Volume VI, Number 4 - November 2001

In this bulletin:

•	New Statement of Policy – Terrorism Insurance
•	Federal Reserve Board Nominee in Question
•	Internet Tax Moratorium
•	Tax Stimulus Package
•	Energy Bill Passes in August
•	Bankruptcy Reform to be Held Over to Next Year
•	Brownfields Stalled in the House

New Statement of Policy – Terrorism Insurance

A new statement of policy was adopted at the CCIM Institute’s November Business Meetings regarding insurance for terrorism and acts of war. Once the background and policy was adopted, the CCIM Institute joined a coalition of organizations affected by the insurance companies decision to no longer cover damage caused by terrorist acts and signed onto a letter delivered to Speaker Dennis Hastert and Minority Leader Richard Gephardt stating our collective position. Please see the following statement of policy for more information:

In the last year the real estate industry has seen a dramatic rise in insurance costs. After September 11, 2001, the insurance industry announced that they will no longer cover terrorism claims. The insurance industry, as well as a coalition of real estate groups, has petitioned the federal government to step in and assist the real estate industry, which accounts for over one third of the nation’s gross domestic product. Without proper insurance, it would be very difficult for property owners to operate or acquire properties, or to refinance loans.

CCIM Institute Position: The CCIM Institute is very concerned about skyrocketing insurance costs and the lack of coverage for events related to terrorism and war. Prior to September 11, property and casualty, and general liability insurance policies typically covered damages resulting from acts of terrorism, although most excluded damages relating to acts of war. Now, it appears that the insurance industry will no longer carry coverage for terrorism as well as war. Without this coverage, the real estate industry will be at grave risk. A healthy real estate market is critical to our nation’s economy. We urge the federal government to develop a solution to this crisis. We urge Congress and the Administration to pass legislation that would provide federal reinsurance coverage for the nation’s property and casualty insurers against losses caused by acts of terrorism or war.

Federal Reserve Board Nominee in Question

Former American Bankers Association (ABA) head, Mark Olson, was nominated to be a member of the Federal Reserve Board of Governors. Since the Federal Reserve Board and U.S. Treasury are the regulatory bodies considering rule changes that would allow banks into real estate brokerage and property management, NAR has voiced concern over someone like the former president of the ABA being nominated. The ABA has taken a lead role in efforts to grant big national banks the right to own real estate brokerages and management companies. NAR President, Richard A. Mendenhall, CCIM, said in an October 15th letter to Senate Banking Committee Chairman Paul Sarbanes, D-Md., that Olson’s experience as a former president of the ABA could bias his views. The letter also says that Olson should give the Banking Committee assurances that he will recuse himself from consideration of matters relating to the banks in real estate issue is he is appointed to the Federal Reserve Board.

Internet Tax Moratorium

In the Internet taxation debate, Congress considered (1) whether the moratorium on taxing Internet access should be extended for a fixed term of years or made permanent and (2) whether Congress should grant the states the power to require sales tax payments on goods purchased outside their states. It does not look like Congress is interested in making a moratorium permanent. Currently, the House Judiciary Committee has proposed extending the moratorium 2 years, the Senate Commerce Committee has proposed extending it for 8 months and the Senate Finance Committee has proposed extending it for 18 months. Unfortunately, any Congressional efforts to facilitate the Streamlined Sales Tax Project that continues to make headway at the state level were derailed by the September 11 terrorism attacks as Congress turned to more pressing priorities.

Tax Stimulus Package

On Friday, October 12, the House Ways and Means Committee, on a party line vote, reported an economic stimulus package that contains important real estate provisions. Important provisions include:

Leasehold Improvements: The costs of leasehold improvements placed in service after September 11, 2001, would be recovered over a 15-year period. Under current law, these assets must be treated as real estate, so the costs are recovered over 39 years. Unlike most of the provisions in the economic stimulus bill, the leasehold provision is permanent. Notably, as well, the amortization allowances would NOT generate an alternative minimum tax (AMT) preference.

Capital Gains: The current law capital gains rate of 20% (10% for taxpayers in the 12% and 15% brackets) would be reduced to 18% (8% for lower bracket taxpayers). The reduction applies to any sale or exchange of a capital asset (or installment sale payments received) on or after October 12, 2001. Like the leasehold improvement provision, the capital gains reduction is permanent. The legislation makes no change to the 25% depreciation recapture rate.

Capital Losses: The current limitation on capital losses of $3,000 is increased to $4,000 for 2001 and $5,000 for 2002. The limitation would revert to $3,000 as of January 1, 2003.

Corporate Alternative Minimum Tax: The corporate AMT is repealed as of January 1, 2001. Existing corporate AMT credits are made refundable. Note that the individual AMT remains in effect.

Expensing: The bill contains new and expanded incentives for expensing (rather that all or a portion of non-real estate assets.)

Tax Rate Reduction: The current law 27% tax bracket would be reduced to 25%, effective in 2002. This has the effect of also reducing taxes for higher bracket taxpayers.

Energy Bill Passes in August

The House passed an energy bill, H.R. 4 or the Securing America’s Future Energy Act of 2001 (SAFE), in August. CCIMs should benefit from three sections in H.R. 4. They are the following:

Deduction for Energy Efficient Commercial Property: Taxpayer will get a credit equal to the energy efficient commercial building property expenditure they make during the taxable year (up to $2.25 per square foot of improved area). To qualify for the credit, these expenditures must ensure that building’s overall annual energy and power consumption is equal to or less than 50% of the consumption of a reference building meeting 1999 industry standards.

Business Credit for New Energy Efficient Homes: Eligible contractors will get a credit against a tax up to an aggregate adjusted basis of all energy efficient property installed in qualified new energy efficient homes up to a maximum of $2,000 per dwelling. To qualify, qualified new energy efficient homes must have heating and cooling consumption certified to be at least 30% below a 1998 industry baseline.

Qualified Meters: A taxpayer who is a supplier or provider of electric energy or natural gas can deduct the cost of each qualified energy management device of to $30 per device for the taxable year the device is placed in service.

H.R. 4 was referred to the Senate Calendar for committee assignment.

Bankruptcy Reform to be Held Over to Next Year

Despite passage in both the House and Senate, the bankruptcy reform bills have yet to become law. Although conferees have been selected, they have yet to meet. Both bills contain three provisions of interest to the CCIM Institute: 1) eliminating the cap on single asset bankruptcy, 2) providing protections for shopping center owners, and 3) closing a loophole that allows residential rental tenants to avoid eviction. Assuming an agreement is ever reached between the House and Senate, this year or next, President Bush has said he will sign the bill.

Brownfields Stalled in the House

Despite unanimous passage in the Senate, Brownfields legislation has yet to become law. S. 350, the “Brownfields Revitalization and Environmental Restoration Act” passed the Senate by a 99-0 vote early last summer. This bill provides liability relief for innocent property owners, increases funding for brownfields cleanup and redevelopment, and recognizes the finality of successful state hazardous waste cleanup efforts. In the House, Representative Paul Gillmor (R-OH) has introduced H.R. 2869, the “Small Business Liability Relief and Brownfields Revitalization Act.” H.R. 2869 combines S. 350 with a previously passed House bill limiting the Superfund liability of businesses that contributed small amounts of hazardous waste to a site. House consideration of H.R. 2869 has been postponed pending Administration assurance to Congressional Democrats that workers involved in brownfields cleanup projects will be paid prevailing wage rates under the federal Davis-Bacon Act.

CCIM Institute Legislative Leadership
Hal Maxfield, CCIM, Chair, Legislative Affairs Committee
Sig Buster, III, CCIM, Vice Chair, Legislative Affairs Committee

CCIM Institute Legislative Staff
Chuck Achilles, IREM VP Legislative & Research, 312.329.6020, cachille@irem.org

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