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July 18, 2014

CAPITAL & CREDIT /TERRORISM INSURANCE
Senate Overwhelmingly Approves Seven-Year TRIA Reauthorization; House Outlook Unclear After Hensarling Comments

INFRASTRUCTURE & TAX POLICY
House Transportation Funding Bill Heads to the Senate; Obama Seeks to Use Executive Authority to Boost Private Investment in Public Infrastructure Projects

TAX POLICY
House Action on Internet Access Tax Bill Raises Hopes for Internet Sales Tax Legislation Supported by Real Estate, Retailers, White House


CAPITAL & CREDIT /TERRORISM INSURANCE

Senate Overwhelmingly Approves Seven-Year TRIA Reauthorization; House Outlook Unclear After Hensarling Comments   

In a resounding display of bipartisan unity, the Senate yesterday voted 93-4 to approve the “Terrorism Risk Insurance Program Reauthorization Act of 2014” (S. 2244) — legislation to reauthorize the expiring Terrorism Risk Insurance Act (TRIA) for seven years. As The Real Estate Roundtable, Coalition to Insure Against Terrorism (CIAT), Real Estate Board of New York (REBNY) and other stakeholders applauded the Senate action and urged the House to follow suit, House Financial Services Committee Chairman Jeb Hensarling (R-TX) issued a discouraging statement suggesting it could take several more months of deliberations to come up with a plan that could clear the lower chamber. 

Sen. Schumer SOI 2011

Sen. Charles Schumer (D-NY) is a key sponsor of S. 2244 , the TRIA bill that cleared the Senate by a vote of 93-4. 

Sen. Charles Schumer (D-NY), a key sponsor of S. 2244, emphasized TRIA’s indispensible role in real estate and the economy.

“In a post-9/11 world, developers and business owners embarking on multiyear, multimillion or billion-dollar construction projects need to be certain they can insure their investments,” said Schumer.  “At a time when our economy is not growing as robustly as we’d like, failing to renew [TRIA] would be particularly foolish. Without (the program), it’s a virtual certainty that a large number of construction jobs and economic development would be lost.”

The Roundtable, which made a final appeal to all U.S. Senators by email yesterday morning, followed the  Senate vote with a press statement commending the chamber for addressing this urgent issue and restating its macroeconomic implications.

“Without Congressional action, TRIA will expire at year-end, causing a cascade of negative effects for businesses and institutions of all kinds that need terrorism insurance to protect against potentially catastrophic losses,” Roundtable President and CEO Jeff DeBoer stated.

“This includes the commercial real estate sector, where owners will either go into technical default on existing loans (if they lack terrorism coverage), or be unable to obtain financing for new projects, as lenders require terrorism insurance on the loan collateral,” he added. “This will surely lead to significant delays in all types of real estate transactions — such as purchases, sales,  refinancing and construction — as well as significant job losses across the country.”

Hensarling Chairman - crop

House Financial Services Committee Chairman Jeb Hensarling (R-TX) issued a discouraging statement suggesting it could take several more months of deliberations to come up with a plan on TRIA that could clear the lower chamber.  

The White House also expressed support for the Senate bill, stating, “Terrorism insurance is necessary for a broad range of economic activities in areas across the country, and would be prohibitively expensive or unavailable in the absence of the program” (AP, July 17). 

As for the House dynamics on TRIA, reportedly there is a behind-the-scenes power struggle among Republicans, with some “agitating for less backstop support for the coverage and others pushing to keep the trigger at $100 million” (GlobeSt.com, July 18). 

Earlier this week, Rep. Peter T. King (R-NY) warned that 30 or more House Republicans would join Democrats in opposing Hensarling’s bill (H.R. 4871), which narrowly cleared the Financial Services Committee on June 20 (CQ-Roll Call, July 18). 

“Hensarling, a rising conservative star with seeming designs on a House leadership post, is making things very difficult for current GOP leaders, who are eager to get what is a top business priority completed,” CQ-Roll Call reported.

Hensarling yesterday characterized the Senate TRIA bill as “essentially, a status quo bill that uses a phony Washington budget gimmick as a pay-for, meaning it can’t even come to the House floor as written.” 

He added that he is “still committed to getting a bill passed, but it has become very clear this week that the process is going to take several more months before there is a resolution. We have a diverse Republican caucus in the House. We have some members who believe the reforms go too far and we also have a host of conservatives who feel the reforms don’t go far enough. Washington is paying a lot of attention to one group’s concerns, but not enough attention to the other’s. That’s got to change if any TRIA bill is going to pass.”

S. 2244 and H.R. 4871 both propose for insurers to bear a larger proportion of losses from future terrorist attacks. However, the House bill differentiates between conventional terrorist attacks and those involving nuclear, biological, chemical or radiological (NBCR) weapons.

Additionally, beginning Jan. 1, 2016, the trigger for tapping the program following conventional attacks would increase [under the House bill] by $100 million per year to $500 million in 2019. The program trigger for NBCR attacks would remain at $100 million.

A report issued by the President’s Working Group on Financial Markets in April said the private market for terrorism insurance is “tightening” amid uncertainty over TRIA’s scheduled expiration on Dec. 31. The report also warned that, if TRIA is not reauthorized before year-end, terrorism risk insurance will become less available and more expensive, and coverage will become more limited.

Take Action on TRIA - The Real Estate Roundtable

With the focus now on the House, Roundtable members are urged to help maintain pressure on Congress to reauthorize TRIA

Roundtable Members Should Maintain Pressure on Congress

With the focus now on the House, Roundtable members are urged to help maintain pressure on Congress by continuing to write, call or tweet U.S. officials about the need for immediate action on TRIA — using our grass-roots advocacy tool and micro-website “Engage.”

Lawmakers should be reminded that terrorism is a man-made, constantly-evolving threat that strikes in a totally unpredictable manner — making it virtually impossible for private insurers to model or price such risk. They should also be reminded of the various mechanisms TRIA employs to protect taxpayers, U.S. economic security, and U.S. homeland security.

For further reference:

April 10 RAND Corp. report (The Impact of Eliminating the Terrorism Risk Insurance Program on Federal Spending) confirming that TRIA saves taxpayers money, particularly for terrorist incidents on the scale of 9/11

March 6 report by the RAND Corp. discussing TRIA’s role in protecting U.S. national security (National Security Perspectives on Terrorism Risk Insurance in the United States)

March 17 report by Standard & Poors (TRIPRA On the Brink of Expiration: A Ratings Perspective) warning that excessive changes in TRIA’s structure — to increase insurers’ “skin in the game” — could trigger ratings downgrades for smaller insurers, while limiting availability of indirect terrorism coverage.

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INFRASTRUCTURE & TAX POLICY

House Transportation Funding Bill Heads to the Senate; Obama Seeks to Use Executive Authority to Boost Private Investment in Public Infrastructure Projects  

With the Highway Trust Fund (HTF) nearly bankrupt and the Administration threatening to start cutting federal transportation funding to the states as of Aug. 1, the House on Tuesday voted overwhelmingly (367-55) for a short-term funding “patch” that will keep the HTF funded through May 2015.

Iastate Transpo Infra

The House voted overwhelmingly (367-55) for a short-term funding “patch” that will keep the Highway Trust Fund (HTF) funded through May 2015. 

Despite the overwhelming vote for the House measure, Democrats and the White House denounced Congress’s failure to pass a multi-year transportation bill, while fiscal conservatives criticized what they viewed as funding “gimmicks.”

The action now shifts to the Senate, where Majority Leader Harry Reid (D-NV) has promised to allow a vote on several competing bills: the House measure; a similar bill approved by the Finance Committee last week (with no expiration date on the funding and tax compliance provisions opposed by Republicans); and other Democratic proposals with a December expiration date on the funding (part of a push to enact a long-term funding bill during the post-election “lame duck” session).

Members of both parties predict the House measure will prevail, in large part because this would save time reconciling different versions of the legislation.

“I don’t want to speak for Harry Reid, but if I were betting, I’d bet a lot of money on [the House GOP bill becoming law],” said House Ways & Means Committee Ranking Democrat Sandy Levin (D-MI).

While criticizing the House bill’s short-term funding extension, the White House ultimately endorsed the House GOP measure (The Hill, July 16).

 Transpo Infra report Image July 2014

The White House Council of Economic Advisers (CEA) released a report on the long-term economic benefits of transportation investment and why conditions in the infrastructure sector are ripe for innovation.

“Congress shouldn’t pat itself on the back for averting disaster for a few months, kicking the can down the road for a few months, careening from crisis to crisis,” said President Obama, adding, “We should be investing in the future. ” (The New York Times, July 15).

Yesterday, Obama announced plans to undertake executive actions that would help boost private  investment in the nation’s infrastructure — including the creation of a “one-stop shop” at the Department of Transportation (DOT) to forge partnerships between state and local governments, and public and private developers and investors (The New York Times, July 17).

Jeffrey Zients, director of Obama’s National Economic Council (NEC), said the actions planned by the president seek to “turbocharge private investment in our roads, rails, highways and bridges. . . If we don’t act, we could lose our competitive edge in infrastructure. It’s a no-brainer — we need to make these investments.”

On Monday, the NEC and White House Council of Economic Advisers (CEA) released a report on the long-term economic benefits of transportation investment and why conditions in the infrastructure sector are ripe for innovation — with new technologies and approaches promising significant gains in productivity, efficiency, and resilience.

The Roundtable views the transportation infrastructure debate as a natural venue for advancing reform of the Foreign Investment in Real Property Tax Act (FIRPTA), as well as increased certainty for the EB-5 “immigrant investor” program — as both represent an important potential source of foreign capital that can help fund infrastructure and development projects.

Transportation infrastructure is vital to the health of U.S. real estate markets, given that it underpins local, regional, and national economies — and is critical to moving people, goods, information and resources within the “built environment.”

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TAX POLICY

House Action on Internet Access Tax Bill Raises Hopes for Internet Sales Tax Legislation Supported by Real Estate, Retailers, White House   

Prospects for action on Internet sales tax legislation — supported by a broad coalition of real estate and retail groups, governors and the White House — appear to have improved after key developments in Congress this week.

 internet sales tax

The key sponsors of last year’s Senate-passed Internet sales tax legislation have reintroduced their bill as the “Marketplace and Internet Tax Fairness Act” (MITFA) — incorporating a 10-year extension of the ban on Internet access taxes.

On Tuesday, the House broadly approved (and sent to the Senate) legislation that would permanently ban state and local governments from taxing Internet access (the “Permanent Internet Tax Freedom Act”). The current moratorium on such taxes, set to expire Nov. 1,  has been temporarily extended by Congress three times over the past 16 years (PC World, June 18).

Meanwhile, key sponsors of last year’s Senate-passed Internet sales tax legislation have reintroduced their bill as the “Marketplace and Internet Tax Fairness Act” (MITFA) — incorporating a 10-year extension of the ban on Internet access taxes. The sponsors of the new bill include Senators Mike Enzi (R-WY), Richard Durbin (D-IL), Lamar Alexander (R-TN), Heidi Heitkamp (D-ND), Susan Collins (R-ME) and David Pryor (D-AR). Although the length of the Internet access tax bans is different in the two bills, the presence of a Senate bill addressing both Internet sales tax and Internet access tax issues could help bridge differences between the two versions.

There is a separate measure in the Senate — sponsored by Sen. John Thune (R-SD) — that is a direct companion to the House-passed bill and does not include the online sales tax component (The Hill, July 18).

As reported in Roundtable Weekly on June 27, lawmakers in both chambers have been discussing ways to link the two issues — i.e. states’ ability to compel the collection of Internet sales taxes, and the need to extend the ban on Internet access taxes.

The Senate last year voted by a wide bipartisan margin for the “Marketplace Fairness Act” (S. 743), which would authorize states to require the collection of sales tax on Internet purchases — thereby, putting online retailers under the same obligation to collect these taxes as their physical-store counterparts. The legislation is backed by a broad coalition of real estate and retail groups, governors and the White House.

In addition to leveling the tax playing field among retailers, the measure would help states collect billions of dollars in revenue that they are owed — reducing pressure to raise taxes on other taxpayers, including brick-and-mortar stores and property owners.

Unfortunately, the House version of the Internet sales tax bill (H.R. 3179) has languished in the Judiciary Committee for most of the past year, with lawmakers there focused on addressing concerns about potential burdens on smaller retailers.

In connection with a House Judiciary Committee hearing in March, The Roundtable submitted a statement asserting that current law puts the owners of physical stores “at a significant and unfair competitive disadvantage relative to online retailers.”  The Roundtable urged that the law be changed to encourage job-creating capital investment “without picking winners and losers in the marketplace.”

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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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