Ensuring Sensible Policies in the Areas of Sustainabilty, Immigration, Infrastructure & Land Use Policies
Policy Issues Snapshot: Q1 2017
More background on various Energy, Environment, Land Use and Infrastructure policy issues can be found in recent issues of Roundtable Weekly — our weekly policy eNewsletter that can searched by key word or phrase. The Roundtable's 2017 National Policy Agenda, Real Estate: A Foundation for Growth, includes sections on Energy Efficiency and Infrastructure.
News on various sustainability issues can be found in recent issues of Roundtable Weekly — our weekly policy eNewsletter archive that can searched by key word or phrase.
• "Tenant Star"
• EB-5 Investment Program
• Land Use Near Airports – FAA “One Engine Inoperative” Policy
• Federal Building Energy Codes
• Tax Incentives for Energy Efficient Buildings
• Commercial Building Energy Consumption Survey (CBECS)
• EPA's ENERGY STAR Program
• Sustainability Accounting Standards Board (SASB)
• Green Appraisal Standards
• Federal Environmental Regulations – Climate, Waters of the U.S., Lead-Paint
Policy Issues SnapShot:
> "Tenant Star"
- "Tenant Star" legislation directs the federal EPA and Energy Department to implement a voluntary, market-based branding program to recognize commercial landlord and tenants that design, construct, and operate within high-performance and energy efficient leased spaces. It has been a top priority of The Roundtable’s Sustainability Policy Advisory Committee (SPAC).
- Capping years of advocacy efforts by The Roundtable, real estate industry partners, energy efficiency and other stakeholders, President Obama on April 30, 2015 signed into law the Energy Efficiency Improvement Act of 2015 (S. 535), whose “Tenant Star” component is expected to encourage optimum energy efficiency in leased commercial spaces and increased investment and job creation, while also helping the environment.
- In June 2016, The Roundtable sent a letter to President Obama urging him to implement “Tenant Star” before he leaves office, as a key element of his energy and climate legacy. Indeed, the federal agencies have started the process to implement the program. As a key initial implementation step, on April 30, 2016, US-DOE completed its report regarding high performance commercial tenant “fit-outs” as mandated by Congress. EPA has planned “Tenant Star” summit meetings to create the first voluntary “labeling” program focused on high performance design and construction (D&C) of leased spaces.
> EB-5 Investment Program
- EB-5 attracts foreign capital by currently allowing $500K investments in Targeted Employment Areas (or $1 million elsewhere) for job-creating development projects in the U.S. Immigrant investors obtain lawful “green card” status if they meet the program’s stringent criteria.
- During and since the financial crisis, EB-5 has been used across the U.S. to finance many projects including real estate, infrastructure, agribusiness, energy, hospitality, entertainment, and recreation.
- The EB-5 “regional center” program is scheduled to expire on Sept. 30, 2016. Congress is expected to extend this program into December 2016, as tied to the continuing resolution for short-term federal funding. Negotiations for longer term extension and major reforms are continuing. The Roundtable is working with the “EB-5 Investment Coalition” (www.eb5coalition.org), the U.S. Chamber of Commerce, and other stakeholders to support multi-year reauthorization as long as key reforms are included.
- The Roundtable supports “integrity reforms” to deter potential investor fraud and safeguard any possible national security risks posed by the EB-5 program. These reforms are the centerpiece of bipartisan bills introduced by Senators Grassley (R-IA), Leahy (D-VT), Flake (R-AZ), Cornyn (R-TX), and Schumer (R-NY), among others.
Aletter sent to Capitol Hill by a 70-plus-member coalition on November 19, 2015 specifically backed EB-5 “integrity” reforms advocated by Senate Judiciary Committee Chairman Charles Grassley (R-IA), Senate Foreign Relations Chairman Bob Corker (R-TN), and Senate Homeland Security Committee Chair Ron Johnson (R-WI) to improve regional center accountability.
- Legislative EB-5 reforms, aligned with recommendations from a Government Accountability Report released last August, continued to be proposed with the introduction in December of the “EB-5 Integrity Act of 2015” (S. 2415). Sponsored by Judiciary Committee Senators Jeff Flake (R-AZ), John Cornyn (R-TX) and Charles Schumer (D-NY), S. 2415 would, among other things, provide authorities for the Department of Homeland Security to:
- Conduct criminal background checks and obtain biometric information from individuals involved in the regional center program
- Debar individuals and suspend or terminate regional centers based on program non-compliance and other factors
- Deny or revoke immigrant investor petitions for reasons including fraud, misrepresentation, or national security concerns
- Establish an “EB-5 Integrity Fund” with fees on applicants to pay for federal site visits that will further rigorous program oversight
- Require thorough annual reporting and accounting requirements for regional center operators
- Collect evidence for assurances that an investor’s funds are derived from legitimate and lawful sources
- Engage in a proper and non-preferential way with industry stakeholders to avoid favoritism in processing applications
Other key issues focus on the balance to ensure fair access to EB-5 financning for rural, urban and suburban areas alike in the context of Targeted Employment Area (“TEA”) designations; and how to “grandfather” existing investors and projects with new rules Congress may require. Resolution on these matters will be critical to procure any long-term EB-5 reauthorization. This year, both the Senate and House Judiciary Committees have held hearings regarding TEA reform.
- These and many other topics are expected to be central to EB-5 reform negotiations in 2017. The Roundtable is working with the “EB-5 Investment Coalition” (www.eb5coalition.org) urging Congress to pass responsible, multi-year reauthorization before expiration.
> Land Use Near Airports – FAA “One Engine Inoperative” Policy
- In 2014, the Federal Aviation Administration (FAA) announced a change in its longstanding One Engine Inoperative (“OEI”) policies to determine hazards to “navigable airspace.” This “about face” could have serious implications on the height of buildings, transferrable air rights, and land development near airports across the nation – and the ability to obtain lending and insurance coverage for these buildings and projects.
- Before the FAA can change these policies, The Roundtable and coalition members maintain the agency must go through a full rulemaking process. to prevent an agency from changing regulations by the “stroke of a pen.” We also believe the White House Office of Management and Budget must study and report on the economic, safety, and land use implications of the proposed agency policy change.
- The Roundtable and a coalition of real estate groups submitted a technical comment letter to FAA on July 25, 2014 asking for a full rulemaking with a cost-benefit analysis. While the agency has taken no further steps to finalize its policy change, to date it has also not responded to our request.
- Long-term FAA reauthorization is considered one of this year’s “must do” items, as Congress must reauthorize the agency this summer. The Roundtable and our partners are working to incorporate favorable OEI language in any such FAA reauthorization bill. To this end, the House added our recommended “rulemaking” and “cost benefit” language in its bill passed in February. Efforts are currently underway to urge the Senate to add identical language.
> Federal Building Energy Codes
- The Roundtable and other real estate organizations have long opposed any efforts to create a mandatory, “one size fits all” federal building energy code administered and enforced by the U.S. DOE. Building codes should are a state and local issue. A federal code would create confusion with state laws already dominating this field.
- Senate bills have endorsed The Roundtable’s approach. The comprehensive Portman-Shaheen energy efficiency bill (S. 720) authorizes voluntary energy efficiency building “targets” developed by DOE with cost considerations and tenant “plug load” uses in mind. Portman-Shaheen would not create new regulations.
- The Portman-Shaheen has been incorporated into a larger Senate energy package, which was stalled due to the Flint, MI drinking water controversy. The Portman-Shaheen bill was re-introduced in the Senate in February 2017.
- Voluntary energy codes legislation also supported by The Roundtable passed the House (H.R. 8, 1273) along mostly party-lines. These bills sponsored by Reps. Fred Upton (R-MI), Marsha Blackburn (R-TN) and Kurt Schrader (D-OR) prescribe specific “pay-back” periods to justify the costs for energy efficiency components that DOE must consider in developing code proposals.
> Tax Incentives for Energy Efficient Buildings
- The 179D deduction is the U.S. tax code’s key provision to incentivize greater energy efficiency in commercial and larger multifamily building. Section 179D was part of Congress’s package that extended expired tax provisions last December. The extension runs through the end of 2016.
- Section 179D was part of Congress’s package that extended expired tax provisions until the end of 2016. For years, The Roundtable and other real estate groups have urged modifications to 179D to better enable private sector “retrofit” projects of existing buildings, and improve its usability by REITs. We support 179D’s temporary extension – insofar as it is a placeholder to try and achieve more meaningful improvements for retrofits. If comprehensive tax code reform discussions ever occur, Congress may consider energy incentives holistically. Programmatic changes to 179D would best be raised in that context (not in extenders). But serious comprehensive tax code negotiations – if they ever occur – will only happen with the new Congress and Trump Administration.
- * Also expired at the end of 2016 is the federal tax credit for combined heat and power (CHP) systems. Efforts continue to urge status quo extension of 179D and CHP credit as placeholders for future reform. In May and June 2016, The Roundtable led a real estate coalition urging Congress’s tax writing committees to extend the 179D deduction, the CHP tax credit, and other building-related energy incentives.
> Commercial Building Energy Consumption Survey (CBECS)
- CBECS is a national sample survey that collects information on the stock of U.S. commercial buildings, including their energy-related building characteristics and energy usage data (consumption and expenditures). The Energy Information Administration (EIA), DOE’s information gathering arm, is responsible for the CBECS process.
- Roundtable members were randomly selected to participate in CBECS data gathering when EIA fielded the survey in 2013. The 2013 CBECS data could alter a building’s ENERGY STAR score as determined under US-EPA’s rating program. It continues to “crunch numbers” and release new data on buildings’ nationwide energy use from the 2013 survey. It is gearing up to conduct a new survey in 2017.
- In March-April 2015, CBECS released more detailed data from the 2012 survey effort. A schedule of EIA’s planned release of further CBECS data for the remainder of this year and 2016 is available on its website at: http://www.eia.gov/consumption/commercial/
- The Roundtable has facilitated federal agency discussions to ensure coordinated roll-out of CBECS’s impact on ENERGY STAR ratings. Federal agency staff announced at our Sustainability Policy Advisory Committee (SPAC) last January that ENERGY STAR ratings will be updated in 2018 to reflect data gathered from the 2013 CBECS survey.
> EPA's ENERGY STAR Program
- EPA’s voluntary ENERGY STAR rating program for buildings is a great success. More than 25,000 U.S. buildings have been awarded the ENERGY STAR label, and about 40% of the market tracks and measures energy use through EPA’s “Portfolio Manager” benchmarking tool.
- The Roundtable has been assisting EPA to consider how “Portfolio Manager” – currently available to track water and energy use – may evolve to also include building waste management and tracking. We expect a new waste-tracking feature will be added in 2016.
> Sustainability Accounting Standards Board (SASB) Asset Score
- The stated mission of the non-profit SASB is to improve corporate disclosures of “material information” for investors regarding climate, environmental, social, and governance (ESG) risks.
- SASB has developed voluntary ESG reporting principles, intended for use in SEC Form 10-Ks forms and similar filings, for a number of industries over the past years. In 2015, it started gathering input on ESG principles for real estate owners and service providers.
- RER Throughout 2015, RER’s Sustainability Committee engaged with SASB raising concerns about its initial research about real estate and sustainability initiatives. RER submitted comments on the proposed reporting standard on January 5, 2016.
- SASB released its “provisional” ESG reporting standards, made available on March 31, 2016. These will now be tested in the marketplace for the remainder of this year, and are expected to become final voluntary ESG reporting standards by 2017.
> Federal Environmental Regulations – Climate, Waters of the U.S., Lead-Paint
- US-EPA has ramped up regulatory efforts to get new federal environmental rules in place before President Obama leaves office. Several recent and anticipated rules may have significant impact of the U.S. real estate sector. The Roundtable has submitted lengthy, technical comments to EPA on most of these matters.sector.
- In particular, EPA:
(1) released its “Clean Power Plan” in Aug. 2015 to cut emissions of greenhouse gas (GHG) from existing coal-fired power plants;
(2) released its “waters of the United States” (“WOTUS”) rule in May 2015 regarding ditches and drains regulated under the Clean Water Act (“CWA”); and
(3) proposed a “framework” by which it will determine whether renovation and remodeling activities in public and commercial buildings create lead-based paint hazards to tenants and other occupants.
These rules could affect the real estate sector as follows:
(1) states may seek greater building energy efficiency standards and programs as they strive to comply with the Clean Power Plan;
(2) theWOTUS rule would allow federal protection of drainage ditches and create double regulation of municpally-owned stormwater sewers; and
(3) the lead-paint rules could trigger new testing and renovation best practices whenever a new “fit out” occurs for commercial tenant leases.
(4) the formaldehyde rules are expected to require wood products purchased by building owners (e.g., flooring, furniture) to be labeled as compliant with indoor air quality emission standards.
- President Trump on February 28, 2017 issued an executive order directing federal agencies to formally re-consider an Obama-era rule regarding federal Clean Water Act determinations that require land owners to obtain permits to develop and construct real estate, infrastructure, and other projects— and affects WOTUS.
- On the WOTUS issue, The Roundtable filed coalition comments in Aug. 2014. The comments mainatin that urban storm sewer systems should not be “doubly regulated” as WOTUS. In Oct. 2015, the U.S. Sixth Circuit Court of Appeals issue a “stay” to temporarily block the agencies’ implementation of the WOTUS rule.
- The WOTUS and GHG issues are particularly acrimonious on Capitol Hill. The Republican majorities in both chambers have highlighted these rules as examples of regulatory overreach and have introduced legislation to stop them. But Democrats in the Senate, have blocked GOP efforts to unwind these new environmental rules.
- The WOTUS and GHG rules are also being challenged in the federal courts. Both rules have been subject to a “stay” which blocks EPA from implementing them (at least temporarily), until the federal courts can decide whether in fact they are legal or not.
For weekly updates on key policy issues affecting commercial real estate, see our eNewsletter Roundtable Weekly.
The Roundtable’s Sustainability Policy Advisory Committee (SPAC) is led by chairman Tony Malkin (Empire State Realty Trust) and Joyce Mihalik (Forest City Enterprises) serving as vice chair. For additional information on sustainability, infrastructure, immigration, and land use issues, please contact Duane Desiderio, Senior Vice President and Counsel at The Real Estate Roundtable or call (202) 639-8400.