Volume IX, Number 3 - July 2004

In this bulletin:

•	Treasury Department Extends Key Provision of Terrorism Risk Insurance Program
•	House and Senate Pass Corporate and International Tax Reform Bills
•	Faxing and "Establishing Business Relationships"
•	President Bush Signs Flood Insurance Extension and Reform Bill
•	Senate Fails to Act on Class Action Fairness Act
•	Association Health Plan Again Passes the House
•	House Appropriations Subcommittee Votes to Prohibit Banks in Real Estate for FY 2005
•	US PATRIOT Act and the Commercial Real Estate Broker
•	Basel II Accord Update
•	FTC Rejects Do-Not-Email Registry
•	NAR Releases Updated Do-Not-Call/Do-Not-Fax Toolkit
•	FTC and Credit Report Information Disposal
•	CCIM Institute Issues Calls to Action on Forced Access in RI and NC
•	CCIM Capitol Hill Visit Workgroup

Treasury Department Extends Key Provision of Terrorism Risk Insurance Program

The Department of the Treasury announced on June 18, 2004 its decision to extend the “make available” provision of the Terrorism Risk Insurance Act (TRIA) through 2005. This provision requires that insurance companies make coverage for terrorist acts available in all of its commercial property and casualty insurance programs on the same terms that are applicable to losses not arising out of an act of terrorism. CCIM Institute and the Institute of Real Estate Mangement (IREM) had encouraged the extension of this provision during the April Capitol Hill Visits and in written commentary jointly submitted with the National Association of Realtors®.

TRIA was passed by Congress in 2002 to address the extreme difficulty and expense of finding coverage for acts of terrorism in the wake of the September 11, 2001 attacks on New York and Washington, DC. Under TRIA, the Department of Treasury (Treasury) caps insurer liability and would process claims and reimburse insurers for a large share of losses from terrorist acts that Treasury certified as meeting certain criteria.

Hearings were held in May on the subject of extending the entire program beyond the current expiration date. In addition, legislation has been introduced in the House by Representatives Pete Sessions (R-TX), Sue Kelly (R-NY), Richard Baker (R-LA) and Eric Cantor (R-VA) that would extend the program for an additional two years, through 2007. The bill currently has 43 cosponsors and has been referred to the House Financial Services Committee.

House and Senate Pass Corporate and International Tax Reform Bills

House Ways and Means Committee Chairman Bill Thomas (R-CA) introduced a new version of his overhaul of the tax rules governing taxation of multinational corporations, H.R. 4520, and the House passed the bill in June. H.R. 4520 also contains provisions oriented to smaller businesses. Among these is a provision that would reduce the recovery period for leasehold improvements from 39 years to 15 years.

H.R. 4520 was Chairman Thomas's attempt to put together a package for a companion bill to the major legislation (S. 1637) that passed the Senate in May 2004.

H.R. 4520 and S. 1637 now face several procedural, partisan and substantive disputes before conference work can begin. The CCIM Institute and the National Association of Realtors® (NAR) will continue to urge the conferees to retain the House leasehold improvement provisions, the Senate mortgage revenue bond relief and the brownfields deduction and REIT improvements from both bills.

Faxing and "Established Business Relationships"

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 Federal Communication Commission’s (FCC) regulations had maintained that an “established 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 National Association of Realtors® (NAR) and other groups, the FCC issued a stay of its changes to its fax rules until January 1, 2005.

On the evening of July 20, 2004, the House unanimously passed H.R. 4600. H.R. 4600 aims to restore the EBR provision governing fax communications. The Senate Commerce, Science and Transportation Committee is expected to consider S. 2603, companion to H.R. 4600, before the summer recess.

President Bush Signs Flood Insurance Extension and Reform Bill

On June 30, President Bush signed S. 2238, the “Bunning-Bereuter-Blumenauer Flood Insurance Reform Act.” The bill extends the National Flood Insurance Program (NFIP) within the Department of Homeland Security (DHS) until 2008. Reforms in the law will address the problem of repetitive loss properties through flood mitigation. The law authorizes the launch of a pilot program that will require people to either accept mitigation assistance or face significantly higher premiums. Owners who refuse assistance will no longer be eligible for subsidized flood insurance far below the actuarial risk rate they should be paying. Over time, as mitigation offers change the nature of repetitive loss properties, the NFIP is expected to save a significant amount of money, since FEMA estimates that these properties alone cost the program $200 million annually.

Senate Fails to Act on Class Action Fairness Act

In April, CCIM Institute members, who participated in the Capitol Hill Visits, urged their elected representatives to support groundbreaking legislation that would curb a number of abuses of the class action tort system. Unfortunately, it appears that supporters of this legislation will have to wait yet another year for its passage. Fearing that it would be used as a vehicle for unrelated proposals that would fracture the bill’s support, Senate Majority Leader Bill First ruled that senators would be unable to offer unrelated amendments to the tort reform bill, with the exception of amendments aimed at raising the minimum wage. As a result, despite the support of 62 of 100 senators, Senate Democrats were successful in preventing the bill from being considered on the floor. Supporters of the effort to curb class action abuses have pledged to continue pushing for adoption of the bill, but most observers have declared the issue dead until next year.

Association Health Plan Again Passes the House

State Realtor associations have indicated that health insurance has increasingly become an issue for commercial and residential Realtors which historically have relied on coverage from other employment sources or spousal coverage. Commercial and Residential realty sales operations and the independent contractors who make up the commercial real estate sales force are the quintessential small businesses.

H.R. 660 and S. 545, the Small Business Health Fairness Acts, would authorize the formation and multi-state operation of federally certified association health plans (AHPs). Although H.R. 660 was approved by the House in 2003, the companion bill, S.545, is still pending before the Health, Education, Labor, and Pensions Committee with just eight cosponsors. In an effort to increase the likelihood that AHP legislation will be approved by the Senate, the House leadership took up its AHP bill for a second House vote on May 13, 2004. Passing by a vote of 252 – 162, the bill text was then appended into H.R. 4279. Since H.R. 4279 includes other provisions that are more likely to be taken up by the Senate, it is possible that the House AHP language could be considered as a part of any House/Senate conference discussions if the Senate companion bill to H.R. 4279 is approved by the Senate. The CCIM Institute will continue to monitor this important issue for small business owners.

House Appropriations Subcommittee Votes to Prohibit Banks in Real Estate for FY 2005

The House Transportation, Treasury and Independent Agencies Subcommittee included a provision to prohibit funding for the Treasury Department for finalizing the proposed banks in real estate rule. This is the third year that such a prohibition has been included in this bill. This year, the provision was part of Subcommittee Chairman Istook's original bill, H.R. 2989.

The full Appropriations Committee reported the bill on July 22nd; however with only a few days remaining before Congress breaks for an August recess, it is unlikely the bill will go to the House floor for a vote until Congress returns after Labor Day.

US PATRIOT Act and the Commercial Real Estate Broker

Recently, a number of articles have appeared in the news media regarding the obligations of commercial real estate brokers and property managers to comply with anti-money laundering regulations that have been enacted in the past several years as part of the war on terror. The USA PATRIOT Act contains a number of provisions designed to help cut off the sources of funding available to terrorist organizations worldwide. As of October 2003, real estate professionals are not subject to these requirements, which are limited to financial institutions.

Commercial real estate brokers, property managers and other real estate professionals should be aware, however, of their obligations under Executive Order 13224, issued by the President in the wake of the 9/11 attacks. This order prohibits American citizens and businesses from entering into business transactions with citizens of countries against which the United States has imposed sanctions and designated individuals who are associated with terrorist or terrorist-linked organizations. Any professional whose practice involves transactions with foreigners or foreign properties should be particularly aware of who he or she is dealing with. A list of these “Specially Designated Nationals and Blacked Persons” is available from the Treasury Department’s Office of Foreign Asset Control (OFAC) (http://www.treas.gov/ofac). Many private companies offer software to help scan customer and tenant lists for matches on this list. While OFAC has not adopted specific due diligence procedures or other guidelines for commercial real estate professionals, property managers should be aware of these requirements, especially if they are managing properties in major metropolitan areas, such as New York or Washington, DC. The Institute of Real Estate Management has also found that many management agreements are now requiring the property manager to conduct tenant and employee screening to ensure that they are not unwittingly bringing a Prohibited Person onto properties that they manage.

A brief guide to compliance with these regulations is also available on the NAR web site, at http://www.realtor.org/natmeet.nsf/0/eff8e1f040fb8de785256e8300749dbf?OpenDocument

Basel II Accord Update

The Basel Committee, comprised of the leaders of the central banks of the G-10, completed the Basel II accord on June 26th, 2004. The accord lays out the parameters by which large banks determine risk based reserve requirements for lending portfolios. In the past, CCIM Institute, the National Association of Realtors (NAR) and others, have expressed concern that the new "High Volatility Commercial Real Estate" designation for some commercial loans may unnecessarily dampen lending in that arena. The federal regulators, including the Office of the Comptroller of Currency (OCC) and the Office of Thrift Supervision (OTS), will conduct an economic impact study to determine the accord's affect on the economy. CCIM Institute will work with other industry groups to help guide the scope of the study and to express our concern of the potential of Basel II to negatively impact some real estate lending.

The finalized Basel II accord treats most commercial real estate lending as "Income Producing Real Estate (IPRE) which, because there is a quantifiable income stream behind the property, would enable banks to keep lower capital reserves. However, Basel II treats commercial real estate loans for spec properties as "High Volatility Commercial Real Estate (HVCRE), and thus subject to higher reserve requirements. NAR met with a fed economist to discuss how commercial loans that are partially leased/sold should be treated. Despite the lack of data on the performance of such loan portfolios, NAR will work with industry partners such as the CCIM Institute to develop a way to analyze these types of loans so that the risk weights will not be as high as HVCRE loans.

FTC Rejects Do-Not-Email Registry

On Tuesday, June 15, 2004, Federal Trade Commission (FTC) submitted to Congress its report on the feasibility of establishing a Do-Not-E-Mail Registry, as required by the CAN-SPAM Act. The Report concludes that without a system in place to authenticate the origin of e-mail messages, any National Do-Not-E-Mail Registry (regardless of type) would fail to reduce the amount of spam that is received by consumers.

In rejecting the idea of a National Do-Not-E-Mail Registry, the FTC indicated that spammers would most likely use such a Registry as a mechanism for verifying the validity of e-mail addresses, i.e. a "National Do Spam List" of e-mail addresses; without a system in place to authenticate the origin of e-mail messages, the FTC would be largely powerless to identify and stop these bad actors.

The FTC's National Do-Not-E-Mail Registry Report to Congress is available at: http://www.ftc.gov/reports/dneregistry/report.pdf.

NAR Releases Updated Do-Not-Call/Do-Not-Fax Toolkit

In conjunction with NAR's Midyear Legislative Meetings, the Regulatory and Industry Relations Department released an enhanced version of their popular Do-Not-Call/Do-Not Fax toolkit to include a new section on complying with the new CAN SPAM Act (a/k/a Do-Not-E-mail). Additionally, there are information updates on the Do-Not-Call rules, such as the recent regulation requiring telemarketers to scrub their call lists at least once every 31-days. Copies of the Toolkit are available to associations and members at cost for $20.00. Orders can be placed at http://www.realtor.org/prodser.nsf/OpenProd?OpenForm&IN=186-100 or by calling Information Central at 800/874-6500 and press Option #1.

FTC and Credit Report Information Disposal

CCIM Institute, in conjunction with NAR and the Institute of Real Estate Management (IREM), submitted comments to the Federal Trade Commission (FTC) and the Federal Banking Agencies (FBAs) in response to proposed rules governing the disposal of consumer information. The proposed rule requires that “reasonable measures” be taken by persons or businesses that acquire or compile information based on consumer credit report information when that information, whether in paper, electronic, or other form, is discarded or otherwise disposed of. It does not require new standards of practice for firms and individuals who have already recognized the need to protect sensitive consumer information, including in its disposal and imposes no new recordkeeping requirements for property managers. For this reason, CCIM Institute, IREM, and NAR believe that the proposed rule is a reasonable and practical approach to an important issue. They did urge, however, that the FTC and FBAs work together to make their regulations as consistent and comparable as possible and monitor the implementation of the regulations to ensure that they do not create undue burdens on small businesses.

CCIM Institute Issues Calls to Action on Forced Access in RI and NC

This spring and summer have seen the resurgence of forced access provisions in the states. CCIM Institute recently sent out alerts to the Rhode Island and North Carolina CCIM Chapters regarding utility commission provisions that would have limited the abilities of owners and managers to regulate access to their properties by telecommunications providers, threatening building safety and security and property rights.

In Rhode Island, H. 8038 would give all tenants in multiple-unit properties, both residential and commercial, the right to select a provider of cable television, telephone, or Internet services without any limitations by a landlord. The bill has passed the House and was referred to committee in the Senate, but has not seen action since.

In North Carolina, the Utilities Commission proposed a rule that would ban exclusive contracts with telecommunications providers or the payment of referral fees to property owners and managers. It also would have forced owners and managers to give access to their buildings, as well as the wires and telecommunications spaces within them, to any telecommunications company if a tenant requests their service. The Utilities Commission has not taken any further action on this proposal. CCIM Institute will continue to monitor these proposals, as well as any others that might surface, and will keep members informed of further developments.

CCIM Capitol Hill Visit Workgroup

The CCIM Institute’s Legislative Affairs Subcommittee appointed a Capitol Hill Visit Workgroup at the April business meetings in order to address continued growth of the Hill Visit program. The Workgroup met a total of three times via teleconference to discuss and make recommendations on such issues as the timing of the Hill Visits, exploration of other possible partnerships or coalitions, working more closely with Chapters on educating membership about the Hill Visits and ways to increase participation. The workgroups report will be on the Subcommittee’s agenda during the Institute’s business meetings in Palm Springs, CA, this October.

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

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