Democrats Advance Human Infrastructure Package While Facing Tight Deadlines on Physical Infrastructure Bill, Budget Funding and Debt Ceiling
House Democrats this week advanced 13 committee bills – including positive measures affecting commercial real estate – that will be assembled into a massive $3.5 trillion “human” infrastructure package for policymakers to consider as soon as this month. (See Roundtable Weekly stories below for details on tax, energy and transportation legislation).
Human and Physical Infrastructure
- Democrats aim to pass President Joe Biden’s massive social spending and tax package in the House and Senate without Republican support using the budget reconciliation process – despite signals of resistance from some caucus members in a narrowly divided Congress. (BGov, Sept. 15)
- Additionally, House Speaker Nancy Pelosi (D-CA) has set a Sept. 27 deadline for the House to vote on a separate, bipartisan “physical” infrastructure bill passed by the Senate on Aug. 10. (Roundtable Weekly, Sept. 10 and Aug. 20)
- Congress also needs to act on FY22 government funding by October 1 to avoid a partial shutdown – and reach agreement on raising the federal debt ceiling in October to avoid a national credit downgrade or default. (Politico, Sept. 12)
[Photo, right to left: Roundtable Chair John Fish (Chairman and CEO, Suffolk); Roundtable President and CEO Jeffrey DeBoer and Senior Vice President & Counsel Ryan McCormick during today's Town Hall discussion on the House reconciliation package.]
- The physical infrastructure bill’s impact on CRE was the focus of a discussion published Sept. 15 in The Real Deal, featuring Roundtable Chair John Fish (Chairman and CEO, Suffolk) and Roundtable President and CEO Jeffrey DeBoer.
- Fish stated in the article, “At the end of the day, these are investments that the government is going to be sponsoring, that creates economic activity, job creation, and a sense of equality across our communities of America.”
- DeBoer commented, “We think it’s very important and very much needed, long overdue. I think everyone agrees that what is needed immediately is to work on our infrastructure, repairing roads, bridges, inter-city rail, broadband, water systems, and all of these things are definitely needed.” (The Real Deal, Sept. 15)
- The Real Estate Roundtable also held an all-member Town Hall discussion this afternoon to address specific measures in the House’s human infrastructure bill, including its tax policy aspects. The event featured The Roundtable’s John Fish, Jeffrey DeBoer and Senior Vice President & Counsel Ryan McCormick.
- A coalition of 13 real estate trade organizations, including The Roundtable, yesterday urged congressional leaders to raise the statutory debt limit as soon as possible. The letter stated, “Given the more than $8.6 trillion in mortgage debt backed by the federal government through Fannie Mae, Freddie Mac, Ginnie Mae and other federal agencies, the housing and real estate markets are particularly susceptible to any instability stemming from concern about the U.S. meeting its financial obligations.” (Coalition letter, Sept. 16)
The many policy issues now in play for CRE will be the focus of discussions during The Roundtable’s Fall Meeting on Oct. 5 in Washington, DC (Roundtable-level members only).
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House Ways and Means Committee Advances Historic Legislation with Safety Net Expansion and $2.1 Trillion in Tax Increases
The House Ways and Means Committee voted to advance legislation that would expand benefits for low-income families, invest in affordable housing and other Democratic priorities, and finance the initiatives with a $2.1 trillion tax increase that primarily falls on high-income individuals, pass-through businesses, and corporations. The legislation excludes several tax proposals put forward by the Biden administration and Senate lawmakers that would increase the tax burden on real estate. (Ways and Means news release and markup resources)
- Real Estate Roundtable President Jeffrey DeBoer stated, “The House Ways and Means Committee’s proposals include significant tax increases on corporations and income received by upper income taxpayers, and not on business activities like real estate. Even so, the combined tax hikes on income received from pass-through entities could threaten job creation and business expansion. As the bill moves forward, we encourage Congress to review the suggested tax hikes, particularly those on pass-through businesses, and work to ensure that unnecessary and unintended damage is not done to the economy. Substantial commercial real estate activities are conducted by pass-through entities and these activities create jobs, support retirement savings, and boost tax revenue for critical public services provided by local governments. The Roundtable is encouraged, yet cautious, at this still relatively early stage of the legislative process. Further changes may be on the horizon, both positive and negative.”
- Tax issues affecting CRE are summarized in The Roundtable’s summary on Real Estate Tax Issues and Budget Reconciliation Legislation. The real estate tax issues addressed by the W&M Committee include:
Real Property Like-Kind Exchanges (Section 1031)
- The bill wisely preserves taxpayers’ ability to defer capital gain when exchanging real property for another property of like kind.
Step-Up in Basis and Taxation of Gains at Death
- The bill preserves the step-up in basis that applies to appreciated gain when real estate is transferred from a decedent to an heir. The bill does not impose capital gains tax on appreciated real estate when transferred by a decedent or donor.
- The bill increases the maximum capital gains rate from 20% to 25%. The 3.8% investment tax is maintained and extended to all taxpayers, thus making the effective capital gain tax rate 28.8%. The President’s budget proposed increasing the capital gains rate to 39.6% to create parity between the tax rate on ordinary income and capital gains.
Real Estate Carried Interest
- The bill generally extends from 3 years to 5 years the holding period for partnership gains attributable to a profits interest to qualify for the long-term capital gains rate. However, the bill preserves the shorter 3-year holding period for capital gain related to a real property trade or business. The President’s budget proposed converting all carried interest income derived from a profits interest in a real estate partnership to ordinary income.
Pass-Through Business Income Deduction (Section 199A)
- The bill limits the maximum deduction available for pass-through business income under section 199A to no more than $400,000 for an individual and $500,000 in the case of a joint return ($2.5 million).
Net Investment Income Tax
- The bill would apply the 3.8% net investment income tax to income derived from a trade or business, capital gain, dividends, interest, and rental income regardless of whether the taxpayer is active or passive in the activity.
Other Tax Issues
- Other tax issues addressed by the committee included affordable housing, infrastructure financing, grantor trusts, deductibility of active losses and REIT constructive ownership rules. These issues are also summarized in The Roundtable’s summary on Real Estate Tax Issues and Budget Reconciliation Legislation.
- House Speaker Nancy Pelosi (D-CA) is expected to address a provision affecting the $10,000 limit on state and local deductions (SALT) before a final bill is assembled for a floor vote. (CNBC, Sept. 15)
- The committee’s proposals on clean energy incentives are detailed in the Roundtable Weekly story below on energy policy.
The House is expected to try to resolve major differences between their final bill and the Senate's version before voting on the package. Senate Majority Leader Chuck. Schumer (D-NY) has not set a formal deadline for the Senate to complete its work but he said Tuesday "there's going to be a lot of intense discussions and negotiations over the next few weeks." (RollCall, Sept. 14)
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House Committees Advance Clean Energy Measures Favorable to CRE
House committees this week advanced “clean energy” portions of the $3.5 trillion reconciliation plan along party lines, including several measures supported by The Real Estate Roundtable.
Clean Energy Tax Incentives
- The Ways & Means Committee this week approved “green energy” portions of the reconciliation package. (Bill text [Subtitle G); section by section)
- The Committee approved significant changes to existing tax credits that incentivize investments in solar, wind, combined heat and power (CHP) and fuel cell systems – and expanded them to also include energy storage and dynamic glass properties.
- These renewable energy investments would be subject to an “elective pay” option that can allow entities with little appetite for tax credits to request a payment equal to the value of the credit.
- Investments in EV charging stations and high-voltage transmission lines (needed to support delivery of renewable power over long distances) would also benefit from the elective pay option.
- The Committee also made changes intended to improve the 179D tax deduction for energy efficient buildings. The proposed changes are geared to support existing building retrofits.
- The amounts of these incentives would start at a “base rate” – and could increase to a “bonus rate” if the property owner meets certain labor provisions for Davis-Bacon wages and hiring registered apprentices.
Climate and Energy
- The House Energy and Commerce (E&C) Committee passed a $456 billion section of the reconciliation bill. (Bill text / Committee memorandum, Sept. 9 and Markup summary, Sept. 13)
- The centerpiece of the E&C package is a Clean Electricity Performance Program (CEPP). It would offer federal Energy Department “incentive payments” to electric utilities that meet clean energy targets and shift to zero-emissions sources (i.e., nuclear, hydropower, wind, solar, geothermal).
- A nationwide CEPP could accelerate “greening” the grid and help real estate and other sectors accommodate increasing demands from investors and regulators to source the electricity they purchase from renewable power.
- However, Sen. Joe Manchin (D-WV), chair of the Senate Energy and Natural Resources Committee and a key centrist vote needed for ultimate passage of a reconciliation package, has questioned the need for the CEPP program. He has stated that utilities should not receive taxpayer funds because the electricity sector’s’ transition to clean power sources is already happening. (Politico and E&E News, Sept 14)
Other elements of the E&C Committee’s bill include:
- Grants for state/localities to adopt most recent and zero-energy building codes; and
- A rebate program for electric vehicle charging infrastructure with set asides for individuals, small businesses, and low-income communities.
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Positive Transit Measures Included in Reconciliation Package
The House Transportation and Infrastructure (T&I) Committee this week marked-up its $57.3 billion piece of the reconciliation package with a focus on mass transit and high-speed rail.
- The House bill aims to supplement surface transportation measures that are included in the Senate-passed bipartisan “physical” infrastructure bill. (T& I Bill text; section-by-section and Roundtable Weekly, Aug. 13)
- Many of the T&I measures are now in line with the Biden administration’s original transit priorities, which were pared down in the Senate’s final physical infrastructure bill. (Washington Post, Sept. 10)
Roundtable-supported measures in the T&I Committee’s bill include:
- A competitive federal grant program to support transit access for affordable housing projects and improve mobility for low-income riders;
- Grants administered by the Federal Highway Administration to support transportation equity and reconnect communities divided by “existing infrastructure barriers;”
- Funds to improve high-speed rail corridors;
- Credit risk assistance to develop rail infrastructure under the Railroad Rehabilitation and Improvement financing (RRIF) program; and
- Funds to convert federal buildings owned or managed by the General Services Administration to “high-performance green buildings.”
- A competitive federal grant program to support transit access for affordable housing projects and improve mobility for low-income riders;
- Separately, the Ways and Means Committee’s package also proposed favorable tax-exempt bond financing improvements to attract greater public-private partnership investments in transportation projects.
Timing for a House vote on the sprawling reconciliation bill is uncertain. Modifications to the tax, energy or transportation sections of the bill could be introduced when it is sent to the House Rules Committee, which determines floor action – or through an amendment on the floor. House Speaker Nancy Pelosi (D-CA) can afford to lose only three votes when the final legislation comes to a vote. (Bloomberg, Sept. 15)
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House Committee Advances Bill to Expedite Emergency Rental Assistance; Treasury and FHFA Loosen Fannie, Freddie Mortgage Purchase Restrictions
The House Financial Services Committee (HFSC) on Sept. 14 advanced the “Expediting Assistance to Renters and Landlords Act of 2021” by a vote of 28-22 after a hearing last week that focused on urgent reforms needed to the Treasury Department’s Emergency Rental Assistance Program (ERAP). (Bill text and section-by-section)
- H.R. 5196 would allow property owners to directly apply for rental arrears after meeting certain requirements. Landlords could apply for pandemic-related rental aid without getting the tenant’s signature, but could not evict those tenants for 120 days. (HFSC memorandum, Sept. 7 and PoliticoPro, Sept. 14)
Assistance for Property Owners
- Treasury reported that as of July 2021, only 11% ($5.1 billion) of the $46.6 billion in authorized federal rental assistance funds had been spent by state and local governments to assist approximately one million renters. (Committee Memorandum, Sept. 7)
- The issue of eliminating significant bottlenecks to deliver billions in rental assistance to landlords and tenants has grown more urgent in recent weeks after the Supreme Court’s Aug. 26 decision to halt the federal eviction ban. (Roundtable Weekly, Aug. 27)
- Treasury this week announced it will speed up delivery of the remaining $13 billion in federal rental aid by targeting the high-performing state and local government grantees. (Treasury news release, Sept. 14)
- National Multifamily Housing Council (NMHC) Chair David Schwartz (Chairman and CEO, Waterton) testified Sept. 10 on behalf of the rental housing industry at the HFSC hearing “Protecting Renters During the Pandemic: Reviewing Reforms to Expedite Emergency Rental Assistance.”
- Schwartz supported the ramp up of rental assistance benefits and streamlining onerous application and documentation requirements, yet cautioned against the imposition of new requirements that create new barriers for property owners to participate in ERAP programs. (YouTube, full hearing and NMHC news release, Sept. 10)
- Schwartz will join Roundtable President and CEO Jeffrey DeBoer and NMHC President Doug Bibby in a Sept. 23 multifamily webinar hosted by RealEstateConnect that will cover the economic outlook and tax law policy changes under consideration in Washington. (Register here)
Fannie, Freddie Restrictions Suspended
- Treasury and the Federal Housing Finance Agency (FHFA) this week suspended Trump-era restrictions on Fannie Mae and Freddie Mac as the Biden administration reviews revisions affecting mortgage purchases. (American Banker, Sept. 14)
- The suspended provisions include limits on Fannie and Freddie cash windows (loans acquired for cash consideration), multifamily lending, loans with higher risk characteristics, and second homes and investment properties. (FHFA news release, Sept. 14)
Treasury stated, “FHFA will continue to measure, manage, and monitor the financial and operational risks of the Enterprises to ensure that they operate in a safe and sound manner and consistent with the public interest. During the suspension, FHFA will review the suspended requirements and consult with Treasury on any recommended revisions.” (Treasury news release, Sept. 14)
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