Author: Trey Jackson

Janet Yellen Concludes Tenure as Federal Reserve Chair; Jerome Powell Begins Four-Year Term on Feb. 5

Posted on by Trey Jackson

Janet Yellen concluded her final meeting as chair of the Federal Reserve on Wednesday after four-years of overseeing a cautious approach to monetary policy at the central bank.  The Fed released a statement the same day about positive trends in the national economy, citing information “that the labor market has continued to strengthen and that economic activity has been rising at a solid rate.” (Federal Reserve Statement, Jan 31)

The  Federal Reserve in Washington, DC

The Senate on Jan. 23 voted 84-13 to confirm Fed Governor Jerome “Jay” Powell as the next Fed chairman.  After the Fed’s Federal Open Market Committee (FOMC) this week unanimously affirmed Powell as its chair, he will be sworn into office for a four-year term on Feb. 5. 

President Trump now has the opportunity to fill four of seven seats empty on the Fed’s board.  

Powell is expected to continue monetary policies pursued in the Yellen-era.  In December, Ms. Yellen said, “There is strong consensus in the committee for the gradual approach that we’ve been pursuing, and governor Powell has been part of that consensus.”  (Wall Street Journal, Jan. 31) 

During her tenure, Yellen raised borrowing costs five times since late 2015 and recently initiated a reduction process in the central bank’s 4.5 trillion dollar balance sheet.  Most economists foresee another interest rate increase when the Fed meets for its next scheduled policy meeting in March under Chairman Powell.  (Los Angeles Times, Jan. 31) 

Before President Barack Obama appointed him to serve as Fed Governor in 2012, Powell served at the Treasury Department under President George H.W. Bush and served as a managing director at Carlyle Group.

House Judiciary Committee Passes Infrastructure Expansion Act to Counter Inequities in “Scaffold Law”

Posted on by Trey Jackson

Legislation aimed at lessening the harsh impact of an antiquated 133 year-old labor “Scaffold Law” – an economic burden on infrastructure projects crossing state lines – passed the House Judiciary Committee on Tuesday.  (Committee Mark-up Video, Jan. 30)

The Jan. 29, 2018 industry coalition letter in support of the Infrastructure Expansion Act (H.R. 3808). 

The Infrastructure Expansion Act of 2017 (H.R. 3808), sponsored by Rep. John Faso (R-NY), passed along party lines by a 16-14 vote.  The Real Estate Roundtable, Associated General Contractors, and 17 U.S. organizations representing the contracting, insurance and real estate sectors urged the committee to pass the bill. (Coalition Letter, Jan. 29) 

The coalition letter provides several examples of transportation projects (such as the Northeast Corridor Gateway Program) that would benefit multiple states and the national economy, yet are hindered by application of the Scaffold Law. 

Courts have interpreted the New York law to subject property owners and contractors to “absolute liability” for slips, falls, and height-related accidents that occur during commonplace painting, cleaning, remodeling, and construction activities.  

Under this standard, any negligence by a worker that may cause an accident or intensify his own injuries is disregarded.  As an example, an inebriated worker who stumbles and falls at a project site would not be held accountable to the extent his intoxicated state caused his own injuries. (Roundtable Weekly, Jan. 19).  As a result, absolute liability under the Scaffold Law has caused premiums for general liability insurance at New York development sites to skyrocket. 

H.R. 3808 would deny federal funding to construction projects that use New York’s “absolute liability” standard for workplace injuries caused by falls. The bill does not diminish or alter Federal or state OSHA obligations, nor does it foreclose “no-fault” workers’ compensation.  

Committee Chairman Goodlatte (R-VA) broadened the bill’s scope to require states use either a “comparative negligence” or “contributory negligence” standard for falls on federally subsidized projects.  In a statement, Goodlatte also offered  detailed reasons explaining why the legislation should be enacted. 

Although the Infrastructure Expansion Act may continue to gain predominantly GOP support in the House, its prospects in the Senate are far more challenging.

Trump Administration Prepares to Unveil Nationwide Infrastructure Proposal; Roundtable Submits Specific Suggestions for Innovative Infrastructure Financing Sources

Posted on by Trey Jackson

A six-page document leaked to the media this week purports to show details of the White House’s anticipated infrastructure plan just before President Trump is scheduled to offer his first State Of The Union address on Jan. 30.  White House spokeswoman Lindsay Walters declined to comment on the contents of the leaked document, but said the Administration looks forward to announcing a plan “in the near future.” (Axios, Jan. 22)

A  six-page document  leaked to the media this week purports to show details of the White House’s anticipated infrastructure plan just before President Trump is scheduled to offer his first State Of The Union address on Jan. 30.

According to the document, leaked Monday to Axios and Politico, approximately 10 percent of the plan’s funds would go to  “transformative projects” – a category that includes a “commercial space” sector that could compete for funds.  (CQ, Jan. 25)
 
The  Roundtable on Jan. 11 sent a comment letter to President Trump offering specific suggestions on how innovative financing sources may be used to help pay-for infrastructure – and how restructuring a lengthy permitting process and cutting unnecessary red tape will help control project costs and delays. 
 
Sen. John Barrasso (R-WY), chairman of the Senate Environment and Public Works Committee, said that permit streamlining would be an important part of an infrastructure plan. (CQ, Jan. 23).  Barrasso’s committee oversees all public works projects and the Environmental Protection Agency, which would be a path to streamlining EPA and other agencies’ permitting approvals.
 
The  Roundtable letter suggests several innovative financing sources, including:

  • Responsibly and sustainably increase the federal gas “user fee;”
  • Allow states to capture lost tax revenues from Internet sales – and devote it to infrastructure;
  • Attract more foreign investment to U.S. infrastructure by repealing or scaling back the Foreign Investment in Real Property Tax Act (FIRPTA);
  • Assess whether IRS “volume caps” and other limitations on private-activity bonds (PABs) should be revised to boost infrastructure development;

The Roundtable on Jan. 11 sent a comment letter to President Trump offering specific suggestions on how innovative financing sources may be used to help pay-for infrastructure – and how restructuring a lengthy permitting process and cutting unnecessary red tape will help control project costs and delays.

  • Couple successful federal loan programs (like TIFIA) with state and local “value capture” techniques to re-pay that debt – and attract private investors;
  • Develop best practices that channel public-private partnerships (P3s) for appropriate projects in appropriate geographies;
  • Prioritize the limited proceeds from the Highway Trust Fund with a “Fix it First” strategy;
  • Limit “formula grants” and move toward performance-based criteria;
  • Enact common sense reform measures that limit taxpayers’ carrying costs for exorbitant liability insurance premiums on public infrastructure projects. 
  • Ease regulatory burdens for projects of same size and scope in same location as existing infrastructure.

More details on each of the suggestions above are included in The Roundtable letter.  
 
Also this week, Special Assistant to the President for Infrastructure Policy DJ Gribbin met on Tuesday with Roundtable members in an open exchange of ideas about a national infrastructure plan.  On Thursday, Gribbin spoke to the U.S. Conference of Mayors about the Trump Administration’s upcoming plan, stating that it will not require any new funding.  Gribbin said that 200 billion dollars in existing federal funds would be shifted to infrastructure projects, which would be leveraged to attract an additional 800 billion in state and private investment. (CQ, Jan. 25)
 
Infrastructure was a major topic of discussion during The Roundtable’s Jan. 24-25 State of the Industry meeting (see story above).  The Roundtable will remain engaged with policymakers as the Administration’s infrastructure plan moves forward in 2018.

Roundtable Debuts 2018 Policy Agenda, Engages Policymakers on Key Issues

Posted on by Trey Jackson

Top U.S. policymakers and industry leaders met this week for The Roundtable’s State of the Industry (SOI) Meeting in Washington, DC to discuss policy issues of compelling interest to CRE.

Launching the SOI meeting on Wednesday, Roundtable Chair William C. Rudin (  Rudin Management Company, Inc.  ), right, and Roundtable President and CEO Jeffrey DeBoer, left,  noted how Roundtable efforts are the result of research and analysis to find correct answers that benefit economic growth and job creation.

The Roundtable also issued its 2018 National Policy Agenda: Building For The Future. Specific issues included in the Policy Agenda were identified after a comprehensive, annual membership survey; frequent meetings held by The Roundtable’s policy advisory committees (see below); and participation by The Roundtable’s Board of Directors. 

Launching the SOI meeting on Wednesday, Roundtable Chair William C. Rudin (Rudin Management Company, Inc.) noted how Roundtable efforts are the result of research and analysis to find correct answers that benefit economic growth and job creation.  Rudin also said that the organization consistently communicates positions to policymakers that illustrate how healthy real estate markets are intertwined with the entire economy.  This approach – “analysis first, followed by advocacy” – will continue to be the model for The Roundtable through 2018 and beyond, Rudin commented. 

Illustrating how The Roundtable relies on member participation, he commented on the organization’s successful 2017 policy year regarding tax policy, sustainability and other efforts: “This past year we had great participation from Roundtable members who traveled to Washington when needed to personally meet with policymakers and discuss the obvious, and sometimes not so obvious, consequences of a policy decision.”   

He added, “We testified, wrote comment letters, led industry coalitions, submitted economic analysis, organized targeted meetings, and continued to brand The Roundtable as a trusted voice on national policy issues.” 

Illustrating how The Roundtable relies on member participation, Rudin spoke about the organization’s successful 2017 policy year regarding tax policy, sustainability and other efforts to the SOI audience.

Rudin also outlined various policy initiatives The Roundtable will focus on in the upcoming fiscal year with the Trump Administration and Congress, including implementation of the new tax law; financial regulatory issues; internet sales tax; infrastructure; attracting overseas tourists through the “Visit U.S.” coalition; and high performance buildings — all vital to spurring job creation and sustaining economic growth. 

Roundtable President and CEO Jeffrey DeBoer then offered an overview of the recent changes in tax law, along with upcoming issues in play.  He also noted the vital role of The Roundtable’s 17 national real estate trade association partners in presenting a unified voice on issues to policymakers in Washington. 

Policy Issues and Meeting Speakers  

Five U.S. Senators were among the featured SOI guests, which included: 

Senate Minority Leader Chuck Schumer (D-NY) engaged Roundtable members on the need for a massive plan to revamp the nation’s airports, bridges, roads, seaports, broadband and other critical infrastructure.

  • Senate Minority Leader Chuck Schumer (D-NY) engaged Roundtable members on the need for a massive plan to revamp the nation’s airports, bridges, roads, seaports, broadband and other critical infrastructure. Sen. Schumer emphasized how critical infrastructure improvements are to commercial real estate, job creation and the national economy.  He also spoke about the need to pass the Marketplace Fairness Act to bolster states’ collection of internet sales taxes, which could be used to assist state funding of infrastructure improvements. 
  • Sen. Mark Warner (D-VA) emphasized the need for bipartisanship in Congress in light of the recent tax legislation passed by Republicans. He noted that bipartisan efforts on issues such as GSE and housing finance reform could provide relief to the housing affordability crisis, while encouraging capital flows and competition.  Sen. Warner said that regulatory relief on Dodd-Frank was also possible in upcoming months in Congress.  
  • Sen. Ron Wyden (D-OR), ranking member of the Senate Finance Committee, spoke about the need for a bipartisan effort to address low income housing needs. Sen. Wyden described the “Build America Bonds” program, which he helped create, as an example of successful legislation that could spur infrastructure investment through innovative tax financing. Temporarily authorized in 2009 and now expired, 181 billion dollars in Build America Bonds were issued in the years immediately following the financial crisis. 

    Sen. Ron Wyden (D-OR), left, ranking member of the Senate Finance Committee, spoke about the need for a bipartisan effort to address low income housing needs.

  • Sen. Ron Johnson (R-WI)  spoke with Roundtable members on the need for more deregulation and pro-growth policies.  He also described his central role in ensuring that tax reform provided relief for all job-creating businesses, including pass-throughs.  As the chairman of the Senate Homeland Security and Governmental Affairs Committee, Rep. Johnson also discussed the increasing need for cybersecurity in an age where future geopolitical conflicts will increasingly be conducted in cyberspace. 
  • Sen. Doug Jones (D-AL)  commented about his recent election, appointment to the Senate Banking Committee and the need for broadband internet access in rural areas as part of an infrastructure program.  Serving his first month in Congress, Sen. Jones noted he is receptive to all approaches to policy that encourage economic growth and looks forward to working with The Roundtable. 
  • Jim VandeHei — the co-founder of and CEO of Axios, gave a candid view of upcoming mid-term elections; prospects of the House flipping to Democrat majority; and the news dissemination role of large tech companies like FaceBook in past and future elections. 
  • Bob Schieffer —  the former Face the Nation moderator participated in a discussion with incoming Roundtable Chair Deb Cafaro (Chairman & CEO, Ventas, Inc.) about the emerging era of “fake news” within a media landscape of fractured outlets and a deluge of partisan information.

Roundtable Policy Committees

In conjunction with the SOI Meeting, The Roundtable’s Policy Advisory Committees met on Jan. 24-25, discussing policy issues in detail with high-level congressional and agency staff.

In the wake of the most significant tax measures passed in 31 years, TPAC attracted a large audience to address the details of what lay ahead in implementing the new tax law.

  • Research and Real Estate Capital Policy Advisory Committee (RECPAC) 
    During this joint committee meeting, two panels of industry experts addressed the current real estate market cycle and provided an update on the state of real estate capital and debt markets.  Participants also discussed High Volatility Commercial Real Estate (HVCRE) and the Roundtable’s response to the recently proposed High Volatility Acquisition, Development or Construction Loans (HVADC) rule, as well as potential GSE reform.
  • Tax Policy Advisory Committee (TPAC) 
    In the wake of the most significant tax measures passed in 31 years, TPAC attracted a large audience to address the details of what lay ahead in implementing the new tax law.  A panel of experts from the congressional tax-writing committees described the evolution of the key partnership and real estate-related provisions. Following presentations by TPAC members, Dana Trier, Deputy Assistant Secretary of Treasury for Tax Policy, outlined the rulemaking process going forward and provided insight on how Treasury may resolve certain open questions important to real estate investment. 

    SPAC hosted Dr. Joseph Allen, Assistant Professor, Harvard T.H. Chan School of Public Health, right and John Mandyck, Chief Sustainability Officer, United Technologies Corporation, left, who presented new research on the health co-benefits of Green Buildings.

  • Sustainability Policy Advisory Committee (SPAC) 
    In addition to other guests, SPAC heard updates from Environmental Protection Agency (EPA) staff on the ENERGY STAR building- and tenant-level recognition programs, which recognizes leased spaces for high-performance design, construction and energy efficiency in CRE assets. 
  • Homeland Security Task Force meeting (HSTF) and Risk Management Working Group (RMWG) 
    Representatives of the FBI briefed the Joint Meeting on the current threat picture and discussed psychological profiles of the recent homegrown violent extremists (HVEs).  The Task Force was also briefed on current cyber threat picture and how businesses should be addressing this risk.

Next on The Roundtable’s FY2018 meeting calendar is the Spring Roundtable Meeting on April 25 at The Newseum in Washington, DC.  This meeting will be restricted to Roundtable-level members only.

The Roundtable Joins “Visit U.S.” Coalition to Spur International Tourism, Domestic Job Creation and Economic Growth

Posted on by Trey Jackson

The Real Estate Roundtable joined 10 national trade organizations as a member of the “Visit U.S.” Coalition, which launched on Wednesday with the goals of spurring job creation and economic growth while reversing a decline in international visitors to the United States.  (Visit U.S., Jan. 16).

According to the U.S. Travel Association, global travel volume to the United States from 2015 to 2017 fell from 13.6 percent to 11.9 percent — the first decline after more than a decade of consistent growth.  The statistics also show that if the U.S. had maintained its 2015 international travel market share, its economy would have gained an additional 4 million international visitors, $32.2 billion in spending and 100,000 jobs. 

 – enlarge chart – 

The coalition represents a broad cross-section of industries that have come together to address the recent drop in travel to the U.S. and resulting opportunity cost to the economy and jobs.  According to the U.S. Travel Association, global travel volume to the United States from 2015 to 2017 fell from 13.6 percent to 11.9 percent — the first decline after more than a decade of consistent growth.  The statistics also show that if the U.S. had maintained its 2015 international travel market share, its economy would have gained an additional 4 million international visitors, $32.2 billion in spending and 100,000 jobs. 

“As a vital component of the commercial real estate industry, the U.S. hospitality sector provides significant capital investment, creates enormous job opportunities and encourages infrastructure improvements in local communities throughout the country,” said Roundtable President and CEO Jeffrey DeBoer.  “CRE is the provider of secure spaces where people live and play in the United States, and we welcome the opportunity to work with the Trump Administration and our coalition partners to encourage a positive uptick in international tourism to our cities, towns, destinations and attractions,” added DeBoer. 

Roundtable members were recently briefed on the drop in foreign travel to the United States and the economic ramifications by Katherine Lugar, president and chief executive officer of the American Hotel & Lodging Association (AHLA) — the largest trade association representing the U.S. lodging industry.  (Roundtable Weekly, Oct. 6, 2017) 

AHLA, a founding member of Visit U.S., supports policy initiatives such as reforms that enable safe and secure processing of visitor visas to strengthen business and leisure travel — as well as the H-2B program to provide valuable support for businesses looking to supplement their workforce with temporary seasonal employees when American workers are unavailable. 

During the travel coalition’s launch this week, Lugar said, “Fewer visitors means fewer hotel stays, fewer meals eaten in our restaurants, fewer goods purchased in our retail stores, and fewer visits to our national attractions. It also means fewer American jobs and a loss to our economy. We are committed to working together with the Administration to balance a welcome message with strong security to ensure we don’t fall behind to other countries.” 

U.S. Travel Association President and CEO Roger Dow, another founding member of Visit U.S., added, “America is the best country in the world to visit, but we’re losing the competition for international travelers and the dollars they spend when they come here.  The Visit U.S. Coalition is founded on the principle that we can have strong security but at the same time welcome robust numbers of international business and leisure travelers. We can do both.” 

Left to Right: Roundtable President and CEO Jeffrey DeBoer,   American Hotel & Lodging Association President and CEO  Katherine Lugar , and Roundtable Chairman William C. Rudin (  Rudin Management Company, Inc  .)

 – enlarge photo – 

“The U.S. economy is on the upswing, but we can grow even more by encouraging more travel to America,” said U.S. Chamber of Commerce President and CEO Thomas J. Donohue, also part of the coalition. “Travel creates jobs and economic activity across a swath of industries and sectors as people visit the U.S. and spend their time and money with American businesses. The Chamber is proud to join with our partners in the business community to make the case for a renewed focus on travel as a driver of economic growth and American prosperity.”

Media coverage regarding the coalition’s launch includes:

The Roundtable and 16 Real Estate, Insurance and Contracting Organizations Urge Passage of Infrastructure Expansion Act to Counter Inequities in “Scaffold Law”

Posted on by Trey Jackson

The Real Estate Roundtable, Associated General Contractors, and 16 U.S. organizations representing the contracting, insurance and real estate sectors today urged the House Judiciary Committee and key congressional offices to swiftly pass the Infrastructure Expansion Act of 2017 (H.R. 3808), sponsored by Rep. John Faso (R-NY).  (Coalition Letter, Jan. 19)

According to the  coalition letter  , the Infrastructure Expansion Act seeks to provide is a 21st century solution to ameliorate the harsh impact of an outdated 19th century law, which is restraining modern interstate commerce and economically burdening transportation projects that cross state lines.

H.R. 3808 is a common sense tort reform effort aimed at correcting inequities from New York State’s outdated “Scaffold Law.”  Passed during the Industrial Revolution – long before the advent of Federal and state Occupational Safety and Health Administration and workers’ compensation laws – the Law holds property owners, employers, and contractors fully liable for all fall-related injuries at building and infrastructure construction sites. 

As a result, courts have interpreted the New York law to subject property owners and contractors to “absolute liability.”  Under this standard, the costs of injuries from commonplace painting, cleaning, remodeling, and construction activities are completely borne by property owners and contractors, even if they do not directly employ the injured worker.  The Scaffold Law also deems property owners and contractors as absolutely liable for height-related incidents, without regard to whether the worker caused the accident and intensified his or her own injuries.  Under this standard, even an inebriated worker who stumbles and falls at a project site is not held accountable to the extent his intoxicated state caused his own injuries.  (Roundtable Weekly, Oct. 27, 2017) 

The House bill counters the absolute liability standard by specifying that lawsuits against property owners and contractors for injuries associated with slips, falls, and “gravity-related risks” at Federally-assisted projects should instead be held to a “comparative negligence” standard.  When workers proximately cause their own injuries, comparative negligence factors such self-inflicted harm to proportionately limit damages awarded by judges and juries.  H.R. 3808 fosters the comparative negligence legal standard adopted by the overwhelming majority of courts, legislatures, and legal scholars across the United States. 

According to the coalition letter, the Infrastructure Expansion Act seeks to provide is a 21st century solution to ameliorate the harsh impact of an outdated 19th century law, which is restraining modern interstate commerce and economically burdening transportation projects that cross state lines.  

Rep. John Faso (R-NY) introduced the  Infrastructure Expansion Act of 2017 (H.R. 3808)  , intended to counter New York State’s “Scaffold Law.”

Among specific examples offered in the letter showing the economic impacts of the Scaffolding Law is  the Gateway Program, a Department of Transportation-assisted rail tunnel project of overwhelming national significance.  The New York law is estimated to drive-up costs by as much as 300 million dollars for this project, which will modernize the power grid, update a century-old tunnel inundated by Superstorm Sandy, and help eliminate a train “bottleneck” in the Northeast Corridor that contributes $50 billion to US GDP annually.  H.R. 3808 can help reduce the substantial added costs from insurance coverage, excessive litigation pay-outs, and project delays for interstate infrastructure construction like Gateway. 

“On the heels of a major federal infrastructure initiative, Rep. Faso’s bill is welcome news – enacting it would drive down costs of proposed infrastructure projects like the vital Gateway tunnel project between New York and New Jersey, said John Banks, President of the Real Estate Board of New York.  (See REBNY Newsroom, Oct. 25, 2017).  

Additionally, the Infrastructure Expansion Act of 2017 does not diminish or alter Federal or state OSHA obligations, nor does it foreclose “no-fault” workers’ compensation. 

The coalition letter addressed to House Judiciary Committee Chairman Bob Goodlatte (R-VA) and Ranking Member Jerrold Nadler (D-NY) concludes that H.R. 3808 “… simply makes property owners, contractors, and workers accountable for their own choices and conduct at construction sites benefitting from Federal taxpayer dollars. We encourage swift passage of the ‘Infrastructure Expansion Act.'”

Shutdown Looms Over Federal Funding Debate; Roundtable Submits Requests to Treasury for Guidance on New Tax Laws

Posted on by Trey Jackson

Without a last-minute funding deal before midnight tonight, much of the federal government will shut down on the one-year anniversary of President Trump’s inauguration. The budget affects issues of importance to commercial real estate such as the National Flood Insurance and  EB-5 foreign investment programs.

In an effort to identify temporary or immediate guidance that would provide a boost to economic growth and jobs, Real Estate Roundtable President & CEO Jeffrey DeBoer yesterday wrote to Treasury Secretary Mnuchin, offering several suggestions aimed at ensuring the long-term success of the Tax Cuts and Jobs Act (TCJA).  [Roundtable Letter, Jan. 18]   

Despite White House talks today between Minority Leader Chuck Schumer (D-NY) and President Trump, disagreements on immigration policies such as the Deferred Action for Childhood Arrivals (DACA, or “Dreamers”) program threaten to scuttle a possible Senate vote on a government funding bill.  If a deal is reached, the House is prepared to act again – after passing a fourth “Continuing Resolution” (CR) in FY2018 last night, which would extend government funding through Feb. 15. 

The budget battle comes on the heels of last December’s enactment of the largest overhaul of the tax code in 31 years. As businesses and individuals adjust to the new tax law’s various provisions, it is expected that the IRS will issue guidance on technical questions affecting commercial real estate and other industries.  

In an effort to identify temporary or immediate guidance that would provide a boost to economic growth and jobs, Real Estate Roundtable President & CEO Jeffrey DeBoer yesterday wrote to Treasury Secretary Mnuchin, offering several suggestions aimed at ensuring the long-term success of the Tax Cuts and Jobs Act (TCJA).  [Roundtable Letter, Jan. 18]

The Jan. 18 Roundtable letter is based on input received from real estate leaders across the country, who share the goals of avoiding economic disruptions and reducing inefficient business restructuring or inactivity pending the issuance of final rules.  

The Roundtable letter identifies several areas where rulemaking would reduce uncertainty and  facilitate continued investment, including: 

  • the scope of the real estate exception to the new limitation on business interest deductibility;
  • the requirements that apply when calculating a taxpayer’s eligibility for the new 20% deduction for pass-through business income; and 
  • the applicable cost recovery periods under the new tax law.    

The letter describes each issue and suggests clarifications that would be useful, in the short term, to ensure the new tax law spurs investment, growth and job creation. 

In conjunction with next week’s Roundtable State of the Industry Meeting in Washington, DC, the Tax Policy Advisory Committee (TPAC) will analyze these areas in detail.  Additionally, The Roundtable’s business meeting will feature key congressional leaders, including Senate Minority Leader Schumer, who will engage attendees in a variety of policy discussions, including the current budget situation.

U.S. Supreme Court to Address Marketplace Fairness Issue; Decision Expected by July Regarding Sales Tax Collection on E-Commerce Purchases

Posted on by Trey Jackson

The Supreme Court of the United States (SCOTUS) today agreed to address an issue that has long vexed the retail real estate sector, and deprived states and localities of much-needed tax revenue for infrastructure development and other community needs. The nation’s highest court “granted cert” in South Dakota v. Wayfair, Inc., to resolve the lingering debate over the constitutionality of collecting sales and use taxes that are due on consumer purchases made over the Internet.

  

South Dakota v. Wayfair, Inc.  is the latest judicial vehicle to seek a ruling from the nation’s highest Court to resolve the lingering debate over Internet sales tax collection. The International Council of Shopping Centers, Investment Program Association, Nareit®, and the National Association of REALTORS® joined a November, 2017   amicusbrief ,  above, with The Roundtable.

In Wayfair, the Justices are expected to squarely resolve whether an antiquated legal doctrine known as the “physical presence” test should be overruled.  This test exempts on-line sellers from collecting sales and use taxes under the U.S. Constitution’s Commerce Clause unless they have an actual, physical retail outlet or other footprint in the state where the purchase is made – thus imposing sales tax collection burdens primarily on traditional brick-and-mortar” stores.

A coalition of real estate groups (including The Real Estate Roundtable) filed an amicus curiae brief with SCOTUS last November, urging the Justices to accept the Wayfair case to challenge pre-Internet decisions from 1991 and 1967 (Quill Corp. v. North Dakota, 504 U.S. 298, and National Bellas Hess, Inc. v. Department of Revenue of Illinois, 386 U.S. 753, respectively). .  (See Roundtable Weekly, Nov. 3, 2017.)  This pair of decades-old opinions prohibits states from imposing sales and use tax collection obligations on web-based, catalog, and other retailers lacking an in-state “physical presence.”

“The direct harm that the [physical presence] rule inflicts on brick-and-mortar retail stores in considerable,” the real estate groups wrote in their brief.  “Local businesses struggle and increasingly fail to compete against online retailers that can offer customers identical goods for what is in effect up to a 10 percent discount.”

The amicus brief explains the “cascading effects” that call for the Supreme Court to revisit Quill and Bellas Hess.  Many brick-and-mortar stores “are integral to the social fabric of their communities,” and losing them because Internet retailers have a competitive tax collection advantage “increases unemployment and creates a sense of dislocation among community residents.” 

The outdated “physical presence” rule also causes “lost revenue from sales, property and income taxes” which “threatens the ability of state and local governments to provide much-needed public services” to their communities, the brief maintains.  Research data from The National Conference of State Legislatures and International Council of Shopping Centers shows that nearly 26 billion dollars in state and local sales taxes from online sales went uncollected in 2015.  (NCSL and ICSC, March 2017)

The Supreme Court is likely to hear oral argument in April and render a decision by the end of June.

Now that the case moves to the merits phase, a number of advocacy groups are expected to filed a second round of briefs urging a more modern, national standard from SCOTUS to reflect the purchasing preferences and habits of consumers this century.  (See SCOTUSblog’s Wayfair page.)  Since the 1992 Quill opinion, technological advances are now available to address the complexity of administering an online sales tax.  Amazon, for example, collects and remits sales tax  for consumer transactions in 45 states and the District of Columbia.

With today’s cert grant, additional briefing on the Internet sales tax issue is expected throughout the winter and early spring.  The high Court is likely to hear oral argument in April and render a decision by the end of June, when it traditionally breaks for the summer.   

The International Council of Shopping Centers, Investment Program Association, Nareit®, and the National Association of REALTORS® joined last November’s amicus brief  with The Roundtable. 

Congress Considering Another Continuing Resolution To Avoid Government Shutdown Next Week

Posted on by Trey Jackson

House Republicans this week said efforts on a two-year budget deal to fund government programs and agencies are progressing as the current, short-term government funding extension is set to expire on Jan. 19. 

Consensus on outstanding policy disagreements did not emerge this week, despite a bipartisan meeting at the White House on Tuesday between President Trump and congressional leaders.  (  White House video  , Jan. 9)

Congress may pass a fourth “Continuing Resolution” (CR) for FY2018 to fund the government until mid-February and buy time to address spending limits on military and nondefense programs – including immigration policies such as border security and the Deferred Action for Childhood Arrivals (DACA, or “Dreamers”) program. 

The budget affects other issues of importance to CRE such as the National Flood Insurance and  EB-5 foreign investment programs.  If an agreement among policymakers is not forged next week and another CR cannot be passed, the government will shut-down. 

House Minority Leader Nancy Pelosi (D-CA) told reporters yesterday that a negotiated solution on both spending caps and Dreamers is uncertain. “There is no point in having another CR unless we have an agreement on DACA and funding, disaster aid, a number of issues that have to be dealt with,” Pelosi said.  

House Majority Leader Kevin McCarthy (R-CA) this week said, “I believe we can get to a solution here in the next day or two so we can move forward.  If we’re able to have that budget agreement, we’ll need some time for appropriators to do their work, so we’d have a continuing resolution.” (CQ, Jan. 11) 

Consensus on outstanding policy disagreements did not emerge this week, despite a bipartisan meeting at the White House on Tuesday between President Trump and congressional leaders.  (White House video, Jan. 9)  

Other issues under discussion include the fate of a bill introduced by Senate Finance Committee Chairman Orrin Hatch (R-UT) late last year that would extend various expired energy and other temporary tax provisions. (Wall Street Journal, Dec. 21, 2017) 

A separate tax “technical corrections” bill to address gaps and inconsistencies in last year’s landmark Tax Cuts and Jobs Acts is expected this quarter.

House Ways and Means Chairman Kevin Brady (R-TX) said this week that several extenders may be included in an upcoming CR. “I think it’s important for Democrats and Republicans to really come together on a lot of key issues … I’m hopeful they all stay at the table and bring us either in one or two steps what we need to do,” Brady said. 

It is unclear whether Senate Majority Leader Mitch McConnell (R-KY), with only a slim one-vote majority in the chamber, will be able to attract enough votes to pass a budget resolution. 

A separate tax “technical corrections” bill to address gaps and inconsistencies in last year’s landmark Tax Cuts and Jobs Acts is also expected this quarter.  Republicans would need to attract Democratic votes to reach a 60-vote threshold to pass another tax measure. (Roundtable Weekly, Jan. 5) 

The Roundtable and its Tax Policy Advisory Committee will discuss these issues in detail during The Roundtable’s Jan. 24-25 State of the Industry Meeting in Washington. Among the prominent policymakers who will engage Roundtable members during the business meeting is Senate Finance Committee Ranking Member Ron Wyden (D-OR) and the Treasury Department’s Deputy Assistant Secretary for Tax Policy Dana Trier.

Roundtable Encourages Senate Banking Committee to Consider HVCRE Legislation That Would Clarify Banking Rule Affecting Acquisition, Development, or Construction Loans

Posted on by Trey Jackson

The Real Estate Roundtable on Tuesday encouraged Senate Banking Committee leadership to consider a bipartisan measure similar to one passed in the House of Representatives in November that would reform and clarify the Basel III High Volatility Commercial Real Estate (HVCRE) Rule for certain acquisition, development, or construction loans (ADC).  (Roundtable Comment Letter, Jan. 9)

The Roundtable’s letter this week to Senate Banking, Housing, and Urban Affairs Committee Chairman Mike Crapo (R-ID) and Ranking Member Sherrod Brown (D-OH) expressed concerns about the HVCRE Rule since its effective date of January 1, 2015.

The House passed the Clarifying Commercial Real Estate Loans Act (H.R. 2148) on November 7, 2017 following a nearly unanimous vote by the House Financial Services Committee (59-1).  Since the Rule’s effective date of January 1, 2015, necessary clarification for key elements of the Rule have not been provided by regulators despite ongoing requests. Instead, the regulatory agencies proposed yet another, duplicative exposure category for ADC loans –  HVADC. 

This bipartisan legislation – introduced by House Financial Services Committee members Rep. Robert Pittenger (R-NC) and Rep. David Scott (D-GA) – would help address concerns regarding the Basel III HVCRE Rule by amending the Federal Deposit Insurance Act and clarifying requirements for certain ADC loans. Clarification of the HVCRE Rule would ensure that credit capacity and economic activity would not be impeded, while promoting economically-responsible commercial real estate lending.  (Roundtable Weekly, Nov. 10) 

The Roundtable’s letter this week to Senate Banking, Housing, and Urban Affairs Committee Chairman Mike Crapo (R-ID) and Ranking Member Sherrod Brown (D-OH) expressed concerns about the HVCRE Rule since its effective date of January 1, 2015. 

The letter states: “The current rules are overly broad and include many stabilized loans without construction risk in this HVCRE category, unduly burdening stabilized loans with capital charges appropriate to protect banks from heightened construction risks.  Many banks, including small community financial institutions, have been deterred from making this type of loan –  which can represent up to 50 percent of a small bank loan portfolio.” 

The Roundtable also submitted comments on Dec. 21, 2017 to banking agencies in response to  their Notice of Proposed Rulemaking (NPR) – “Simplifications of and Revisions to the Capital Rule related to High Volatility Acquisition Development or Construction (HVADC) Exposures” as issued on Oct. 27. 

The Roundtable encourages the agencies to review the language in Clarifying High Volatility Commercial Real Estate Loans (H.R. 2148) and utilize such an approach to clarify the current HVCRE rules and build on this construct in a new consolidated HVCRE/HVADC rule.

Real Estate Roundtable President and Chief Executive Officer Jeffrey DeBoer commended the Senate Banking Committee for recognizing the important link between bank regulatory policy and economic growth and for taking steps to identify potential ideas that would foster job creation and economic activity.

The Roundtable comments on the NPR were submitted through its HVCRE Working Group and Real Estate Capital Policy Advisory Committee (RECPAC) to the Office of the Comptroller of the Currency; the Board of Governors of the Federal Reserve System and the Federal Deposit Insurance Corporation.  These comments raise concerns about the creation of yet another exposure category for acquisition, development, or construction loans – High Volatility Acquisition, Development, or Construction (HVADC) – while providing no clarification for the existing High Volatility Commercial Real Estate (HVCRE) Rules.  The Roundtable and eight other national policy organizations also submitted a separate, joint letter in late December to the banking agencies about the NPR. (Roundtable Weekly, Dec. 22, 2017) 

Following these efforts late last year in the House and comments to the banking agencies, this week’s letter to the Senate Banking Committee leadership also explains how the HVCRE Rule issue is not only a problem for commercial real estate owners and bank lenders – but one for the broader economy.  Without adequate credit capacity for commercial real estate lending, jobs and tax revenue will be lost and economic growth impeded.  “As financial institutions absorb a multitude of overlapping Dodd-Frank and Basel regulations, we are concerned about the cumulative impact these rules are having on real estate credit capacity, liquidity, capital formation and job growth,” the letter states. 

Real Estate Roundtable President and Chief Executive Officer Jeffrey DeBoer also commends the Senate Banking Committee for recognizing the important link between bank regulatory policy and economic growth and for taking steps to identify potential ideas that would foster job creation and economic activity.  DeBoer concludes the letter: “We look forward to working with the Senate Banking Committee on measures such as these that will help craft a sensible financial framework for growing a healthy economy.”