Broad Business Coalition Urges Congress to Extend Terrorism Risk Insurance Act (TRIA)
A broad business coalition urged Congress in a September 17 letter to swiftly pass a long-term reauthorization of the Terrorism Risk Insurance Act (TRIA), which is currently set to expire at the end of 2020. Nearly 350 companies and organizations signed the letter including The Real Estate Roundtable. (Coalition Letter )
- TRIA was originally enacted in 2002 in response to the inability of insurance markets to predict, price and offer terrorism risk coverage to commercial policyholders. The law was extended in 2005, 2007 and again in 2015 – following a 12-day lapse when Congress failed to complete their work on reauthorization at the end of 2014.
- The coalition letter notes, “The American business community remembers all too well the twelve-day lapse in the program in early 2015 and the disruption that lapse played in a variety of markets. We urge Congress to help provide much needed certainty by passing a long-term reauthorization of this important program without delay.”
- The coalition emphasizes that TRIA has served as a vital public-private risk sharing mechanism, ensuring that private terrorism risk insurance coverage remains available to commercial businesses, educational institutions and non-profit organizations at virtually no cost to the taxpayer.
- According to a 2019 Marsh study, the education, media, financial institutions, real estate, hospitality and gaming, and health care sectors had the highest 'take-up' rates among the 17 industry segments surveyed – all above 70%.
- Additionally, a 2018 Treasury Department report stated that “the Program has made terrorism risk insurance available and affordable in the United States, and the market for terrorism risk insurance has been relatively stable for the past decade.”
- The letter emphasizes, “The undersigned organizations urge Congress to promptly enact a ‘clean’ long-term extension of this vital program. Making changes to the TRIA mechanism to increase insurer retentions could affect the ability of many insurers, particularly smaller and mid-sized companies, to write risks or markets altogether, which ultimately impacts the ability of policyholders to secure adequate coverage.
Absent TRIA, there is not sufficient insurance and reinsurance capital available to provide comprehensive terrorism coverage to U.S. insurance buyers,” the coalition states. (Reinsurance News, Sept. 17)
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California Law Reflects National Affordable Housing Trend in Rent Regulations
California lawmakers passed legislation (AB 1482) September 11 that imposes a statewide cap limiting annual rent increases to 5% after inflation – the latest measure from a growing list of jurisdictions seeking to address housing affordability though rent regulations. California Governor Gavin Newsom (D) has said he will sign the bill. (New York Times, Sept. 11 and NMHC, Sept. 12)
- In a state of nearly 40 million people, California’s rent control measure could affect an estimated 8 million residents of rental homes and apartments. (Realtor Magazine, Sept. 12). The 5% rent increase cap would not apply to housing built within the last 15 years or to single-family homes that are not corporate-owned.
- National Multifamily Housing Council (NMHC) President Doug Bibby responded, “After Californians overwhelmingly rejected the rent control ballot initiative less than a year ago, lawmakers today went against their constituents by passing a measure that will discourage investment, shrink the availability of affordable housing that already exists and squeeze even more people struggling in the housing market. This makes the problem worse. The housing affordability crisis is real, real Americans are being harmed by it every day and we need real solutions – not restrictive policies that we know don’t work." (NMHC news release, Sept. 12)
- An interactive national map, above, by the NMHC details the trend in state capitals addressing rent control measures. In New York, a rent control law signed by Governor Andrew Cuomo on June 14 directly impacts about 40 percent of New York City's apartment stock; freezes "stabilized" NYC apartments from moving to market rental rates; and discourages owners from modernizing aging housing. (Wall Street Journal, June 14 and Roundtable Weekly, June 21).
- Meanwhile, candidates on the 2020 campaign trail are offering plans to address the nation's affordable housing needs. (NPR, June 18)
- Affordable housing proposals in Congress include an expansion of the low-income housing tax credit program (e.g., S. 1703, H.R. 3077), and a similar tax credit geared to moderate-income, workforce housing (S. 3365, 115th Cong.).
Housing and Urban Development Secretary Ben Carson recently offered a strategy to boost affordable housing by encouraging localities to ease their own building restrictions. (Politico, June 14). Secretary Carson is scheduled to discuss housing policy issues with Roundtable members during the organization’s Fall Meeting on October 30 in Washington.
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Treasury Releases Regulations Addressing National Security Concerns and Foreign Investment in Real Estate
The Treasury Department yesterday issued proposed regulations to comprehensively implement the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA), which seeks to more closely scrutinize certain investments and real estate transactions potentially affecting national security. (New York Times, Sept. 17)
- The proposed regulations include reforms to the Committee on Foreign Investment in the United States (CFIUS) – an interagency committee authorized to review certain transactions involving foreign investment in the United States for national security concerns. The CFIUS reforms in FIRRMA received broad support in Congress and were signed by President Trump on August 13 as part of a defense funding bill. (Wall Street Journal, Aug. 15 and Roundtable Weekly, August 17)
- The Treasury released the rules, which affect real estate and private equity transactions, in two parts:
- The second part of the regulations clearly demonstrate that the federal government is intent on reviewing more real estate transactions for security concerns, while considering country-specific exemptions for the first time.
- The text affecting real estate includes, "FIRRMA expands CFIUS’s jurisdiction to include certain types of real estate transactions involving the purchase or lease by, or a concession to, a foreign person of certain private or public real estate located in the United States.”
- The rule continues, “FIRRMA focuses on two general categories of real estate and provides certain exceptions. The first category of real estate is described by its relation to airports and maritime ports. The second category of real estate is described by its relation to U.S. military installations and other facilities or properties of the U.S. Government that are sensitive for national security reasons."
- An analysis of the proposed CFIUS reform regulations is available via Bloomberg Law.
- The full text of the proposed regulations and frequently asked questions can be found on the Department of the Treasury’s website.
The Roundtable plans to prepare comments, which are due by October 17, 2019 before the law is scheduled to go into effect in February, 2020.
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Roundtable Requests Regulatory Correction to Unfair Tax Rules Affecting New Condo Construction
The Roundtable on August 21 wrote to Treasury Secretary Steven Mnuchin requesting regulatory relief from existing tax accounting rules that unfairly accelerate federal income tax liability for new condominium construction. (Roundtable letter )
- Current condo tax accounting rules require multifamily developers of condominium buildings with five or more residential units to recognize income and pay tax on their expected profit as construction is ongoing — well before pre-sale transactions are closed and full payment is due from the buyer. The existing rules create a mismatch of cash flow and tax liability. Home builders of single-family homes, townhouses and row houses are not subject to this accounting rule restriction.
- Roundtable President and CEO Jeffrey DeBoer states in the letter, “The existing, discriminatory tax rule for condominium construction is particularly harmful in light of the significant and often measureable economic, environmental, and social benefits of high-density residential development. High-density development brings down the costs of infrastructure, as well as the costs of key public services: police, fire, and emergency medical assistance. The environmental benefits include reduced vehicle emissions and smaller ecological footprints that minimize encroachment on farms, forests, and other sensitive areas. In addition, research links high-density growth to greater labor productivity and economic innovation.”
- The Roundtable’s letter details how the completed contract method of accounting – rather than the percentage of completion method – would more accurately fit the economics of condominium construction. (Tax Notes, August 23)
- In 2008 the IRS and Treasury released proposed regulations (REG-120844-07) under section 460 that would treat individual condo units as townhouses or rowhouses.
- The Roundtable letter explains, “The Treasury Department can solve this problem, however, and provide a lift to homebuilding and the economy by simply finalizing a previously proposed regulation that regrettably fell off the Department’s regulatory agenda in the last Administration. Pending, proposed Treasury regulations would modify what is considered a home construction contract and clarify that condominium construction qualifies for the completed contract method of accounting.”
A House bill introduced in the last Congress by Reps. Carlos Curbelo (R-FL) and Joe Crowley (D-NY) aimed to correct this disparity. Although the Fair Accounting for Condominium Construction Act (H.R. 3659) stalled in 2017, it could serve as a template for development of new legislation to correct current condominium tax accounting rules.
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