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April 14, 2017

TAX REFORM
House GOP Policymakers Announce Tax Reform Hearings as President Nominates White House Chief Economist; April 28 Government Funding Deadline Looms

FLOOD INSURANCE
Commercial and Multifamily Real Estate Organizations Urge Reauthorization and Reform to National Flood Insurance Program Before Sept. 30 Sunset


TAX REFORM

House GOP Policymakers Announce Tax Reform Hearings as President Nominates White House Chief Economist; April 28 Government Funding Deadline Looms  

The House Ways and Means Committee will hold hearings on tax reform over the coming weeks as House Republicans seeks to rebuild momentum for their ambitious legislative agenda.  (CQ, April 6) 

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House Ways and Means Committee Chairman Kevin Brady (R-TX)

Following a series of recent closed-door meetings with Ways and Means Republican members, Committee Chairman Kevin Brady (R-TX) told reporters that the hearings would be led Rep. Peter Roskam (R-IL), chairman of the panel’s Tax Policy Subcommittee. 

Acknowledging that the failure to pass the American Health Care Act was a setback for tax reform, Chairman Brady told his hometown newspaper last week that “A big challenge just got a little bit bigger. But it's not insurmountable.”  (Houston Chronicle,Kevin Diaz, Brady Faces Rocky Road to Tax Reform – Apr. 7, 2017).

Ways and Means Committee member Mike Kelly (R-PA) spoke about next steps with the publisher Tax Analysts, stating, “I don’t know how you come up with legislation without actually hearing from the people who it’s going to affect, and I think that’s the thing that concerns me.”   (Tax Notes, Brady Taps Roskam to Schedule Tax Reform Hearings – April 6, 2017 behind paywall).

Neither Chairman Brady or Subcommittee Chairman Roskam has outlined the specific hearing topics or dates.  Potential issues include the House blueprint’s border adjustability proposal and reforms affecting the cost of capital, such as a proposal to eliminate the deductibility of business interest. 

Rep. Kelly added, “We have a blueprint . . . but most blueprints I’ve read have a lot of change orders before you finally get to construction, so I think we’ll see change orders and we’ll see people add things to it that make it a better piece.”

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“Roundtable members and the real estate industry continue to look closely at the tax concepts put forward in the House blueprint — how it will impact real estate activities and the overall market — and we look forward to formally offering our views at the appropriate hearing,” said Real Estate Roundtable President and CEO Jeffrey DeBoer.

“Roundtable members and the real estate industry continue to look closely at the tax concepts put forward in the House blueprint — how it will impact real estate activities and the overall market — and we look forward to formally offering our views at the appropriate hearing,” said Real Estate Roundtable President and CEO Jeffrey DeBoer. 

President Taps Washington Insider Kevin Hassett as White House Chief Economist

With the timetable for tax reform increasingly uncertain, President Trump announced the nomination of economist Kevin Hassett as Chairman of the White House Council of Economic Advisors.  

A scholar at the American Enterprise Institute, a conservative Washington, DC think tank, Dr. Hassett previously served as a senior economist for the Federal Reserve and as an economic adviser in the presidential campaigns of George W. Bush, John McCain, and Mitt Romney.  He is a frequent witness at congressional hearings and best known for his work on tax policy. 

Dr. Hassett’s views on tax policy appear generally in line with the direction of the House blueprint.  In 2013, Hassett testified to Congress that the “best solution for tax reform that encourages investment and growth is to move from our income tax system to a system that taxes consumption.”  At the time, he said that the tax law’s “asymmetric treatment of debt and equity . . . encourages heavy debt loads and increases the overall level of risk in the corporate sector.” 

Deadline for Government Funding Fast Approaching

President Trump and Congressional leaders will face another major test in late April—the pending expiration of appropriations for the federal government.  Congressional leaders appear intent on working out a bipartisan agreement rather they playing brinkmanship with a potential government shutdown.  (Washington Post, With a Deadline Looming, Nobody Is Threatening to Shut Down the Government – April 9, 2017). 

The bipartisan goodwill will be needed. When Congress returns from the two-week break, there are just four days when both chambers are in session before government funding runs out on April 28.  

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FLOOD INSURANCE

Commercial and Multifamily Real Estate Organizations Urge Reauthorization and Reform to National Flood Insurance Program Before Sept. 30 Sunset  

As homeowners, renters, commercial and multifamily property owners and small businesses in certain geographical areas continue to rely on the National Flood Insurance Program (NFIP) as an essential alternative to a limited private insurance market, a coalition of 16 real estate trade organizations wrote to policymakers last week about the need to reauthorize and reform the NIFP before it is scheduled to expire on Sept. 30.  The NFIP was last extended in 2012.  (Roundtable Weekly, June 29, 2012)

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The Roundtable supports a key reform to the program – an exemption for commercial properties outside the scope of the NFIP, which is primarily focused on residential owners.

In the April 4 industry letter to House Financial Services Committee Chairman Jeb Hensarling (R-TX), Committee Ranking Member Maxine Waters (D-CA) and all other committee members, The Real Estate Roundtable and 15 other industry groups urge Congress to reauthorize and reform the NFIP to help protect the nation’s commercial and multifamily business-owners, their properties, residents, and the jobs they create from the financial perils of flooding.

The letter also details specific reforms that should accompany a long-term reauthorization of the NFIP, which provides necessary coverage in 22,000 communities nationwide where flood insurance is required for a mortgage.  To avoid short-term extensions and program lapses that would lead to needless disruptions to real estate markets, the coalition supports a multi-year reauthorization of the NFIP and specifically recommends that Congress support the following policies:

Expand private flood insurance markets.
In addition to a long-term NFIP reauthorization of the NFIP,  the real estate coalition also supports measures that encourage greater growth in the private flood insurance markets to help provide policyholders with more choices.  Legislation that would enable consumers to move to the private market while maintaining continuous coverage (so they could return to the NFIP without rate increases) has been introduced in the House by Representatives Dennis A. Ross (R-FL) and Kathy Castor (D-FL) – the Flood Insurance Market Parity and Modernization Act (H.R. 1422) – and in the Senate, a companion measure (S. 563) has been introduced by Senators Dean Heller (R-NV) and Jon Tester (D-MT).

Update and improve coverage options
NFIP commercial coverage currently provides a low threshold of insurance coverage to protect a building and its contents, requiring the purchase of multiple polices to cover most traditional multifamily properties.  The letter states that “America’s commercial and multifamily property owners – key drivers of the US economy – seek modern coverages to compete in the 21st century and are willing to pay an additional price to obtain those coverages, including business Interruption … replacement cost vs. actual cash value … and multiple buildings coverage.”

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Congress should explore changing the mandatory purchase requirements for high-value commercial and multifamily properties to give owners more flexibility and further encourage private market participation in the commercial sector.

Provide Flexibility for High-Value Commercial and Multifamily Properties
Congress should explore changing the mandatory purchase requirements for high-value commercial and multifamily properties to give owners more flexibility and further encourage private market participation in the commercial sector. Since there is a low $500,00 coverage limit in the NFIP, large commercial borrowers must currently look to private-sector property and casualty insurance to recover flood losses.

The Roundtable supports a key reform to the program – an exemption for commercial properties outside the scope of the NFIP, which is primarily focused on residential owners. Imposing NFIP restrictions on complex commercial loans with multiple mortgaged structures and/or multiple lenders does not make economic sense for lenders or borrowers

Help FEMA develop more accurate flood mapping
Current flood zone mapping methods used under the NFIP should be more structure-specific, increase accuracy and lower costs.  The letter recommends that the Federal Emergency Management Agency (FEMA) should adopt the recommendations of the Technical Mapping Advisory Council, including: 

• Move toward structure-specific flood maps to improve their accuracy;  
• Take advantage of mapping advances like Light Detection and Ranging (LiDAR);
• Expand successful state pilot studies and; • Lessen the financial and bureaucratic appeals process faced by communities and property owners.

Develop more effective pre-flood mitigation
While single-family homeowners can reduce their NFIP rates through traditional mitigation strategies (such as elevation), older commercial and multifamily buildings are faced with expensive mitigation options (installing passive dry flood-proofing system or flood-proofing building utilities) – yet none of these actions are accounted for in their insurance rates. FEMA guidance and grant programs should include a wider set of mitigation strategies that are appropriate for commercial buildings and reflected in the insurance rate tables.

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The April 4, 2017 industry letter to House Financial Services Committee Chairman Jeb Hensarling (R-TX), Committee Ranking Member Maxine Waters (D-CA) and all other committee members on the NFIP.

Among the steps listed in the letter to achieve this mitigation goal, the letter recommends that policymakers expand the Increased Cost of Compliance (ICC) coverage in the NFIP policy and Flood Mitigation Assistance mitigation programs to include nontraditional mitigation that is appropriate for commercial and multifamily buildings.

In addition to The Roundtable, the following organizations are signatories to the April 4 letter:

o American Resort Development Association
o Building Owners and Managers Association (BOMA) International
o CCIM Institute
o Commercial Real Estate Finance Council
o Council for Affordable and Rural Housing
o Institute of Real Estate Management
o International Council of Shopping Centers
o Mortgage Bankers Association
o NAIOP, The Commercial Real Estate Development Association
o National Affordable Housing Management Association
o National Apartment Association
o National Association of Housing Cooperatives
o National Association of Real Estate Investment Trusts®
o National Association of REALTORS®
o National Multifamily Housing Council

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For questions about Roundtable Weekly, please contact The Roundtable's Scott Sherwood at rweekly@rer.org or (202) 639-8400.

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