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January 16, 2015

TERRORISM RISK INSURANCE
Six-Year TRIA Renewal Becomes Law After President’s Signature and Overwhelming Bipartisan Passage by House and Senate

TAX POLICY
Tax-Writing Committees Get Back to Work with New Push, Ambitious Timetable for Tax Reform; House Lawmakers Reopen Online Sales Tax Debate

IMMIGRATION, HOMELAND, AND CYBER SECURITY POLICY
House Passes Bill to Fund Homeland Security Agency, Stirring Debate Over White House Immigration Orders; President Issues New Cyber Security Proposals to Combat “Hacktivists,” Signaling Key Issue for Next Week’s State of the Union Address


TERRORISM RISK INSURANCE

Six-Year TRIA Renewal Becomes Law After President’s Signature and Overwhelming Bipartisan Passage by House and Senate  

President Obama on late Monday signed into law a six-year renewal of the federal terrorism risk insurance program, after both the House and Senate acted swiftly last week to pass the Terrorism Risk Insurance Program Reauthorization Act of 2015 (H.R. 26).  Importantly, the TRIA reinstatement was the first public law of the new Congress (Public Law No: 114-1).

Obama Signs into Law Oval Office

President Obama on January 12, 2015 signed into law a six-year renewal of the federal terrorism risk insurance program.

As the federal program expired on December 31 due to a lack of agreement during the Lame Duck session, renewal became a priority for the 114th Congress. On January 7, the House passed H.R. 26 by 416-5; the next day, the Senate passed the legislation by 93-4.  The President signed the bill despite the Administration's stated objections to a rider that makes changes to the 2010 Dodd-Frank Act, providing an exemption for end-users under derivatives rules. 

Roundtable President and CEO Jeffrey DeBoer commented on the enactment of the Terrorism Risk Insurance Act (TRIA) renewal, noting that, “"America's businesses can once again focus on productive ways to build on the economic recovery now underway and create even more private sector jobs. TRIA will not stop terrorists.  It does allow all businesses of all types across the nation to secure the insurance and financing that is necessary to expand." 

The law reforms the terrorism insurance program by:

increasing private-sector co-pays to 80-20% (up from 85-15%); 

gradually increasing the aggregate threshold at which government support becomes available (from $100 million to $200 million);  

increasing the amount that must be recouped by the federal government to $37.5 billion  

authorizing a study on bifurcation of the program, focused on conventional vs. “NBCR” (nuclear, biological, chemical, radiological) attacks

 TRIA as amended x200 - cover image    

Red-line of H.R. 26 as enacted on January 12, 2015 — from Arnold & Porter.

The bill also includes a provision exempting commercial companies from having to post margin on their hedging transactions. Real estate firms employ derivatives to hedge against fluctuations in currency and interest rates; not to speculate. By eliminating costly margin requirements on derivatives for end-users, real estate firms will be able to more cost-effectively manage risk – aiding job creation and investment.

The Roundtable plans to provide comments on a number of provisions in the law that will require additional input, such as:

 Study/rulemaking on certification process 

 Rulemaking on determining marketplace retention amount for year 6 (recoupment) 

GAO study on upfront premiums and capital reserve fund

Annual study on small insurer competitiveness

Reference links from Arnold & Porter:

  TRIA Side-by-Side legislative comparison (.pdf download)

  Red-line of H.R. 26 as enacted on January 12, 2015 (.pdf download)

The Roundtable is grateful for the dedication and hard work of its individual members to achieve a TRIA renewal until the end of 2020 by working with congressional allies and the multi-industry Coalition To Insure Against Terrorism (CIAT).  (Roundtable Weekly, Jan. 9)

With a new Congress in session and the President’s State of the Union address on January 20, The Roundtable will pivot its focus to a full 2015 Policy Agenda, which will be discussed with all Roundtable members at our State of the Industry Meeting on January 27-28 in Washington, DC.

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TAX POLICY

Tax-Writing Committees Get Back to Work with New Push, Ambitious Timetable for Tax Reform; House Lawmakers Reopen Online Sales Tax Debate   

On Thursday, just a week after the start of the new Congress, the top tax-writers in the Senate gave a shot in the arm to the bipartisan, bicameral campaign for comprehensive tax reform by announcing the launch of five separate bipartisan tax reform working groups.

SFC leaders x200 Hatch and Wyden

Senate Finance Committee Chairman Orrin Hatch (R-UT), right, and Ranking Democrat Ron Wyden (D-OR), left.

In their joint statement, Senate Finance Committee Chairman Orrin Hatch (R-UT) and Ranking Democrat Ron Wyden (D-OR) set forth an aggressive timetable aimed at spurring Congressional action in the coming months.  The leaders directed the groups, which will be co-chaired by one Republican and one Democratic Senator, to produce in-depth analyses of the options and legislative solutions within their respective areas, with a comprehensive report featuring recommendations by the end of May.  The five areas of focus include: 

(1) individual income tax
(2) business income tax
(3) savings and investment
(4) international tax, and
(5) community development and infrastructure 

According to Chairman Hatch and Sen. Wyden, the recommendations will serve as a foundation for the development of bipartisan tax reform legislation.  Noting the hard work that has been done in recent years on tax reform, Sen. Wyden stated, “We now have a window of opportunity to make a run at modernizing our tax code and it’s time to come together and deliver.”

Meanwhile, work in the House Ways and Means Committee kicked off on Tuesday with the first hearing held by Chairman Paul Ryan (R-WI).  Entitled Moving America Forward, the hearing focused on the state of the U.S. economy and policies that can promote job creation and economic growth.  In his opening statement, Chairman Ryan emphasized that much of the preliminary work in the Committee has already been done, and the time has come to “start laying out solutions.”

 HWM Chair x200 Paul Ryan

The House Ways and Means Committee kicked off on Tuesday with the first hearing held by Chairman Paul Ryan (R-WI).

“Our tax code is broken,” said Chairman Ryan, “We have the highest corporate tax rate in the industrialized world.  We’re one of the few countries that taxes companies when they bring money back home.  And the tax code is so complex that Americans spend over 6 billion hours a year just filing their returns.” 

Senior Ways and Means Member Floats Business Tax Reform Alternative

Also in the House, Ways and Means Committee Member Devin Nunes (R-CA), the fourth-ranking Republican on the tax-writing committee, unveiled his own proposal for business tax reform that would fundamentally change the way real estate is taxed.  Inviting outside comments, the draft bill would scrap the current system in favor of a “cash flow” tax allowing 100% expensing of property and services, but no deduction for interest expense.

Writing for Forbes, economist Martin Sullivan argued the Nunes plan would be “a momentous change for businesses that have built their capital structures around a mix of debt and equity that depends on their ability to deduct interest.” 

Yet the same challenges that made tax reform difficult in the last Congress – federal revenue needs, tax fairness concerns, and political support for existing tax breaks – continue to weigh heavily on the tax reform effort in 2015.  The best chance for a major breakthrough could come if President Obama and Congressional Republican Leaders can reach agreement on the broad parameters and principles for a tax reform bill.  Such an agreement could pave the way for the tax-writing committees to fill in the details. 

House Judiciary Chair x200 Bob Goodlatte

House Judiciary Chairman Bob Goodlatte (R-VA)

New Proposal in Longstanding Feud Over Collecting Sales Taxes on Online Transactions

The debate over tax fairness between brick-and-mortar retailers and online sellers resurfaced this week when House Judiciary Chairman Bob Goodlatte (R-VA) circulated a long-anticipated draft bill. 

However, unlike the Marketplace Fairness Act, which passed the Senate easily in 2013 and stalled in the House, the bill would not open the door for States to collect sales taxes on online purchases by their residents.  Rather, the proposal would apply an “origin-sourcing” concept that bases sales tax liability on the location of the seller, not the buyer.  According to Bloomberg, a multi-state commission would handle distribution of the tax revenue among States based on the location of purchasers.

For several years, The Roundtable has worked with other real estate and retail-oriented organizations, such as the International Council of Shopping Centers, to raise awareness among lawmakers about the need to end the discriminatory sales tax treatment of physical stores.  States’ inability to collect sales taxes uniformly with regard to in-person and online transactions creates economic distortions that undermine the efficiency of markets, puts brick-and-mortar retailers at a competitive disadvantage, and creates additional pressure on States to raise property taxes.  As a result, local communities and businesses suffer. 

In Virginia, where Chairman Goodlatte’s district is located, state lawmakers tied a 5 cents per gallon gas tax increase to the fate of the Marketplace Fairness Act, which officials estimated would bring in $251 million/year.  Gas Prices Could Rise After Failure of Sales Tax Legislation, Richmond Times-Dispatch, Dec. 29, 2014.  Because Congress failed to pass the legislation, the Virginia’s gas tax increase automatically took effect on January 1.

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IMMIGRATION, HOMELAND, AND CYBER SECURITY POLICY

House Passes Bill to Fund Homeland Security Agency, Stirring Debate Over White House Immigration Orders; President Issues New Cyber Security Proposals to Combat “Hacktivists,” Signaling Key Issue for Next Week’s State of the Union Address  

Over virtually unanimous Democratic opposition – and a handful of “nay” votes from moderate Republicans – the GOP-controlled House of Representatives passed a bill on Wednesday to fund the U.S. Department of Homeland Security (DHS) through the current federal fiscal year ending in September.

  DHS_logo

A $40 billion House bill funding  the Department of Homeland Security (DHS) would gut recent executive actions taken by President Obama on immigration reform. 

The controversial, $40 billion bill cleared the House on a 236-191 vote, with strings attached that would gut recent executive actions taken by President Obama on immigration reform – thus prompting a veto threat from the White House.  The bill now heads to the Senate, where all signs indicate that the immigration riders will ultimately be jettisoned in favor of a “clean” DHS-funding measure to ensure that the agency – with key responsibilities to combat terrorism, address cyber threats, maintain border security, and enforce the nation’s immigration laws – stays up and running.

[Through executive order, President Obama has issued policies to limit deportations of non-criminals, expand protections for so-called “Dreamers” who arrived in the U.S. under the age of 16 that meet certain residency and education requirements, and offer deportation reprieves for undocumented parents of American citizens.  These measures are estimated to provide relief for up to 5 million foreign-born people currently in the country, but have infuriated Republicans who believe the President has strayed outside the bounds of his legal authority.  View the White House fact sheet on "Immigration Accountability Executive Action."]  
 
“With the Obama administration’s veto threat and the near-certain prospect that the GOP-held Senate would not have 60 votes for it, the House Republican legislation essentially has no chance of becoming law,” reports POLITICO (Jan. 14).  “Still, some Democrats privately worry that the heated debate in Washington over killing Obama’s executive actions could scare off immigrants who could qualify for the program ….”  Senator John Thune (R-SD), the third-highest ranking Republican in the Senate, stated,  “We want to give our members an opportunity to vote to express their opposition to the president’s action. But we also realize that at the end of the day in the Senate it’s going to take 60 votes … There may be different ways and approaches to this issue that we can get the point across,” also according to POLITICO (Jan 15).

Meanwhile – undaunted by Republican concern over his willingness to take executive action – President Obama on Tuesday announced new measures to address cyber threats and called on Congress to enact legislation that enhances sharing and collaboration between the government and private sector companies on cyber threat information.  [View the White House statement on "Securing Cyberspace."]

 Cyber Security blue

Undaunted by Republican concern over his willingness to take executive action – President Obama announced new measures to address cyber threats.

With the recent high profile Sony hack, and malware stealing credit card and banking information from millions of consumers and companies, The White House’s proposals are intended to better safeguard privacy and prevent identity theft in the digital marketplace.  Specifically, Obama’s announcement calls upon Congress to enact legislation to:

encourage the private sector to share appropriate cyber threat information in “real time” with DHS’s National Cyber Security and Communications Integration Center;

 modernize law enforcement authorities to investigate, disrupt, and prosecute cyber crime; and

standardize the current patchwork of 46 separate state laws regarding security breach reporting to consumers. 

The White House also announced a summit to be held on Feb. 13, to bring together major stakeholders across the government, law enforcement, corporate, and technology sectors to address digital threats to consumers and commercial networks.

In a meeting this week with congressional leadership, Obama said that he is in agreement with House Speaker John Boehner (R-OH) and Senate Majority Leader Mitch McConnell (R-KY) that cyber security “is an area where we can work hard together, get some legislation done and make sure that we are much more effective in protecting the American people from these kinds of cyberattacks.”  [Roll Call, Jan. 13

  2013 SOI Kennedy Caucus Room back WS

The Roundtable’s upcoming “State of the Industry” meeting on January 27 will feature panels with our members and key Senators and Representatives  to discuss immigration, cyber terrorism and other policy issues affecting CRE.

The Financial Services Roundtable (FSR) – which represents the largest integrated financial services companies providing banking, insurance, payment and investment products and services to the American consumer – greeted The White House’s cyber policy announcement with enthusiasm.  “It is critical companies have the tools they need to battle cybercriminals and shield customers from breaches.  Strong information sharing laws will be a critical part of winning that battle,” said FSR President & CEO Tim Pawlenty in a statement.  “Cybercriminals, hactivists and terrorists aren’t resting and neither should Congress.”

President Obama’s announcement is a timely reflection of the ramped-up response by The Roundtable and the Real Estate Information Sharing and Analysis Center (RE-ISAC) to cyber and terrorism threats.  The Roundtable. with the RE-ISAC, are partnering with DHS’s  National Cyber Security and Communications Integration Center, the 24-hour watch and warning center that serves as the nation’s principal hub for organizing cyber response efforts and maintaining the national cyber and communications common operational picture.  We are also working with Congress on appropriate legislative action.  The Cyber Intelligence Sharing and Protection Act (“CISPA”) stalled last Congress, but increasing concerns about hacking scandals are placing pressure on Congress to enact legislation that protects, prevents, and speeds recovery from cyber incidents.

Immigration reform and cyber security measures will be key elements of President Obama’s 2015 State of the Union address, scheduled next Tuesday.  Given the timeliness of these matters and their importance to the real estate industry, The Roundtable’s upcoming “State of the Industry” meeting on January 27 will feature panels with our members and key Senators and Representatives  to discuss immigration, cyber terrorism, and the role of the RE-ISAC to address the increasingly complex “threat matrix” facing our industry and nation.

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For questions about content/editorial matters, please contact The Roundtable's Xenia Jowyk at xjowyk@rer.org or (202) 639-8400. For layout or email delivery issues, contact RER's Scott Sherwood at rweekly@rer.org or (202) 639-8400.

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