Volume VIII, Number 3 - July 2003

In this bulletin:

•	2003 Hill Visits
•	Forced Access Effort Stalls in Utah
•	NAR Insurance Task Force Releases Final Report
•	Monitoring of State Legislative Issues Moving Forward
•	Federal Tax Package - 2003
•	Bonus Depreciation Filing Extension
•	Senate Tax Reform Workgroup Established
•	Estate Tax Repeal - House Approved
•	Banks & Real Estate Issue Put On Hold In Appropriations
•	Tort Reform - Class Action Fairness Act
•	Flood Bills Make Progress
•	Commercial Real Estate Lending Considered "High Risk"
•	Anti-Spam Legislation
•	Fair Credit Reporting Act Changes
•	National Do-Not-Call Registry
•	Brownfields
•	Financial Crime Enforcement Network (FinCEN)
•	Health Effects of Mold Update
•	National Electric Code Changes Impact Property Owners & Managers
•	FHA Multifamily Mortgage Insurance Premiums Lowered

2003 Hill Visits

On April 29, 2003, 80 CCIMs and 220 CPM©s participated in the 2003 IREM/CCIM Capitol Hill Visits. These CCIMs, CPM©s and ARM©s attended 160 meetings scheduled with Congressional offices in order to educate legislators about commercial real estate investment and management issues. As a direct result of the IREM/CCIM Capitol Hill Visits, 25 signatures for co-sponsorship were registered! A great accomplishment for those CCIMs and their IREM colleagues in attendance!

In addition, Sen. Richard Shelby of Alabama, primary sponsor of the Community Choice in Real Estate Act, was awarded the IREM/CCIM Legislator of the Year Award. Eric Higgins, CCIM and Mary Carolyn Boothby, CPM, both from Alabama, as well as CCIM and IREM Presidents, Barry Spizer, CCIM and Patty Nooney, CPM, CCIM, were on hand to personally award Sen. Shelby for his outstanding efforts in championing commercial real estate issues on Capitol Hill.

Forced Access Effort Stalls in Utah

An effort by the Utah Public Utilities Commission to force property owners and managers to grant access to their buildings to telecommunications providers has been stalled due to the efforts of IREM and the Real Access Alliance. On April 1, 2003 the Utah Public Service Commission (PSC) published a proposed rule that would have granted any telephone company access to the wire and telecommunications spaces within buildings over the objections of owners and managers. This rule, which was written at the request of the Qwest Corporation, would have declared conduit, ducts, innerducts, rights of way, dark fiber to intra-premises cabling and inside wiring to be “essential telecommunications facilities.” As a result, the PSC would have the ability to require that any telecommunications company be allowed to have access to a building in order to offer telecommunications services to its tenants. There would be no exemptions for lack of space or safety concerns and no provisions for the recovery of rent, the need to comply with building management rules, or the payment of liability insurance. This roundabout method for imposing mandatory access provisions upon Utah’s property owners and managers was especially distasteful because, had it been successful, it would have been imposed without hearings or dialogue with those affected by its provisions.

Upon learning of this threat of mandatory access, CCIM Institute, IREM and the Real Access Alliance filed comments with the Utah PSC in opposition to the proposed rule and a Call to Action was sent to Utah members, generating over fifty more letters in opposition to the rule. Because of this vocal opposition to imposing mandatory access through a backdoor method, the PSC has indefinitely postponed action on the matter, an action which has signaled the death of proposals in the past.

NAR Insurance Task Force Releases Final Report

The National Association of REALTORS® (NAR) has released the final report of its Insurance Task Force. After studying the causes of the rising costs and plummeting availability of property casualty insurance, the task force recommended a number of actions, including:

•	The creation or expansion of state insurance FAIR plans to include basic homeowners and commercial property coverage;
•	State legislation or regulation that would require insurance companies to file their credit-based insurance scoring methodology and formulas with the state department of insurance providing that such methodology and formulas are held confidential and treated as a trade secret under state law;
•	That state associations consider opposing the use of credit scoring as the sole criteria for the acceptance, denial, renewal, or rating of a potential insured for insurance underwriting purposes;
•	That the Fair Credit Reporting Act be amended to add consumer protections and to allow consumers access to one free annual credit report.

CCIM Institute legislative staff will review the task force’s report with the aim of determining what actions, if any, are appropriate. Get a copy of the entire report.

Monitoring of State Legislative Developments Move Forward

Since January, CCIM Institute, in conjunction with the Institute of Real Estate Management (IREM) has been developing a pilot program to track important developments in state legislatures across the country. In the past several months, staff has developed a tracking database that will allow them greater efficiency and flexibility in monitoring bills and identifying regional and national legislative trends. Staff has to date examined approximately 3,000 bills and is currently tracking close to 500. Some of the issues being tracked include lead-based paint legislation, mold legislation, tax issues, and insurance legislation. In the next month, CCIM will begin to offer state legislative reports for the use of CCIM Chapters. The format and delivery of these reports will be finalized in the next few weeks so stay tuned!

Federal Tax Package - 2003

On May 28, 2003, President Bush signed into law the Jobs and Growth Tax Relief Reconciliation Act of 2003 (JGTA), tax legislation designed to provide tax cuts to individuals and to businesses as an incentive for greater investment and economic activity.

Most provisions go into effect immediately on enactment, but all will expire, some as soon as 2005. JGTA provisions directly impacting the commercial investment real estate industry are as follows:

•	Capital gains tax rate reduction from 20% to 15%. Unfortunately, the depreciation recapture rate remains at 25%. A special 5% rate applies to lower-bracket (i.e., 10% and 15%) individuals. As in the past, assets must be held for more than one year to qualify for the reduced rate. REIT capital gains eligible for the reduced rate are capital gains on the sale of REIT stock and REIT capital gains distributions (except to the extent of depreciation recapture). This provision generally applies to sales, exchanges or installment payments received on or after May 6, 2003. The 5% bracket is reduced to zero in 2008. When this provision expires, the capital gains rates will revert to 20% (10% for lower brackets.)
•	Additional Bonus Depreciation – Leasehold Improvements. JGTA increases the percentage of leasehold improvement costs that may be deducted from 30% to 50% plus 1/39th of the remaining amount of the investment. 50% bonus applies to any binding contracts entered into after May 5, 2003. 30% bonus applies to contracts entered into before May 6, 2003. (A temporary 30% bonus depreciation provision was enacted in March 2002 that applies to all equipment and to leasehold improvements. Both the 30% and 50% bonus provisions will expire January 1, 2005. As long as a binding contract was in place before January 1, 2005, a property may remain eligible for the bonus depreciation until January 1, 2006. A special allowance for depreciating cars is increased from $4600 to $7650. When the bonus rules expire, the depreciable life for leasehold improvements will remain at its current level of 39 year. (Also see article on the filing extension for the depreciation bonus in this issue.)
•	Increased Expensing for Small Business. When tangible property is used in a trade or business, its cost is recovered under a prescribed term of years using straight-line depreciation. Some property (not real estate) is also eligible for accelerated depreciation. A special rule permits small businesses to deduct up to $25,000 of the costs of business property (other than real estate) in the year of purchase, rather than capitalize the cost and apply depreciation allowances. This provision phases out when business investment exceeds $200,000. JGTA increases the amount that may be expensed to $100,000. The phase-out begins when investment reaches $400,000. The legislation also resolves ongoing IRS disputes by providing that so-called “off the shelf” software used in a trade or business is eligible for the expensing rules. When this provision expires, the eligible amount will revert to $25,000.
•	Tax on Dividends. Historically, dividend income has been included in adjusted gross income and taxed at ordinary rates. JGTA departs dramatically from this treatment. All dividend income will be taxed at 15% (5% for lower-bracket individuals). Real Estate Investment Trust (REIT) distributions eligible for this lower rate are REIT dividends attributable to dividends received by the REIT from non-REIT corporations such as taxable REIT subsidiaries and REIT dividends attributable to income that was subject to tax by the REIT at the corporate level (e.g., "built-in gains" or when a REIT distributes less than 100% of its taxable income). When this provision expires, dividend income (including REIT dividends) will be treated as ordinary income and taxed at the rates in effect at that time.

Provision	Becomes Effective	Expires
Capital Gains Cuts (15%, 5%)	5/6/2003	12/31/2008
Capital Gains Cuts (Zero Rate for Lower Tax Brackets)	1/1/2008	12/31/2008
50% Bonus Depreciation	5/6/2003	12/31/2005 (Binding contract transition rule to 12/13/2006)
Small Business Expensing	1/1/2003	12/13/2005
15% Tax Rate for Dividends	1/1/2003	12/31/2008

There is both good and bad for the commercial investment real estate industry in the 2003 federal tax package (The Jobs and Growth Tax Relief Reconciliation Act or JGTA). Good in that the capital-gains tax cut should prove advantageous for property owners, but bad in that the dividend-tax cut may hurt Real Estate Investment Trusts (REITs). REIT investors will not be getting the tax break on dividends that investors in other stocks will, as real estate investment trusts were excluded due to the fact that they already are exempt from corporate income taxes.

Moreover, REIT investors still will be required to pay a 38.6 percent tax on the dividends they receive compared to the much-lower rate of 15 percent that will apply to non-REIT dividends. As far as the capital-gains tax cut is concerned, it is hoped that it will free up the equity in real estate to be invested in other projects and other real estate.

Bonus Depreciation Filing Extension

The Treasury Department and the Internal Revenue Service (IRS) decided to extend the filing deadlines (now December 31, 2003) for the special bonus-depreciation incentives after learning that some taxpayers had been unaware of them. The additional 30% deduction applies to equipment or nonstructural tenant improvements put in service after September 10, 2001. The deadline extension allows taxpayers who filed their federal tax returns for the tax year that included Sept. 11, 2002, but didn't claim the deduction, the chance to do so now.

Senate Tax Reform Workgroup Established

Senate Majority Leader Bill Frist (R-TN) has circulated a letter among Republicans recommending the establishment of a Senate Working Group on Tax reform. Senator George Voinovich (R-OH) will take the lead. Senator Frist has directed the Working Group to consider the tax rate structure, ways to lighten the paperwork burden, loophole closers that will reduce corporate fraud, the impact of taxation on job creation and long-term growth and the interaction of tax and social policy. Senator Frist has asked for volunteers for the Working Group. The Working Group would not be expected to make any report before the 2004 election.

Estate Tax Repeal - House Approved

On Wednesday, June 18, 2003, the U.S. House voted to permanently repeal the Estate Tax by voting 264 – 163 passing H.R. 8. Senate minority leadership has stated that at this time there are not enough votes in the Senate to move forward with the repeal. Currently, the estate tax is slated for repeal in 2010 (until then is incrementally reduced each year). In 2011, the estate tax resurges at a rate of $3 for every $5 after a $1 million exemption.

Banks & Real Estate Issue Put On Hold In Appropriations

The House Appropriations Subcommittee on Treasury, Transportation and Independent Agencies adopted by voice vote an amendment by Rep. Anne Northup (R-KY) that would prohibit the Treasury Department from finalizing the proposed banks in real estate rule during FY 2004. This provision is identical to language enacted for 2003. CCIM Institute, the National Association of REALTORS® (NAR) and other affiliates continue to gain cosponsors on the Community Choice in Real Estate Act (HR 111/S 98) that would permanently bar big banking conglomerates from entering the real estate industry. There are 237 House and 23 Senate cosponsors of these bills.

Tort Reform - Class Action Fairness Act

In June, the U.S. House approved H.R. 1115, the Class Action Fairness Act, by a 253-170 vote. H.R. 1115 addresses abuses of the class action mechanism including token awards to class members and "venue shopping" by class action attorneys. As passed, H.R. 1115 would require judges to give approval to settlements that award coupons for goods or services to plaintiffs and defines when a class action suit could be moved out of state and local courts to federal court.

Amendments passed by a voice vote brought the bill's venue provisions in line with the amendments approved in the markup of the companion Senate bill, S. 274, by Senator Dianne Feinstein (D-CA). That amendment allows class action cases to be transferred to federal court, at the request of either party, if less than one-third of the plaintiffs in the class reside in the state where the action was filed. If more than two-thirds reside in that state, the case would remain in state court. For class action suits where less than two-thirds, but more than one-third, of the plaintiffs reside in that state, the amended bill would give federal judges discretion to decide the venue based on whether a case could have a national impact.

NAR lobbyists delivered letters of support, signed also by the CCIM Institute, to all House offices prior to the vote. S. 274 is pending on the Senate calendar. It is anticipated that the bill will face stronger opposition in the Senate. The White House supports this legislation.

Flood Bills Make Progress

National Association of REALTORS® (NAR) staff met with House committee staff in early July to discuss a draft flood insurance repetitive-loss bill. Bill introduction and committee markup is anticipated in mid-July. The intent of the bill is to increase flood insurance premiums for properties that are repeatedly flooded and refuse a government offer of mitigation assistance.

On a separate matter, Congress is well on its way towards approving the full $200 million requested by the Federal Emergency Management Agency (FEMA) for the modernization of its flood maps. The effort, begun in 1997, aims to completely update all 100,000 panels of the map and to publish them in an easy to use and update digital format. The funding has been approved by the full House of Representatives and by the Senate Appropriations Committee. Full Senate approval should occur within the next week or two.

Commercial Real Estate Lending Considered "High Risk"

The House Subcommittee on Financial Institutions and Consumer Credit unanimously reported H.R. 2043, the United States Financial Policy Committee for Fair Capital Standards Act. The Act establishes a committee composed of the Treasury, Federal Reserve, Office of Comptroller of the Currency and Federal Depository Insurance Commission in order to develop a consensus agreement on the Basel II Accord and report to Congress prior to the Accord's implementation.

The goal of the Basel II Accord is to develop a more flexible and forward-looking international capital adequacy framework that better reflects the risks facing banks. Of concern, commercial real estate lending has been identified as a more volatile, high-risk type of lending compared to other types of lending. As a result, the new Accord contains risk weights for certain types of commercial real estate loans that would require banks to hold disproportionately high levels of capital against such loans. CCIM Institute along with the National Association of REALTORS® (NAR) has serious concerns with this portion of the Accord.

Congress has raised concerns about the impact the Accord will have on real estate lending, the complexity and potential negative competitive impacts as well as the timing for implementing the Basel II Accord. As a result, the United States Financial Policy Committee For Fair Capital Standards Act was introduced to assure that the full impact of the Accord is understood and agreed to before it is applied to American banks.

CCIM Institute will continue to monitory this issue and keep CCIMs appraised of any movement.

Anti-Spam Legislation

During the first full week of July, subcommittees of the House Judiciary Committee and the Energy & Commerce Committee held hearings on two anti-spam bills. H.R. 2214, the Reduction in Distribution of Spam Act of 2003, and H.R. 2515, the Anti-Spam Act of 2003, would each regulate unsolicited commercial emails.

While there are differences in the bills, both bills would require all unsolicited commercial emails to identify the email as an advertisement or solicitation, provide a clear and conspicuous opt-out notice and mechanism for opting out, and include a valid physical street address of the sender.

In addition, the bills would prohibit a sender from sending any further emails to an individual who has chosen to opt-out for a period of 3 years (HR 2214) or 5 years (HR 2515) from the time of the opt-out request, bar the sale, lease, exchange or other transfer of the email address of any individual who has chosen to opt-out, prohibit the transmission of a commercial email with fraudulent header information,
ban the use of illegally harvested email addresses, and give the Federal Trade Commission, state attorneys general and Internet service providers’ strong tools to fight unwanted and fraudulent spam, including injunctive relief and civil and criminal damages.

The bills do differ in terms of the specifics of the size of civil and criminal penalties, allowable court venues and the use of class actions lawsuits for enforcement purposes. Energy and Commerce Chair, Rep. Billy Tauzin (R-LA), a primary cosponsor of H.R. 2214, indicated that he believes that the bill's sponsors are getting close to consensus on a final product that would have a strong chance of enactment.

Fair Credit Reporting Act Changes

On July 16, the Financial Institutions Subcommittee of the House Committee on Financial Services unanimously approved legislation to reauthorize and amend the Fair Credit Reporting Act (FCRA). The bill, H.R. 2622—the Fair and Accurate Credit Transactions Act (FACT Act), would make several changes to current law, including:

•	Increasing the effectiveness of consumer initiated fraud alerts;
•	Allowing consumers to block fraudulent information on their personal credit records after filing a police report;
•	Allowing consumers the right to receive a free credit report annually;
•	Requiring financial institutions to develop procedures to “red flag” identity theft, investigate certain changes in customer addresses, and truncate credit and debit card information;
•	Directing regulators to determine how to increase the prompt investigation and correction of disputed information in a consumer’s credit file;
•	Requiring the disclosure of the name, address, and telephone number of businesses that supply information to credit bureaus;
•	Requiring that financial institutions notify consumers if they will be supplying negative information to a credit reporting agency;
•	Requiring that credit reporting agencies and mortgage lenders provide consumers with credit scores and an explanation of the key factors that were used to determine that score.

In testimony before the Senate Committee on Banking, Housing, and Urban Affairs, Timothy J. Muris, Chairman of the Federal Trade Commission endorsed reauthorization of the FCRA and reforms similar to those contained in the FACT Act. Full house committee action is expected by the end of July. The Senate is currently holding hearings and preparing its own version of the FACT Act.

National Do-Not-Call Registry

The cold-calling activities of real estate professionals after October 1, 2003 will need to comply with the requirements of the new federal do-not-call registry, based on rules issued by the Federal Communications Commission (FCC). The FCC has broadened the reach of the federal "do-not-call" registry originally created by the Federal Trade Commission (FTC) to now cover intrastate telemarketing as well as the interstate telemarketing calls covered by the FTC rule. While the federal do-not-call registry contains exemptions, these do not cover the telemarketing activities of real estate professionals. The federal rules permit states to adopt more stringent telemarketing rules, but any state telemarketing rules which are less restrictive than the federal rules are preempted and superceded by the federal rules. Therefore, any exemptions found in state laws for real estate professionals are now eliminated and compliance with the federal "do-not-call" registry is now required by real estate professionals who engage in telemarketing.

There are three exceptions to the do-not-call registry:

1.	If the caller has received the express permission of the consumer;
2.	If an "established business relationship" exists between the parties; and,
3.	Calls may be made by or on behalf of a tax-exempt nonprofit organization.

An "established business relationship" is one between a business and a consumer with whom it has an established business relationship for up to 18 months after the consumer's last purchase, delivery, or payment or a consumer whom, within the last three months, made an inquiry to the business. The established business relationship exception is terminated if a consumer requests to be placed on the business's company-specific do-not-call list, even if the parties continue to do business.

A safe harbor provision exists in the Rules for a business who inadvertently calls a consumer who is registered in the do-not-call registry. A business will not be liable if it has obtained the consumer's prior "express" written permission that this particular business may contact the consumer at the number listed in the agreement. A business will also not be liable if it calls a consumer with which it has a personal relationship, as defined in the Rules. Finally, a business will not be liable if it can demonstrate that the call was made as the result of error. In order to demonstrate that the call was made as a result of error, the business will need to show the following regular business practices: written procedures for compliance with the Rules; train personnel in compliance with the Rules; maintain a list of numbers that should not be called; update its do-not-call list at least every three months; and assure that the do-not-call list is not used for any other purpose other than the business's compliance with the Rules.

The Rules now impose additional requirements upon facsimile advertisements. First, the Rules expand the definition of when a "facsimile broadcaster" will be found liable for violating the Rules. Second, the Rules set forth requirements of the information which must appear on a facsimile transmission, particularly a facsimile transmission from a facsimile broadcaster.

For consumer information on the Do-Not-Call Registry go to:
http://www.donotcall.gov/

Brownfields

Individuals from 25 groups representing real estate, the environment and the government have been meeting with the U.S. Environmental Protection Agency to help compose a new brownfields rule to encourage redevelopment of tainted sites.

The effort to create the rule stems from President Bush's signing last year of the Small Business Liability Relief and Brownfields Revitalization Act (supported by CCIM Institute), which protects from liability, with certain conditions, prospective purchasers of brownfields and owners of adjacent properties that may have been cross-contaminated. The law requires that the EPA establish due-diligence standards and practices for prospective buyers by 2004. (There's an interim standard in place.) The law would have wide implications for the estimated 450,000 brownfield sites in the U.S., removing eyesores and rejuvenating blighted communities.

Of the 25 groups representing real estate, the National Association of Home Builders and the Real Estate Roundtable are among those who say some ideas being discussed are, in some cases, tougher than current standards, and could actually discourage redevelopment. These organizations will continue to represent the interests of the commercial real estate industry in order to ensure the continued viability of brownfield investments and preserve the intent of the Brownfields Revitalization Act.

For more information on brownfields go to the REALTORS® Field Guide: http://www.realtor.org/libweb.nsf/pages/fg808

Financial Crime Enforcement Network (FinCEN)

CCIM Institute submitted commentary to the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) on June 9, 2003 in response to the Agency’s request for commentary regarding an Advance Notice for Proposed Rulemaking. A provision in the U.S. Patriot Act, which was enacted in response to the events of September 11, 2001, requires all "financial institutions" to create and implement anti-money laundering programs. The definition of "financial institutions" includes "persons involved in real estate closings and settlements". It is not yet clear what businesses will be considered sufficiently "involved" to meet the definition of a financial institution.

The commentary submitted by the CCIM Institute states that The CCIM Institute is very supportive of the FinCEN’s efforts to implement and enforce rules to detect and prevent money laundering schemes and the financing of terrorism. However, in this context, the prospect of imposing anti-money laundering obligations on real estate brokers is inappropriate when applied to small businesses that are not trained in law enforcement; is questionable due to a lack of evidence to support the need for expanding Anti-Money Laundering (AML) to real estate brokerage; and, is unnecessary due to current AML regulations and state real estate license laws. This position fully supports that commentary submitted by the National Association of REALTORS® as well. The CCIM Institute commentary also outlines the role of a commercial investment real estate broker during closings (the particular part of a real estate transaction of interest to FinCEN) to clarify for the Agency why a broker does not need to be included in the anti-money laundering obligations that could be proposed by the Agency.

Proposed rules regarding this issue are not expected until late Fall 2003. The CCIM Institute will continue to work with NAR and FinCEN on these issues in the meantime and keep CCIMs informed of any developments.

Get a copy of the Advance Notice(pdf file).

Health Effects of Mold Update

The National Academy of Sciences is conducting a review of scientific literature, “Damp Indoor Spaces and Health”, on the health effects of mold. The subsequent report, scheduled for release in late August, will provide a summary of current literature and findings, recommend further study where needed and recommend guidelines for public health intervention. This report will be instrumental in developing federal legislation regarding the toxic mold issue.

Both the states and federal government have been hesitant in moving forward with any mold legislation due to the fact that data has not been compiled in regard to acceptable exposure limits to mold. Rep. Conyers (D-MI) has, again, introduced legislation on the mold issue called The Toxic Mold Safety and Protection Act or H.R. 1268; however, the bill has only a few cosponsors, and no hearings or other activity is scheduled. CCIM Institute has serious concerns about some provisions in the bill particularly concerning testing and remediation mandates without reparation for significant costs to property owners.

For the latest on mold related concerns, the American Industrial Hygiene Association has revised and provided NAR members its consumer education brochure, “The Facts About Mold”. The brochure is a primer on mold - its causes, its effects on people and property, and how to prevent and remove it. Order a copy.

National Electric Code Changes Impact Property Owners & Managers

The 2002 edition of the National Electric Code (NEC) includes an important change that will pose new challenges to property owners and managers. In the new edition, the NEC has been amended to explicitly permit the installation of certain types of wires in risers and plenums without the requirement of a metal raceway or conduit. In every case where these installations are permitted, however, the code has also been amended to prohibit the presence of “abandoned cables.” This change means that all wires no longer in use must either be removed or tagged for future use. Failure to meet the new NEC requirements could endanger a building’s fire insurance policy. See a detailed examination of the new code’s ramifications.

FHA Multifamily Mortgage Insurance Premiums Lowered

For the second time in as many years, HUD has reduced the MIP for many FHA multifamily mortgage insurance programs for FY04. The MIP will be reduced from 80 basis points to 50 basis points for the following programs: Section 207 (used to finance construction or rehab of rental housing and manufactured home parks, Section 220 (used to finance mortgages for housing in urban renewal areas), Section 221(d)(4) which is used to finance construction or substantial rehab of multifamily rental or cooperative housing and Section 231 (used to finance construction or rehab of rental housing for elderly). The effective date of these changes is October 1, 2003. For a copy of the Notice, go to: Web Page

CCIM Institute Legislative Staff
Charles Achilles at cachille@irem.org or at (312) 329-6020

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