President Biden Signals Flexibility on Infrastructure Plan as GOP Senators Craft Alternative Approach; SALT Repeal May Influence Negotiations
President Joe Biden this week met with a bipartisan group of policymakers about the details of his multitrillion infrastructure proposal as a bloc of moderate GOP senators stated they are developing a far less expensive counterproposal that would pare back the definition of what comprises “infrastructure” and fund it with unspecified user fees. (Washington Post, April 14)
- Sen. Mitt Romney (R-UT), who is involved in talks about an alternative infrastructure plan, said, "The pay-for ought to come from the people who are using it," suggesting that a transportation mileage charge could be applied to electric vehicle drivers. "Clearly by bringing in additional revenue from actual miles driven is going to create some additional revenue," Romney said. (Politico Pro, April 14)
- Rep. Donald Payne, Jr., chairman of the House Transportation Subcommittee on Railroads, attended the White House meeting where President Biden said he was “prepared to negotiate” on his new infrastructure-focused economic plan – and expressed support for the Gateway project, a major rail tunnel project between New York and New Jersey. (BGov, April 12)
- An effort by members of Congress to repeal the cap on state and local tax deductions (SALT) is adding to the complexity of negotiations over the White House infrastructure proposal. Yesterday, a bipartisan congressional “SALT caucus” was launched to push for the full repeal of the $10,000 limit on state and local deductions, which was enacted as part of the 2017 Republican tax overhaul. (Bloomberg, April 15)
- It is unclear how many members of the bipartisan caucus would link their support for Biden’s infrastructure proposal, and its increased corporate taxes, to action on the SALT cap. Reps. Josh Gottheimer (D-NJ) and Tom Suozzi (D-NY), who co-chair the SALT caucus, said they “will not accept any changes to the tax code that do not restore the SALT deduction.” (CNBC, April 15)
- Additionally, several New York Democrats sent a letter to House leadership on April 13 urging for a full repeal. “We will not hesitate to oppose any tax legislation that does not fully restore the SALT deduction,” according to the letter. (BGov and Wall Street Journal, April 13)
- The White House’s infrastructure plan and the importance of energy efficient buildings was noted in a recent New York Times interview with White House National Economic Council Director Brian Deese.
- Deese stated during the April 9 Ezra Klein Show (podcast), “… it’s been true for multiple years that energy efficiency upgrades in commercial buildings should just happen, and they’re not. The built environment and industry get less attention but are extraordinary opportunities. And this [infrastructure] plan has a very significant investment in upgrading buildings and making them more energy efficient.”
- He added, “The jobs doing that happen all around the country. They’re construction jobs, building trades. A lot of it is actually high-value investment, where providing an incentive could actually unlock a bunch of private capital to invest, particularly in the commercial building space.”
- Deese is scheduled to participate in next week’s Roundtable Spring Meeting, along with U.S. Department of Transportation Secretary Pete Buttigieg. The remote discussions will be available on The Roundtable’s YouTube channel by April 21.
The Roundtable is part of the Build by the 4th coalition, led by the U.S. Chamber of Commerce, which encourages the Biden Administration and Congress to pass a comprehensive infrastructure deal by Independence Day 2021.# # #
Federal Reserve’s Robert Kaplan Discusses Economic Outlook with Roundtable; Real Estate Coalition Urges State and Local Officials to Distribute Federal Pandemic Relief Funds
Federal Reserve Bank of Dallas President and CEO Robert S. Kaplan, top left in photo, on April 12 discussed a wide range of monetary and fiscal policy issues with Roundtable Chairman Emeritus Robert S. Taubman (Chairman & CEO, Taubman Centers, Inc.), top right, and Roundtable President and CEO Jeffrey DeBoer, center. (Watch the Kaplan video interview on The Roundtable’s YouTube Channel)
The Fed View
- The remote discussion focused on the overall economy, inflation trends, affordable housing, commercial real estate, the banking industry and cryptocurrency. Among Mr. Kaplan’s key points:
- The Dallas Fed forecast for the 2021 U.S. economy’s growth rate is 6.5 percent.
- The distribution of COVID-19 vaccines is outpacing the spread of the virus, positively affecting economic growth.
- A recovering economy follows improved health conditions, with expected increases in consumer mobility and spending.
- A significant element driving the economic recovery is “Substantial fiscal policy, much more substantial as a percentage of GDP than we had during the Great Recession."
- The Dallas Fed forecast for the 2021 U.S. economy’s growth rate is 6.5 percent.
- Kaplan acknowledged the challenge of balancing central bank monetary policies with fiscal policies enacted by lawmakers. “Anytime there’s fiscal actions or other changes, you have to keep recalibrating that balance. There’s no textbook for this because we haven’t been through a period where we were shut down and we’re now reopening … and there’s no precedent in recent years of fiscal policy that’s this size of GDP,” Kaplan said. (Video of the discussion)
- He commented about the yield on U.S. Treasuries, which rose to 1.77% last month. “As we recover, it wouldn’t surprise me for it to drift higher, the 10 year,” Kaplan said, adding, “There’s no shortage of capital” to buy Treasuries. (BGov, April 9)
- Kaplan also addressed the economic trends monitored by the Dallas Fed, reopening progress and CRE debt exposure to banks.
Pandemic Relief Funds & Distribution
- Significant fiscal policy enacted by Washington lawmakers last month authorized hundreds of billions in pandemic relief under the American Rescue Plan Act of 2021 to households, small businesses, and the hospitality industry suffering from the economic impact of COVID-19. (Roundtable Weekly, March 12, 2021)
- The Wall Street Journal reported on April 13 that state and local authorities are overwhelmed with “how to allocate $25 billion in federal rental relief, leaving many tenants and landlords waiting weeks or months for their share.”
- The Roundtable is part of a broad real estate coalition that wrote on April 15 to state, county and municipal officials, urging them to distribute the allocated federal funds as soon as possible. (Coalition letter)
- The coalition letter emphasized the need for elected state and local leaders “to quickly and fully allocate available American Rescue Plan federal funds to provide assistance to renters, consumer-facing small businesses, and impacted industries such as retail, tourism, travel, and hospitality that are having trouble paying rents, mortgages or remaining viable enterprises due to the COVID-19 pandemic.”
- The letter adds, “Such assistance would make a big difference in the lives of thousands upon thousands of COVID-19 affected renters and businesses in their cities, counties, and states – and would also provide stability to the buildings and communities in which they live.”
The Treasury Department continues to implement pandemic recovery programs, including the State and Local Fiscal Recovery Fund, State Small Business Credit Initiative, and renter and homeowner assistance. Treasury Secretary Yellen and White House Rescue Plan Coordinator Gene Sperling met yesterday with members of the National Governor’s Association Executive Committee to determine the most efficient and effective way to get federal resources to states. (Treasury Dept readout, April 15)
# # #
Bipartisan Legislation to Build More Housing Near Transit Reintroduced
The bipartisan Build More Housing Near Transit Act of 2021 (H.R. 2483) – reintroduced on April 14 by Reps. Scott Peters (D-CA) and McMorris Rodgers (R-WA) – would encourage the construction of low and middle-income housing in transit-served, walkable locations.
- The United States is in the middle of a severe affordable housing shortage exacerbated by the economic toll of the COVID-19 pandemic. The National Low Income Housing Coalition estimates there is a shortage of 7 million affordable homes, and 10.4 million Americans spend more than half of their income on housing.
Benefits of the Bill
- The Build More Housing Near Transit Act of 2021 would provide incentives for building housing developments that use less land, allow people to live closer to job opportunities and effectively reduce green house gas emissions by eliminating the need for cars.
- The Roundtable-supported bill was initially introduced in the previous Congress, which passed the House as part of last year’s Moving Forward Act. (One-page summary, Up for Growth Action)
- This year’s bill (H.R. 2483) would ensure the Federal Transit Administration (FTA) takes a holistic and quantitative approach to evaluating applicants seeking to build affordable housing projects near transit station areas. Specifically, the bill would make some minor, but essential, enhancements to the evaluation criteria for the FTA’s Fixed Guideway Capital Investment Grants Program, or Section 5309 grants, which fund projects like commuter rail, light rail, and bus rapid transit.
- The Real Estate Roundtable joined a broad coalition of housing, transportation and other organizations in an April 14 letter to the bill’s sponsors to express strong support for the legislation.
- The coalition letter states, “ From encouraging more thoughtful planning, to supporting more inclusive housing policies, to enabling more efficient use of federal dollars, the Build More Housing Near Transit Act is a sound policy and the product of a collaborative process.”
- One of the organizations includes Up for Growth Action, whose Executive Director Mike Kingsella said, “The Build More Housing Near Transit Act encourages localities to align land-use policies and affordable housing resources with federal transit investment, ensuring that transit-rich communities are accessible to more Americans.” (Rep. Peters news release, April 24)
Original cosponsors of the legislation include Reps. Marilyn Strickland (D-WA), Derek Kilmer (D-WA), Lisa Blunt Rochester (D-DE), David Scott (D-GA), Ami Bera (D-CA), Alan Lowenthal (D-CA), and Tom Suozzi (D-NY).
# # #
Financial Regulators Call for Federal Legislation to Ease LIBOR Transition
Officials from the Fed and other top federal financial regulatory agencies testified on April 15 before a House Financial Services subcommittee that they support federal legislation to transition away from using the London Interbank Offered Rate (Libor) as an interest rate benchmark for US dollar contracts. (Subcommittee hearing video and background memorandum)
- Libor is currently used in many outstanding financial contracts – including mortgages, student loans and derivatives – worth trillions of dollars.
- Using LIBOR for new contracts is scheduled to end at the end of 2021. Additionally, all Libor maturities will stop in June 2023, although some will cease at the beginning of next year.
- Rep. Brad Sherman (D-CA), photo above – who chairs the House Financial Services Subcommittee on Investor Protection, Entrepreneurship, and Capital Markets that held the hearing – has circulated draft legislation of a proposal entitled the Adjustable Interest Rate (LIBOR) Act of 2021 to smooth the transition away from Libor to the Secured Overnight Financing Rate (SOFR). (Pensions & Investments, April 16)
- Lawmakers from both parties also voiced their support for federal Libor legislation during the hearing. Sherman stated that the need for federal action on Libor would test Congress to see if it can pass “necessary legislation that isn't Democrat, isn't Republican.” (CQ, April 15)
- The Real Estate Roundtable and 17 national trade organizations on April 14 sent a letter of support for federal Libor legislation to leadership of the House Financial Services Committee.
- The letter notes that the trillions of dollars of outstanding contracts, securities, and loans that use LIBOR for their interest rates do not have appropriate contractual language to address a permanent cessation of LIBOR.
- The coalition states in their letter that “Ineffective or ambiguous fallback provisions will result in uncertainty, litigation, and harm to consumers, businesses, and investors. Only federal legislation can uniformly address all 50 states, and only federal legislation can address issues such as the need for narrow relief from certain federal laws.”
- On April 6, 2021, New York Governor Andrew Cuomo signed the first state-passed legislation (Senate Bill 297B/Assembly Bill 164B) intended to reduce risks associated with the transition away from LIBOR. Since New York law governs many of the financial products and agreements referencing LIBOR, the legislation will provide legal clarity for these contracts and will lessen the burden on New York courts. (Pensions & Investments, March 25)
The American College of Real Estate Lawyers recently published a detailed overview of the Libor transition – “LIBOR'S Endgame: a Brief Pause, Not a Reprieve; a Safe Harbor, but a New Penalty” – by Joe Forte (Senior Legal Councel, AmTrust Title), who is a member of The Roundtable’s Real Estate Capital Policy Advisory Committee (RECPAC).
# # #