstop for commercial property and casualty insurance claims arising from acts of terrorism and mandated that insurers “make available” terrorism insurance on the same terms and conditions with which they offer property and casualty coverage. This “make available” provision expires at the end of 2004 unless the Secretary of the Treasury extends it for an additional year. Senators and Representatives were asked to urge the Secretary to extend this provision. The day after the Hill Visits, the General Accounting Office released a report that found that “insurance market participants have made no progress to date toward development of reliable methods for pricing terrorism risks and little movement toward any mechanism that would enable insurers to provide terrorism insurance to businesses without government involvement.” A survey conducted of CCIM and IREM members found that property and casualty insurance rates increased by a mean of 16% in 2003 over 2002, with some individuals reporting increases well above that amount. 67% of all respondents reported that the NOI of their properties had decreased as a result of insurance costs. These results are being forwarded by NAR to the Treasury Department in commentary on the issue. Bankruptcy Reform As they did last year, Hill Visit participants discussed the issue of bankruptcy reform with Senators and Members of Congress. CCIM Institute supports four provisions in the bill dealing with single asset bankruptcies, automatic stay provisions for debtors in residential rental housing, bankruptcies by shopping center tenants, and the payment of post-petition common expense assessments by debtors owning property in community associations. The Senate still has not acted on the bankruptcy bill, though we are hopeful that they will do so before the end of the year. Real Estate Mortgage Investment Conduits (REMICs) Hill Visit attendees also urged Members of Congress to support legislation, HR 4113, that would make changes to the rules governing Real Estate Mortgage Investment Conduits (REMICs), tax vehicles by which loans are packaged into securities. The current rules governing commercial loans place unnecessary barriers in the way of loan modifications, making commercial REMICs undesirable to investors. Changing the rules would spur additional investment in commercial real estate. As a result of the Hill Visit program, four Members of Congress have co-sponsored this legislation: Rep. George Nethercutt (R-WA), Rep. Butch Otter, (R-ID), Rep. Rush Holt (D-NJ) and Rep. Lee Terry (R-NE). Depreciation The last issue that was discussed in the Hill Visits was depreciation. The Department of the Treasury released a report in 2000 indicating that the current 39-year depreciable life of real estate was longer than economic depreciation. Hill Visit participants urged the passage of HR 2896, a bill that fixes subsidies to American exporters that have been ruled illegal by the World Trade Court, but also contains a provision that would reduce the depreciable life of properties placed in service in 2004 and 2005 from 39 to 15 years. They also asked their legislators to support HR 1634, which permanently reduces the recovery period to 10 years. As a result of this advocacy, four additional Congressmen signed on to this bill: Rep. Neil Abercrombie (D-HI), Rep. Chris Cox (R-CA), Rep. Rob Bishop (D-NY), Rep. Ron Kind (D-WI). Legislative Affairs Subcommittee Action/REMIC/SPAM/DepreciationDuring the April 2004 CCIM Institute Spring Business Meetings, the Legislative Affairs Subcommittee approved amendments to two existing Statements of Public Policy (Spam and Depreciation) and recommended adoption of a new Statement of Public Policy (SOPP) regarding Real Estate Mortgage Investment Conduits (REMICs). The CCIM Institute Board of Directors subsequently approved adoption of the amendments and the new SOPP.REMICs are a tax vehicle created by Congress in 1986 to support the housing market and investment in real estate by making it simpler to issue real estate backed securities. REMICs are essentially the vehicle by which loans are grouped into securities. As of September 30th, 2003, the value of single family, multifamily, and commercial –mortgage backed REMICs outstanding was over $1.2 trillion. Current rules that govern REMICs often prevent many common loan modifications that facilitate loan administration and ensure repayment of investors. The new statement of public policy will allow the CCIM Institute to lobby Congress and federal regulatory agencies to make changes in the tax law allowing more common modifications to commercial real estate property such as tenant expansions and building additions. Representatives Mark Foley and Earl Pomeroy have introduced HR 4113 in the House and Senators Smith and Conrad have introduced companion bill S 2422 in the Senate to address the needed changes to the REMIC law. Revenue impact has not yet been determined. If the bills are revenue neutral, the bills’ provisions may be attached to a “technical corrections” bill or a tax bill as an administrative correction. CCIM Institute will continue to monitor this important legislation closely. To read the CCIM Institute REMIC SOPP and the Spam and Depreciation amended policies, go to: http://www.ccim.com/members/govaffairs/pdf/2003mastersop.pdf Do-Not-Call, Phone/Fax/Email Regulation UpdatePhoneIn February, the FTC published for public comment a Notice of Proposed Rulemaking to amend its telemarketing rules. Under this proposal, telemarketers would be required to scrub their telephone lists against the DNC Registry list "once a month." This would replace the FTC's current requirement to scrub their lists every three months. The proposed rulemaking would only apply to interstate calls and therefore would not interfere with the FCC's requirement that intrastate telemarketers scrub their lists every three months. Congress mandated the FTC to promulgate a "once a month" rule. The National Association of Realtors submitted comments urging the FTC to reconsider and delay for one year implementation of this change due to the additional cost and labor burden associated with it. On April 26, the FTC approved for publication a notice of proposed rulemaking that would amend the Telemarketing Sales Rule to increase the fees for access to the Do-Not-Call Registry. Under the revised fee structure, telemarketers will continue to have access to up to 5 area codes free, but additional area codes will cost $45.00 (currently $25.00) each. The fee for access to all 280 area codes will increase to $12,357 (currently $7,375). Pending public comment, the new fee schedule will go into effect on September 1, 2004. Fax The National Association of Realtors is working with members of the House and Senate Commerce committees in an effort to secure a legislative "fix" for Do-Not-Fax regulations proposed last year by the Federal Communications Commission (FCC). At the same time, NAR continues to lobby the FCC to permanently stay the implementation of the fax rules. The Telephone Consumer Protection Act of 1991 banned the practice of sending unsolicited advertisements to a telephone facsimile machine without the recipient's permission. Since 1992, however, the FCC's regulations had maintained that an existing business relationship (EBR) between the sender and the fax recipient established the requisite permission. In September of 2003, the FCC determined that the commission had exceeded its authority when it established the EBR exception and issued a new rule which eliminated the EBR exception and required anyone sending an unsolicited commercial advertisement to a fax machine to secure the recipient's express written permission. Reacting to petitions filed by NAR and other groups, the Federal Communications Commission ("FCC") issued a stay of its changes to its fax rules until January 1, 2005. Working with a coalition of other trade associations, NAR is seeking legislation that would authorize an existing business relationship exception and allow for verbal permission for faxing advertisements or solicitations. On March 19, 2004, CCIM Institute issued a Call For Action asking CCIMs to respond to the FTC's request for comment on the establishment of a Do-Not-E-mail Registry. The CAN SPAM Act authorizes the FTC to establish a Do-Not-E-mail Registry and requires the agency to report to Congress on the practicality and feasibility of such a registry. To date, the FTC has not supported the need for or feasibility of a Do-Not E-mail Registry. Tax UpdateTenant Leasehold Improvements/International Tax BillAfter a long and fractious battle, the Senate finally passed its version of the international tax reform bill, S.1637. Unfortunately, the House companion bill, H.R. 2896, remains stalled. H.R. 2896 contains the important provision that would reduce the cost recovery period for leasehold improvements from 39 to 15 years. In April, the CCIM Institute, Realtors Commercial Alliance (RCA), and the Institute of Real Estate Management (IREM) issued Calls to Action to their respective members asking them to contact their members of Congress and urge movement on the H.R. 2896. After the Capitol Hill Visits, in late May, CCIM Institute and IREM submitted a letter to each member of the House Ways and Means Committee urging them to ensure that the temporary leasehold improvement provision stays in H.R. 2896l. On June 4, House Ways and Means Committee Chairman Bill Thomas (R-CA) introduced a measure to replace H.R. 2896 with H.R. 4520, the American Jobs Creation Act. The leasehold improvement provisions supported by the CCIM Institute, RCA and IREM are in the bill. House Extends Alternative Minimum Tax Relief An unanticipated effect of the Bush tax cuts and the creation of the tax credit for children under 18 has been that a significant number of families have become subject to the Alternative Minimum Tax (AMT). The AMT was originally designed to assure that the wealthy paid tax and did not use so many allowable deductions that they paid no tax. The structure of the AMT has not been changed since 1986, nor have its brackets been indexed for inflation. As a result, the AMT is falling very heavily on middle class people it was never intended to capture. The AMT problem will undoubtedly spur an effort to restructure the tax system. That effort is not likely to get underway until 2005, and it can be expected to unfold no matter who wins the Presidential election. For tax years through 2004, Congress has provided a patch to dampen some of the impact of the AMT problem. Because there is little expectation that Congress can complete overhaul action in one year, the House has now extended that modest relief through 2005. It is not known when or how the Senate will consider this issue. House Passes Transportation Bill with Two Unrelated Tax Provisions The House passed its highway and transportation authorizing bill along with several funding provisions for the Highway Trust Fund. Just before debate on that bill began, Ways and Means Chairman Thomas (R-CA) added two non-transportation provisions to the tax section of the bill. One would extend through 2007 the current law provisions that permit small businesses to deduct up to $100,000 of expenses for otherwise depreciable property. Those provisions are scheduled to revert to a $25,000 deduction in 2006. The second provision grants Alternative Minimum Tax (AMT) to small corporations with less than $20 million of income (current relief provisions are limited to corporations with less than $7.5 million of income.) No relief was provided for the individual AMT. The Senate has already passed its version of the transportation bill. Unfortunately, it is looking like it will remain in limbo as long as the House and Senate versions continue to authorize more spending than the White House can accept. House Passes Permanent Tax Cut Provisions When the Bush tax cuts were originally enacted in 2001, many of the cuts were phased in gradually over a 10-year period. In 2003, as a spur to a lagging economy, the timing for several of these cuts was accelerated. Without Congressional action, three of them will lapse to less beneficial levels in 2005. The three provisions are: (1) the $1000 per child tax credit; (2) the range of the 10% tax bracket; and (3) certain elements of marriage penalty relief. The House this week passed, on a largely partisan split, legislation that would retain the current 2004 levels for these provisions and make them permanent. All three are currently scheduled to expire in 2011. Updated Version of Depreciation Recapture Bill Introduced in House Representative Phil English recently introduced H.R. 4221, an updated version of H.R. 1514 which set the depreciation recapture tax rate equal to the capital gains rate, which at the time of introduction was 20%. H.R. 4221 sets the recapture tax rate equal to the current capital gains tax rate of 15%. Commercial Real Estate and the US PATRIOT ActIn the wake of the USA PATRIOT Act, the Treasury Department’s Financial Crimes Enforcement Network (FinCEN), sought commentary on the term “financial institution” and including “persons involved in real estate closings and settlements”. The CCIM Institute submitted commentary to FinCEN that commercial real estate brokers should not be included in that definition. While no explicit exclusion has been stated, a current review of the rules and regulations provides the following assurances:
National Academy of Sciences Releases Long-Awaited Mold ReportThe National Academy of Sciences (NAS) has released its long-awaited report, “Damp Indoor Spaces and Health,” finding only minor negative health effects related to mold exposure. The study, a review of the current scientific literature on the health effects of mold and other problems associated with damp indoor environments, found “sufficient evidence of an association” between the presence of mold and upper respiratory (nasal and throat) symptoms, coughing, wheezing, asthma symptoms in sensitized persons, and hypersensitivity pneumonitis (a relatively rare immune-mediated condition). NAS found insufficient evidence to link damp indoor environments with some of the more serious health problems that plaintiffs in mold-related lawsuits have complained about, including chronic pulmonary disease, fatigue, neuropsychiatric symptoms, and cancer.The NAS concluded that damp indoor environments pose a public health problem; however, a great deal of research is still needed in many areas, including how to measure the effectiveness and health effects of a remediation effort and how free of contamination a surface must be to eliminate problematic exposure of occupants. To access the full study go to: http://www.nap.edu/books/0309091934/html/ Senate Acts on Internet Tax MoratoriumOn April 29, the Senate passed legislation, S. 150 to extend the moratorium on state taxation of Internet access for four years. The House had already passed a similar bill that would make the moratorium permanent. The Senate bill would allow states that tax DSL lines to keep their taxes in place for two years and to tax Voice Over Internet Protocol (VOIP) telephone services in the same manner that they tax conventional land telephone line calls. The Senate bill also allows states that taxed Internet access prior to 1998 to retain their taxes for three years. The House-passed bill eliminates this grandfather protection.EPA Issues Guidance to Help Avoid Liability on BrownfieldsOn January 22, 2004, the Environmental Protection Agency (EPA) released new guidance on brownfields. To be protected from superfund liability, landowners whose property is contaminated by a release from a neighboring site must not only prove they did not cause the pollution but also take steps to stop continuing releases. The guide explains the criteria that "contiguous property owners" must meet to be protected from liability under the Comprehensive Environmental Response, Compensation, and Liability Act.The guidance, "Interim Enforcement Discretion Guidance Regarding Contiguous Property Owners" also defines when a site is considered "contiguous." Under the Small Business Liability Relief and Brownfields Revitalization Act enacted in January 2002, the liability defense is available to contiguous property owners, as well as prospective purchasers and innocent landowners, or those who acquire land without knowledge of existing contamination. Under the Brownfields Act of 2002, contiguous and innocent landowners and prospective purchasers are protected from superfund liability as long as they complete certain requirements, including conducting all appropriate inquiry into past uses of sites, taking steps to prevent any continuing releases and limiting any exposure to contamination, and complying with any land-use or other restrictions. For more information on this guidance document go to: http://www.epa.gov/brownfields/liab.htm Senate Holds Hearing on Real Estate Appraisal IndustryThe Senate Housing and Transportation Subcommittee held a hearing on the real estate industry and the impact of Title XI of the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA). Since FIRREA was passed fifteen years ago, and because it mandated state licensing under federal standards, the regulatory structure for appraisers has evolved into a unique and complex system. Since Title XI was enacted, it has been difficult to achieve necessary consistency among the states for enforcement of both standards and certification requirements. The National Association of Realtors (NAR) submitted testimony for the record that indicated its belief that the current regulatory structure is overly complex, inconsistent from state-to-state and in need of thorough review and examination by Congress.Senate Subcommittee Holds Flood Insurance HearingWith limited discussion and zero amendments, the Senate Banking, Housing and Urban Affairs Committee approved the "Flood Insurance Reform Act of 2004" or S. 2238. Sponsored by Senator Jim Bunning (R-KY) and a bi-partisan group of 5 co-sponsors, the CCIM Institute-supported bill provides for: 1) a 5-year reauthorization of the National Flood Insurance Program; 2) a 50% increase in flood insurance premiums for policyholders whose properties are repeatedly flooded and who refuse government offers of mitigation assistance; 3) reforms to the NFIP to ensure that policyholders are fully aware of the details of their policies. S. 2238 now goes to the Senate floor for a full Senate vote. Late last year, the House passed H.R. 253, a CCIM Institute-supported bill which is comparable to S. 2238 except that it does not contain the consumer reforms provided by the Senate bill.2004 CCIM Institute Legislative Affairs Subcommittee Leadership: Bruce Baker, CCIM, Chair, Director Raymond Boro, CCIM, Vice-Chair, Director CCIM Institute Legislative Affairs Staff: Chuck Achilles, IREM VP Legislative & Research, 312.329.6020, cachille@irem.org back to the top ^ |