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Volume X, Number 3 - August 2005In this bulletin: 2005 CCIM Institute Annual ConferenceThe 2005 CCIM Annual Conference, Set for Success, is scheduled for October 18 - 20 at the Hyatt Regency Resort at Gainey Ranch in Scottsdale, Arizona. Besides outstanding networking, education and technology, the event will include a sports-themed opening night party and the fourth annual Jay W. Levine CCIM Golf Classic. Register by August 15 and save $100!U.S. Congress and States React to U.S. Supreme Court’s Ruling In Favor Of Eminent Domain for Economic DevelopmentIn 2000, the City of New London, Connecticut, approved a development plan that was projected to create over 1,000 jobs, to increase tax and other revenues, and to revitalize the economically distressed city. The private developers of the land planned on constructing a hotel, health club, and offices on the waterfront property. In assembling the land needed for the project, the city's development agent purchased property from willing sellers of 135 properties and used the power of eminent domain to acquire the remainder of the property from unwilling owners of fifteen homes and businesses. The property owners of the fifteen condemned properties filed suit against the city.The case of Kelo et al v City of New London et al reached the Supreme Court who answered the question of whether the city's proposed disposition of the property qualified as a "public use" within the meaning of the Takings Clause of the Fifth Amendment. On June 23, 2005, the Supreme Court ruled 5-4 in favor of New London, deciding the city did not violate the Fifth Amendment by condemning the non-blighted properties for a private mixed-use development. Justice John Paul Stevens, who penned the decision, wrote that economic development qualifies as a "public purpose" sufficient to satisfy the Fifth Amendment's "public use" requirement. Members of the U.S. Congress quickly reacted to the ruling. The House of Representatives adopted H.R. 340, by a super-majority vote of 365-33, deploring the Supreme Court’s ruling. In addition, the House voted 231-189 for a bill prohibiting expenditure of any federal housing, transportation, or treasury funds to enforce the judgment of the Supreme Court in the case of Kelo v City of New London. On the Senate side, Senator John Cornyn (R-Texas) introduced S. 1313, creating the Protection of Homes, Small Businesses, and Private Property Act of 2005, which states that the power of eminent domain should be exercised only for “public use” as guaranteed by the Fifth Amendment and that the power to seize homes, small businesses, and other private property should be reserved only for true public purposes. At the state level, at least 25 states are considering changes to their eminent domain laws. States may restrict the use of eminent domain for economic development if enacting more strict standards of “public use” than the federally mandated standard. Currently, eight states including Arkansas, Florida, Illinois, Kentucky, Massachusetts, Montana, South Carolina, and Washington already forbid the use of eminent domain for economic development unless it is to eliminate blighted properties. Legislators in some of those states plan to introduce legislation increasing the difficulty for local governments to utilize eminent domain. State legislatures across the country have been active responding to the decision. Legislation limiting the use of eminent domain to seize property for residential, retail, or office development was recently signed into law by the Governor of Alabama on August 3, 2005. The Delaware Governor recently signed a bill into law restricting the use of eminent domain to a “recognized public use.” In Texas and California, state legislators have introduced legislation providing for constitutional amendments to bar government from seizing private property for economic development. State legislators in South Dakota and Virginia are expected to introduce similar legislation. In North Virginia, state legislators are considering legislation which would narrowly define “public use,” effectively weakening local governments’ ability to seize property for economic development. On August 2, 2005, the Oregon House passed a bill to restrict eminent domain if the public doesn’t own the project. Tenant in Common UpdateIn an effort to raise awareness and educate members of the potential risks involved with tenant-in common transactions, the NATIONAL ASSOCIATION OF REALTORS® (NAR) formed the Tenant- in-Common (TIC) Working Group. The workgroup will address and clarify the role of real estate brokers (without a broker dealer license) in their participation in the marketing and sale of TIC interests rendered under federal or state securities law.Currently TICs are brokered as both a securities transaction and a real estate transaction. Often, it is unclear when to make the distinction between securitized TICs and non-securitized TICs. The SEC as well as the NASD Rules prohibit broker dealers from compensating non-broker dealers in the brokerage of securitized TICs. NAR drafted a proposal in response to the SEC’s rules to allow brokered dealers to lower the commission structure for compensation. The goal was for the proposal to not affect rules substantially but to permit flexibility in the relationship. Two major components of the message were to create a role for the real estate agent and to attempt to solidly define a TIC. Detailed information and guidelines for all REALTORS® on TIC transactions and its risk factors will be distributed in the fall of 2005. REMIC UpdateLegislation to modernize REMIC rules are currently in progress on the Hill. According to existing law, in order for property owners with securitized financing to re-position their property, it is required to go through a tax opinion process. If enacted, H.R. 1010 and S. 580 would ease these rules to allow a bypass of the tax opinion process upon repositioning property in this case.As REMIC legislation is technical in nature, it is hopeful these bills will be integrated in tax legislation expected to pass with fewer opposition in Congress. Banks in Real Estate Debate ContinuesRep. Mike Oxley (R-OH) and Rep. Barney Frank (D-MA) have introduced a counter bill to the CCIM Institute-supported HR 111, which would prohibit banks from engaging in real estate brokerage and property management. The Oxley bill, H.R. 2660, would allow national bank subsidiaries and financial holding companies to own real estate brokerage, leasing and management firms. NAR President Al Mansell testified before the House Financial Services Committee on June 15, 2005 at a hearing, and strongly opposed the new legislation. Many members of the Committee agreed with NAR's position on this issue.President Mansell urged Members of the Committee to enact the "Community Choice in Real Estate Act (H.R. 111) that would prohibit the banks' entry into real estate, and to oppose the Oxley/Frank measure. To date, 240 House Members have cosponsored H.R. 111. Oxley/Frank (H.R. 2660) has no additional cosponsors. In addition, the House passed a one-year prohibition on banks entering real estate brokerage and property management in the FY06 Treasury Appropriations bill. The Senate Appropriations Committee has passed a permanent prohibition in their FY06 Treasury Appropriations bill. The CCIM Institute will continue to work with NAR to achieve a permanent fix to this proposal. Banks Seek State Permission to Enter Banks in Real EstateThe banks have been trying other avenues to enter the real estate business. In July, the Federal Deposit Insurance Corporation (FDIC) postponed its response from the Financial Services Roundtable (FSR) asking FDIC to preempt state laws to allow state banks to operate nationally under the laws of their home states.At FDIC’s May 24 hearing on this issue, REALTOR® Pat Vredevoogd presented testimony strongly objecting to the petition because the requested FDIC preemption regulations would:
The FDIC has asked staff to develop a narrow proposed rule that would restate existing law related to the operation of out-of-state branches of state banks. But it is expected to revisit the preemption request at a future meeting. NAR will strenuously oppose any proposal to proceed with the requested preemption. Terrorism Risk Insurance ProgramThe Treasury Department developed a report on the effectiveness of the Terrorism Risk Insurance Act of 2002 (TRIA). Informational items based in the TRIA report came from the RAND Institute’s Center for Terrorism and Risk Management Policy study on “Trends in Terrorism: Threats to the United States and the Future of the Terrorism Risk Insurance Act in which the following items affecting the real estate industry are outlined:
Following this report released in June, Secretary of Treasury John Snow gave testimony before the House Financial Services Committee and the Senate Banking Committee on the conclusive findings of the study. Secretary Snow restated the position of support for the private markets taking on more of the responsibility of terrorism insurance while congressional members expressed concern that the private market would be unable to offer reasonably priced coverage. Estate Tax UpdateThe estate tax repeal will be effective in 2010 but there is concern with the carry-over basis of assets that heirs receive in regard to the basis of the previous owner. However, post 2010, the estate tax laws of June 2001 will come back into effect.Legislation to make the estate tax repeal permanent passed the House this Congressional session and remained in the Senate for further consideration. As of July 29, 2005, the motion to proceed to consider this measure was withdrawn. Small Business Health Plans Legislation Passes HouseOn July 26, 2005, the U.S. House of Representatives voted 263-165 to pass H.R. 525, the Small Business Health Fairness Act of 2005. The legislation, sponsored by U.S. Representative Sam Johnson of Texas, amends the Employee Retirement Income Security Act of 1974 to provide for the creation of small business health plans (SBHPs), also known as association health plans. By allowing small businesses to ban together, SBHPs will increase small businesses' bargaining power with health care providers and lower their overhead costs up to 30%. H.R. 525 has been referred to the Senate Committee on Health, Education, Labor, and Pensions (HELP).The companion bill, S. 406 (Snowe), has been heard in the Senate HELP Committee but has not been called for a vote. The CCIM Institute Legislative Department issued a Call-to-Action on the legislation in June urging members to write their U.S. Senators in support of the legislation. U.S. Senator Mike Enzi (R-WY), Chairman of the Senate HELP Committee, has expressed his intent to draft legislation reforming health insurance. He has been seeking a compromise on the creation of small business health plans. The Chairman had previously stated that he would make his legislation public in July, but as of August 1st the Chairman had not yet released it. Do-Not-Fax Legislation Signed Into LawOn Saturday, July 9th, President Bush signed S. 714 into law creating the Junk Fax Prevention Act effective immediately. The new law does not legalize unsolicited fax advertisements or solicitations but does allow for an established business relationship exception. Unsolicited commercial faxes may be sent without prior permission provided that:
The law also clarifies that verbal permission to fax is an allowed means of granting express permission to fax and creates a new consumer right to opt-out of receiving future faxes. Senders will be required to include opt-out instructions on the first page of any commercial fax sent and must provide a no-cost means for consumers to opt-out. Senders must comply with both the Federal law and with any applicable state laws. The Federal law will not allow an unsolicited fax to be sent where doing so is prohibited by state law. ADA Notification Bill Introduced in the HouseU.S. Representative Mark Foley (R-FL) introduced H.R. 2804, the Americans with Disabilities Act (ADA) Notification Act, on June 8, 2005. The legislation requires commercial facilities and places of accommodation be given notice and time to correct an alleged violation of the ADA prior to the commencement of litigation. Providing property managers with time to correct deficiencies will allow them to invest their resources in making their properties accessible, rather than spending their time and money in court. H.R. 2804, which has 24 cosponsors, was referred to the House Judiciary Committee where it is pending. The CCIM Institute supports this legislation.President Signs Energy Bill Into LawThe Energy Policy Act of 2005, H.R. 6, includes new energy programs and tax incentives for energy efficiency enhancements. Although the bill largely benefits energy companies, it does contain provisions benefiting real estate professionals and consumers. Commercial real estate professionals will benefit from incentives such as the Energy Efficient Commercial Buildings Deduction. This provision allows a deduction for energy efficient commercial buildings that reduce annual energy and power consumption by 50 percent compared to the American Society of Heating, Refrigerating, and Air Conditioning Engineers (ASHRAE) standard. The deduction would equal the cost of energy efficient property installed during construction, with a maximum deduction of $1.80 per square foot of the building. In addition, a partial deduction of 60 cents per square foot would be provided for building subsystems.On July 28, 2005, the House voted to pass H.R. 6 by a vote of 276-156. The following day, July 29, the Senate passed the bill by a vote of 74-26. The bill has been sent to a House-Senate Conference Committee. The President signed the bill into law on Monday, August 8, 2005. Basel II AccordThe central banks of the G8 agreed upon the Basel II Accord which seeks to change how the largest banks of each country determine risk and set capital reserves.NAR met with Federal Reserve staff to assess the full impact the agreement on the real estate industry which was believed to have the potential affect of slowing down the commercial real estate industry through its dealing with high volatility commercial real estate loans and its potential to inadequately capture loans on partial equity or partially pre-leased/pre-sold property. In conclusion, the Federal Reserve stated the changes in the accord would solely impact regulatory capital which is a percentage of the total reserves that banks hold in risk mitigation practices. Commercial real estate lending would not be impacted by the changes to the reserve requirement in the agreement. Challenges on Historic Façade EasementsUpon hearings in the Ways and Means and Finance committees, granting easements to facades in historic communities are expected to be further limited. Current law dictates for the purposes of conservation, charitable contributions deductions are allowed for easements or other tax exempt entities.Further curtailing property owner’s abilities to make modifications to the façade of a building structure are through the easements by individuals who live in certified historic communities. From this, the IRS believes that deductions from these easements have been overstated because of probable inflations in the easements by individuals. Also, the IRS contends that owners should not grant façade easements in historic communities that already have restrictions in place. Status of Tax Reform ProposalThe July 31st deadline for the President’s tax advisory panel to issue the tax reform report has been extended to September 30 through an Executive Order. Members of the Panel were unaware of the extension due to expectations to meet the July 31 deadline. No information on the content of the tax report has been provided.The CCIM Institute legislative staff will provide detailed information upon the coming deadline of September 30. 2005 Stats on Capital GainsA study from the Joint Committee on Taxation reported recent statistics on capital gains. Nearly 10 percent of tax returns filed this year are capital gains with 40 percent of those filed by individuals with an income of less than $75,000. This income category accounts for 10 percent of the total $327 billion of capital gains in this period while 84 percent of the total are filed by individuals with an income of $200,000 or more.DepreciationA hearing on July 21 by a subcommittee of the Senate Finance Committee was held to discuss methods of advancing the depreciation system. The current system has not been modified since the 1980’s and subcommittee is attempting make adjustments to modern technology and economical changes.Members of committee set a goal to grant the Treasury more administrative authority to ‘provide recovery classifications’ to new technologies for medical and telecommunications areas among other arenas. In attempting to make the system less rigid through these tactics, the Chair, Senator Gordon Smith (R-OR), expressed concern to not worsen alternative minimum tax problems in the process. Senate Passes Partial Renewal of the USA Patriot ActThe Senate unanimously passed legislation on July 29, 2005 making most provisions of the USA Patriot Act permanent and placed new limitations on the government’s use of secret search and surveillance powers. The House had passed similar legislation a week prior. The Senate bill includes a four-year extension of the government’s powers of conducting roving wiretaps and seizing records from banks, libraries, and various other businesses, while the House bill extends those provisions for ten years. Further, the Senate bill strengthens standards requiring the government to show that any records searches are relevant to an authorized investigation and pertain to the activities of a suspected agent of a foreign power or an individual in connection with a suspected agent.The Justice Department prefers the House version over the Senate version. President Bush has pushed for a complete renewal of the USA Patriot Act; however neither the Senate or House version does so. This fall the House and Senate will work to find a compromise. The USA Patriot Act contains a number of provisions designed to help cut off the sources of funding available to terrorist organizations worldwide. Real estate professionals are not subject to these requirements, which are limited to financial institutions. Property managers and other real estate professionals need to 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 U.S. has imposed sanctions and designated individuals who are associated with terrorists or terrorist-linked organizations. A list of the “Specially Designated Nationals and Blocked Persons” is available from the Treasury Department's Office of Foreign Asset Control (OFAC) at http://www.ustreas.gov/offices/eotffc/ofac/sdn/. Forced Access UpdateThe CCIM Institute continues to work with the Real Access Alliance in states across the country to lobby against forced access to property by telecommunications companies. There are two North Carolina bills to make note of, HB 1468 and HB 1469. HB 1468 authorizes the North Carolina Utilities Commission to determine certain telecommunication service providers to be the universal service provider in certain subdivisions and areas. The North Carolina House passed HB 1468 by a vote of 115-1 on May 24, 2005; the bill remains in the Senate Commerce Committee.HB 1469 provides telecommunications companies restricted access to dedicated public right-of-ways. When any map or plat of a subdivision reflects the dedication of a public street or other public right-of-way, the dedicated public street, after being recorded, must become immediately available for use by any public utility or cable television system to install, maintain, and operate lines, cables, or facilities for the provision of service to the public. A conference committee was recently appointed to address HB 1469, which was amended in the Senate by the House. 2005 CCIM Institute Legislative Affairs Subcommittee Leadership Chair, Stephanie Short, CCIM Vice Chair, Lou Nimkoff, CCIM CCIM Institute Legislative Staff Charles Achilles, IREM VP Legislation & Research, 312-329-6020, cachille@irem.org Vijay Yadlapati, CCIM Legislative Liaison, 312-329-6033, vyadlapati@ccim.com back to the top ^ |