Democrats scaled down their ambitions for a budget reconciliation bill in the wake of Sen. Joe Manchin’s (D-WV) recent rejection of any climate and tax legislative package. Instead, congressional Democrats this week focused on a limited prescription drug pricing and health care subsidy bill as President Biden announced executive actions to make progress on climate initiatives. (Roundtable Weekly, July 15 and New York Times, July 20)

Senate Democrats Pivot

• Senate Majority Leader Chuck Schumer (D-NY) said this week that Democrats are moving forward on a smaller party-line package before the Senate summer recess begins on August 5. Policymakers are also mindful that budget reconciliation rules expire on Sept. 30 as the November mid-term elections approach. (AP, July 19 and July 15)
  
  
• Roundtable Tax Policy Advisory Committee Member Russ Sullivan (Brownstein Hyatt Farber Schreck, LLP) profiles the steps and timeline involved to produce a reconciliation bill in his article, “How Likely is it that we see a Reconciliation Law Passed in this Congress?" (JD Supra, July 12)

White House Climate Action

• Biden's executive actions “to turn the climate crisis into an opportunity” fell short of declaring a federal emergency, which would have unlocked broad federal powers to develop clean energy. (Wall Street Journal and White House fact sheet, July 20)
  
  
• With climate legislation stalled in Congress, and constrained by a recent SCOTUS ruling that restricts the EPA’s ability to regulate greenhouse gases, Biden’s actions to increase offshore wind capacity and help communities cope with extreme heat have been described as “incremental” and “minuscule compared to his ambitious plan” for a net-zero emissions economy by 2050. (Wall Street Journal and POLITICO, July 20)
  
  
• Given the limited federal response, Biden stressed that governors, mayors, state agency heads, and public utility commissioners—as well as developers—need “to stand up and be part of the solution.” (President Biden remarks and video, July 20)

Trends in CRE, the congressional agenda, and the upcoming lame-duck session of Congress after the mid-term elections will be among the topics discussed during The Roundtable’s Fall Meeting on Sept. 20-21 in Washington, DC.

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Numerous congressional committees have recently addressed the nation’s scarcity of affordable housing—including this week’s Senate Finance Committee hearing, “The Role of Tax Incentives in Affordable Housing,” which focused on the Low Income Housing Tax Credit (LIHTC) and other legislative incentives. 

Tax Focus 

• Senate Finance Chairman Ron Wyden (D-OR), Ranking Member Mike Crapo (R-ID) and several witnesses expressed support during the hearing for the Affordable Housing Credit Improvement Act (S.1136), introduced by committee member Maria Cantwell (D-WA). The bill would expand and strengthen the LIHTC.
  
  
• The bill (detailed summary here) would expand the pool of tax credits that are allocated to states for new affordable housing, make it easier to combine LIHTC with other sources of capital like private activity bonds, and facilitate LIHTC rehab projects. (Tax Notes, July 21)

• Hearing witness Dana Wade—an executive at Walker & Dunlop and a former commissioner of the Federal Housing Administration (above)—noted that 25 percent of all renters spend more than half of their monthly income on rent. Wade also testified extensively about the causes of the housing affordability crisis.
  
  
• “An estimated 40 percent of development costs can be attributed to regulation at the federal, state, and local levels,” testified Wade. “Zoning policies like density limits, requirements for parking, height restrictions, lengthy permitting and approval processes, and other land-use restrictions create a perfect storm that can often stymie new development.”
  
  
• One of the largest multifamily lenders and LIHTC syndicators in the country, Walker & Dunlop is chaired and managed by Roundtable Member Willy Walker.

• “Overly restrictive land-use and zoning policies, construction cost increases, and labor shortages are deepening our housing challenges, which now extend across the entire country,” said Real Estate Roundtable President and CEO Jeffrey DeBoer (above). “Government at all levels needs to be part of the solution, not part of the problem. The Affordable Housing Credit Improvement Act would be an important step forward.”
  
  
• The future of S. 1136 is uncertain after key centrist Sen. Joe Manchin recently said he would not support any legislative package that included tax increases until more economic data affecting the 40-year high inflation rate becomes available. Chairman Wyden did not promise a timetable for committee action. (Roundtable Weekly, July 15) 

Congressional Hearings 

• Other congressional efforts to address affordable housing included yesterday’s Senate Banking, Housing and Urban Affairs Committee hearing on the state of housing in America. Policymakers heard testimony from Dr. Lawrence Yun, chief economist with the National Association of Realtors and Dr. Douglas Holtz-Eakin, president of the American Action Forum.
  
  
• In the House, a July 20 House Financial Services Committee hearing focused on ways to provide more affordable housing in the face of rising inflation. Additionally, a July 12 House Ways and Means Committee hearing and a June 28 House Financial Services Subcommittee hearing focused on institutional ownership in the single—family home market other affordable housing issues. (Roundtable Weekly, July 15 and July 1)  

The Roundtable’s Real Estate Capital Policy Advisory Committee (RECPAC) has formed an Affordable Housing Working Group, which is working with the Research Committee to develop proposals on expanding the nation’s housing infrastructure. 

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The Federal Reserve Board on July 19 invited comment on a proposal that implements the Adjustable Interest Rate (LIBOR) Act, which Congress enacted last year. The LIBOR Act provides a safe harbor for market participants who need to switch existing LIBOR-referencing financial contracts to a replacement benchmark for debt instruments before LIBOR reaches its final replacement date on June 30, 2023. (The Fed’s Notice of Proposed Rulemaking, July 19 and Roundtable Weekly, March 11)

• LIBOR, formerly known as the London Interbank Offered Rate, is the interest rate benchmark that was the dominant reference rate used in recent decades and remains in extensive use today in outstanding financial contracts — including commercial real estate debt, mortgages, student loans and derivatives — worth an estimated $223 trillion. (Roundtable Weekly, Dec. 10, 2021)

• The LIBOR Act also provides that all contracts with no adequate fallback provisions for an alternative benchmark substitute will be replaced by the Secured Overnight Financing Rate (SOFR).

• The Real Estate Roundtable and 17 national trade groups submitted letters last year on April 14 and July 27 to policymakers in support of measures to address “tough legacy” contracts during the transition away from LIBOR. (Roundtable Weekly, Dec. 10, 2021)

What’s Next

• The Federal Reserve is working to mitigate potential risks and promote a smooth global transition away from LIBOR with both domestic and foreign supervisors. The Fed has emphasized the importance of preparation and transitioning to the market to ensure that supervised institutions can transition away from LIBOR. (The Fed Libor Transition webpage)

• Comments on the Fed’s Notice of Proposed Rulemaking will be accepted for 30 days after publication in the Federal Register.

The Roundtable welcomes comments from its members on the proposed rulemaking and plans to work with its Real Estate Capital Policy Advisory Committee (RECPAC) on a response. For any questions, please contact The Roundtable’s Senior Vice President Chip Rodgers or call 202-639-8400.

Over 2,500 small-business owners gathered on Capitol Hill this week to meet with more than 400 lawmakers and federal officials to urge reauthorization of the Small Business Administration (SB) for the first time in over 20 years. Small businesses throughout the nation are facing inflationary pressures, supply chain shortages, labor challenges, limited access to capital and a looming possibility of recession. (The Hill, July 20) 

• The business owners urged lawmakers to modernize the SBA, enact tax credits and provide incentives to help small businesses retain workers and access capital.

• Sens. Kyrsten Sinema (D-AZ) and Tim Scott (R-SC) commented on Tuesday during the summit that the SBA should be simplified and supported reauthorization. (The Hill, July 20)

• The July 18-20 summit was hosted by Goldman Sachs’s 10,000 Small Businesses program, which provides education and business training to entrepreneurs. The program has reached more than 12,800 small business owners across all 50 states, Puerto Rico, and Washington, DC. (Goldman Sachs, June 29)

• Joe Wall, director of Goldman Sachs’s small-business program, said, “Our goal this week is to generate a lot of momentum so that heading into next year it’s a real priority.” (The Hill, July 20)

Owner Challenges

• A recent survey of the program’s participants shows 93 percent of small-business owners are worried about the US economy experiencing a recession in the next 12 months. Nearly all respondents (97 percent) also say inflationary pressures have increased or remained the same compared with three months ago. Additionally, 88 percent of respondents say it is important for Congress to prioritize the Small Business Administration (SBA), which has not happened in 20 years. (Survey news release, July 13) 

• Alumni of the 10,000 Small Businesses program collectively represent over $17.3 billion in revenues and employ 245,000 people. 

Industry Views

• CNBC’s Squawk on the Street this week featured two interviews with commercial real estate leaders. CBRE CEO Robert Sulentic and Roundtable member Marty Burger (Chief Executive Officer, Silverstein Properties) commented on commercial real estate market conditions, including office conversions to rental housing and the return-to-office trend. (Burger interview | Sulentic interview)

• In this week’s Walker Webcast, Dr. Peter Linneman (Principal, Linneman Associates, KL Realty and CEO, American Land Fund) was interviewed by Roundtable Member Willy Walker (Chairman and Chief Executive Officer, Walker & Dunlop). (Bisnow, July 21)

Dr. Linneman commented that inflation is transitory with supply lagging demand due to 23% of the workforce collecting unemployment insurance. He also offers his views on national debt concerns, the Fed and interest rates, and return-to-the-office concerns. (Watch “The Best Hour in CRE” with Economist Peter Linneman, July 21)

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