Washington Leaders Aim for December Funding Deal; Lawmakers Seek to Include Tax Measures
President Biden met with congressional leaders on Tuesday to discuss the legislative agenda for the remaining weeks of the lame duck session before the new Congress begins on Jan. 3 with a House Republican majority.
Omnibus vs CR
- The meeting between President Biden and Senate Majority Leader Charles Schumer (D-NY), Senate Minority Leader Mitch McConnell (R-KY), House Speaker Nancy Pelosi (D-CA) and House Minority Leader Kevin McCarthy (R-CA) also focused on lawmakers efforts to reach a potential deal on a massive “omnibus” spending bill before current government funding expires on Dec. 16. (Politico, Nov. 29)
- There is a possibility that Congress could pass a one-week continuing resolution (CR) to extend current funding until Dec. 23 to buy more time to reach an agreement.
- Sen. McConnell commented on the White House meeting that there is “… widespread agreement that we’d be better off with an omnibus than a CR, but there are some significant hurdles to get over to do that.” (The Hill, Nov. 29)
- Attempts to attach a wide variety of other policy riders to an omnibus package—including tax extenders affecting commercial real estate—could become more difficult as the holiday break draws closer. (Wall Street Journal, Nov. 29 and Roundtable Weekly, Nov. 18)
- House Ways and Means Chairman Richard Neal (D-MA) this week expressed optimism about negotiations on tax measures that may be included in an omnibus, including "extenders” of tax incentives that have expired or are set to lapse after 2022. (CQ, Nov. 30)
- House Speaker Pelosi said yesterday that if Congress fails to reach a year-end spending bill in the coming weeks, then a “last resort” would be a year-long CR. (Politico video and Politico Pro, Dec. 1)
Real Estate-Related Tax Measures
- A bipartisan group of 54 House lawmakers sent a letter this week to House leadership that requested the inclusion of two affordable housing provisions from a bipartisan bill (H.R. 2573) “in any year-end legislative vehicle.” (BGov, Nov. 28 and PoliticoPro, Nov. 29)
- The Nov. 28 letter led by Reps. Suzan DelBene (D-WA) and Brad Wenstrup (D-OH) urged House Speaker Pelosi and Minority Leader McCarthy to expand and strengthen the Low Income Housing Tax Credit (LIHTC).
- The letter recommended extending a temporary increase in credit allocations enacted in 2018—and decreasing the amount of private activity bonds that are needed to access low-income housing credits (in the absence of specific credit allocation from a state housing authority). Studies suggest the latter proposal could increase affordable rental housing production by more than one million units over 10 years. (Novogradac 2020)
- Other important tax proposals vying for consideration include bipartisan, real estate-related bills. The first would modify REIT-related party rules to allow REITs to provide additional equity investment in struggling tenants. The second would modernize outdated tax rules that unfairly accelerate the income of condominium developers that pre-sell condo units during the construction process.
The Roundtable strongly supports these efforts and will discuss affordable housing and tax policy developments during our 2023 State of the Industry and Policy Advisory Committee meetings on Jan. 24-25 in Washington, DC.
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Treasury Issues Labor Guidance on Clean Energy Incentives; Roundtable Comments on EV Charging Station Credit
The Treasury Department on Wednesday released initial guidance on labor standards for companies to qualify for increased incentives in the Inflation Reduction Act (IRA), passed by Congress in August. (Federal Register, Nov. 30 | CNBC, Nov. 29 | Roundtable Weekly, Aug. 12)
Wage, Apprenticeship Guidance
- The IRA allows certain clean energy projects to qualify for “bonus” tax incentives (five-times “base” rates) if they meet prevailing wage and apprenticeship requirements.
- This “bonus” rate structure applies to commercial installations of solar panels and other clean energy technologies (Section 48 credit), EV charging stations (Section 30C credit), and energy efficient building equipment (Section 179D deduction).
- Treasury’s guidance directs taxpayers and their contractors to the federal government’s sam.gov website to search for geographically-appropriate wage determinations for construction jobs relevant to the IRA’s clean energy projects. If no labor classification for the planned work is available, a prevailing wage determination can be requested from IRAprevailingwage@dol.gov.
- The guidance also explains that certain percentages of “labor hours” on a qualifying clean energy project must generally be performed by apprentices from registered programs. (Treasury FAQs on prevailing wage and apprenticeships, Nov. 29)
- The guidance takes effect for qualifying projects that start construction on or after January 29, 2023. See Treasury Notice and news release.
- The Real Estate Roundtable addressed labor and other IRA issues in comments submitted Nov. 4 to Treasury and the Internal Revenue Service (IRS). [Roundtable Weekly, Nov. 4 and Oct. 7 | Roundtable IRA Fact Sheet, Sept. 20].
EV Charging Stations
- The Real Estate Roundtable submitted separate comments today to Treasury and IRS on the Section 30C tax credit for EV charging stations—or “Alternative Fuel Vehicle Refueling Property” as amended by the Inflation Reduction Act (IRA).
- The Roundtable comments urge the IRS to issue guidance to clarify the components of EV charging property that qualify for the credit, the geographic areas that are 30C-eligible, and depreciation matters.
- According to the Wall Street Journal, “Budget estimators expect around $1.7 billion in tax credits for chargers or other alternative-fuel equipment to be claimed over a 10-year period.” (WSJ, Nov. 29)
Treasury’s guidance on the IRA’s clean energy tax incentives and will be among the issues discussed during The Roundtable’s Jan. 24-25, 2023 State of the Industry and Policy Advisory Committee meetings in Washington, DC.
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Increase in Office Vacancy Rates Threaten Municipalities’ Tax Base; Remote Work Seen as Contributing Factor
- Roundtable President and CEO Jeffrey DeBoer commented, “We continue to urge policymakers and business leaders to push for the safe return of workers to their shared, physical workspace,” DeBoer said. (Connect CRE, Nov. 22 and CoStar, Nov. 21)
- He added, “A back-to-the-workplace movement would increase overall economic productivity and competitiveness, help preserve urban small businesses, and lower the threat to the property tax base of municipalities throughout the nation.” (News Release and Entire Q4 Report, Nov. 18)
National Vacancy Rates
- Recent industry reports show hybrid work arrangements are contributing to increased office vacancy rates nationwide and threatening the health and well-being of American cities.
- A national report issued this month by CommercialEdge shows that large swaths of companies that have embraced remote and hybrid work since the onset of the pandemic have influenced the current decrease in demand for office space in most markets. (Commercial Observer, Nov. 21)
- CommercialEdge reports U.S. vacancy rates rose over the previous 12 months in 86 of 120 markets, including 22 of the 25 leading office markets. (National Office Report webpage and pdf, Nov. 2022)
- CommercialEdge Senior Manager Peter Kolaczynski stated in the report, “Work-from-home solidifying itself, plus broader economic uncertainty, are set to continue the stress on the office industry as we enter the new year.”
Risks to Local Tax Revenue
- In Washington, DC, office owners alerted city officials this week that a dramatic and persistent decline in commuter activity—exacerbated by remote work—has contributed to deteriorating market conditions. The landlords warned that DC may face a significant loss of tax revenue that could threaten the city’s fiscal health, and that other cities are experiencing similar conditions. (Commercial Observer, Nov. 29 and Bisnow, Nov. 28)
- Prominent DC office landlords sent a letter on Monday to the city’s chief financial officer about eroding local market conditions, including increased vacancy rates, lackluster leasing activity, equity flight, and a financing drought—especially for assets with high levels of vacancy. “The pandemic and work from home have further eroded fundamentals and all indicators of the health of the District’s office market point increased systemic risk and distress,” the letter states.
- “For every decline of $100 million in commercial property tax assessments, annual property tax revenue falls by $2 million. It is vitally important for city officials to fully comprehend the difficult environment commercial office buildings are operating under and the risks to the future tax revenue,” the letter noted.
Signatories to the Nov. 28 letter—including Carr Properties, JBG Smith, Boston Properties, Brookfield, Trammel Crow and Hines—offered to work with DC officials to discuss potential means of addressing “this enormous challenge.”
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