News Type: Roundtable Weekly

NLRB Restores Broad, Obama-Era “Joint Employer” Standard; Industry Coalition Calls for Congress to Pass Unified National Definition

Posted on by Trey Jackson

A conflict of interest by a newly-appointed member of The National Labor Relations Board (NLRB) prompted the agency on Monday to restore a 2015 ruling that renders employers vulnerable to claims by “indirect” workers who are not immediate hires – a move with significant implications that again subjects hotels, other franchise-model businesses, and companies that hire contractors to an expansive “joint employer” liability standard.

With Browning-Ferris  revived, an expanded, vague test – based on “indirect ” and “ potential ” control over workers’ terms and conditions of employment – will replace a more predictable and clear “direct and immediate control” standard for determining joint employer liability.

Last December, the NLRB issued its decision in Hy-Brand Industrial Contractors, Ltd. , which overturned the Obama-era “joint employer” standard announced in Browning-Ferris Industries of California, Inc.  (Roundtable Weekly, Dec. 15, 2017)  With Hy-Brand now vacated – because the board’s inspector general recommended that a Trump appointee who previously worked for a law firm that represented one of the companies in Browning-Ferris should have recused himself – the 2015 decision is back in effect.

The withdrawal of Hy-Brand creates an uncertain and complicated legal landscape for ongoing franchise-related cases. (New York Times, Feb. 26) 

With Browning-Ferris revived, an expanded, vague test – based on “indirect” and “potential” control over workers’ terms and conditions of employment – will replace a more predictable and clear “direct and immediate control” standard for determining joint employer liability.  The decision exposes a broad range of contractors and subcontractors, and franchisors and franchisees, to workplace liability for another employer’s actions and a potential obligation to collectively bargain with workers they have not directly hired.  (Wall Street Journal, Dec. 14.)

As the NLRB’s action vacating Hy-Brand demonstrates, congressional action could  definitively address the joint employer standard and insulate the issue from whichever party has enough appointees to swing the majority on the highly politicized labor board.  The House of Representatives in November 2017 passed the Save Local Business Act (H.R. 3441), which would codify the “direct and immediate control” standard when deeming employers liable for workplace violations.

A multi-industry coalition, including The Real Estate Roundtable, on Feb. 15 wrote Senate leaders urging them to take up H.R. 3441 as soon as possible to provide certainty for small business owners and other employers in all industries, while clarifying protections for American workers.

President Trump’s Plans to Slap Global Tariffs on Imported Steel and Aluminum Spark Concerns Regarding Real Estate and Infrastructure Investment

Posted on by Trey Jackson

President Trump yesterday said he will sign a formal order next week imposing tariffs of 25 percent on imported steel and 10 percent on aluminum for “a long period of time” – an act that could raise domestic construction costs and create new challenges for real estate development and infrastructure projects. (White House Remarks, March 1)

President Trump yesterday said he will sign a formal order next week imposing tariffs of 25 percent on imported steel and 10 percent on aluminum.

Roundtable President and CEO Jeffrey DeBoer voiced concern about how such a broad international penalty could rebound against the domestic commercial real estate industry. “In the United States, forty-two percent of steel is consumed by the construction industry, which employs millions of Americans directly and millions more indirectly,” said DeBoer.  “Aluminum is also a key material used in energy efficient building construction.  The current healthy state of the U.S. commercial real estate industry could be hard hit with the unintended consequences from such broad penalties targeting metals essential to construction. Tariffs will lead to higher construction costs that make many new projects simply uneconomic and unviable — hurting investment and job creation,” DeBoer noted.
 
Trump’s announcement, made during a White House meeting with U.S. metals industry executives, sparked a bout of stock market volatility and immediate responses from Canada and the European Union promising “countermeasures” to “rebalance” international trade with  the U.S.  
 
Federal Reserve Chairman Jerome Powell, following testimony this week before the House and Senate, said, “The best approach is to deal directly with the people who are affected, rather than falling back on tariffs.” (Wall Street Journal, March 1)
 
According to an analysis by the Cato Institute, more than 200 anti-dumping and countervailing duty orders aimed at preventing unfair competition currently constrain U.S. imports of steel and iron products from a long list of countries. The effect has been an increase in U.S. prices well above global levels to the detriment of the large manufacturing and construction sectors in America that use steel to make higher-value products. (CATO Institute, CNN Commentary, Aug. 2, 2017 and Engineering News-Record, Feb. 22, 2018)
 
The impact of tariff penalties on President Trump’s recent infrastructure proposal are uncertain. Transportation Secretary Elaine Chao yesterday testified before a Senate committee about the Administration’s infrastructure plan, which emphasizes policies to lower project costs and reduce project delays.  Higher tariffs on steel – a material necessary to build and repair bridges, tunnels, pipelines, and rail lines – could further constrain the federal state, local and private funding sources touted by the Administration as necessary to finance U.S. infrastructure repair and modernization.  (Bloomberg, March 1)
 
Infrastructure and national policies affecting economic growth will be discussed during The Roundtable’s Spring Meeting on April 25 in Washington, DC.

Roundtable Proposes Framework for Implementing the Real Estate Exception to the New Business Interest Deduction Limit

Posted on by Trey Jackson

The Real Estate Roundtable on Wednesday wrote to Treasury Secretary Steven Mnuchin regarding the new limitation on business interest deductibility created in the Tax Cuts and Jobs Act, including rules that allow taxpayers to continue fully deducting interest related to commercial real estate debt. (Roundtable letter, Feb. 21)

The Feb. 21 Roundtable letter urges that Treasury clarify that interest (other than investment interest) on debt that is allocable to an owner of an entity engaged in a real property trade or business is exempt from the new business interest limitation rule – if that trade or business has elected out of the rule.

The exception for interest allocable to a real property trade or business reflects policymakers’ understanding that limits on the deduction for interest expense could have enormous negative consequences for property values, real estate markets, and economic growth.  (Reference: Real Estate Forum, Jan/Feb 2018, Decoding The New Tax Bill)

The Feb. 21 comment letter requests clarification to ensure the real estate exception operates as intended for common real estate ownership arrangements – focusing on the scope and application of the exception for an electing real property trade or business. 

The letter urges that Treasury clarify that interest (other than investment interest) on debt that is allocable to an owner of an entity engaged in a real property trade or business is exempt from the new business interest limitation rule – if that trade or business has elected out of the rule.  

As relevant examples, the letter describes four common scenarios where the financing of a real property trade or business occurs through a tiered structure.  The letter demonstrates why treating the interest expense of an upper-tier entity as properly allocable to the real property trade or business of a lower-tier entity is consistent with the legislative intent and conforms with existing tax rules and principles.  

The letter also addresses the allocation of indebtedness within entities, requesting that Treasury guidance apply the tracing rules found in existing authorities, which are already used for purposes of the passive loss rules.  

During a Feb. 20 tax conference, both Treasury’s Deputy Tax Legislative Counsel Krishna Vallabhaneni and Deputy Assistant Secretary for Tax Policy Dana Trier said a notice on language limiting interest expenses under the new tax law will be issued soon. (Bloomberg Law, Feb. 20).  

This week’s letter is a follow-up to a Jan. 18 Roundtable letter, which identified several areas where Treasury rulemaking would reduce uncertainty and facilitate continued investment. [Roundtable Weekly, Jan. 19]   

As Treasury and Congress continue to focus on implementation and technical corrections to the new tax law, The Roundtable and TPAC will play an active role in seeking appropriate clarifications affecting the most significant changes to the tax code in more than three decades.

Mnuchin: President Supports Sales Tax for Online Purchases; GAO Study Shows States Losing Billions from Tax-Free Sales

Posted on by Trey Jackson

As expectations grow that the Supreme Court will rule on the issue of state and local taxation of internet purchases by this summer, Treasury Secretary Steven Mnuchin recently testified before two congressional committees about President Trump’s support for an online sales tax.

Treasury Secretary Steven Mnuchin recently testified before two congressional committees about President Trump’s support for an online sales tax.

During a hearing before the Senate Banking Committee, Mnuchin addressed taxing online purchases through the Marketplace Fairness Act, stating: “[T]he president fundamentally supports the idea of some type of sales tax across the board … There are aspects of that he likes a lot and he looks forward to working with you and others on it.” (Video of Exchange with Sen. Jon Tester (D-MT), C-Span, Jan. 30) 

At a Feb. 15 House Ways and Means Committee hearing, Mnuchin said the president “does feel strongly” that the U.S. should impose a sales tax on purchases made over the Internet. (Bloomberg, Feb. 15)

The U.S. Government Accountability Office (GAO) released a study in December estimating that state and local governments could have collected an estimated 8 to 13 billion dollars in 2017 if states were given authority to require sales tax collection from all remote sellers. (GAO report, Dec. 18, 2017).  The Roundtable has recommended that sales taxes collected from on-line consumer purchases may provide a reliable source of state and local revenue to help pay for President Trump’s recently proposed infrastructure re-building plan.  (Roundtable Weekly, Jan. 26, 2011.)

The Supreme Court is scheduled to hear oral argument in South Dakota v. Wayfair, Inc., on April 17 to resolve the constitutionality of collecting sales and use taxes that are due on Internet purchases.  The high court is expected to render a decision by the end of June. (Roundtable Weekly, Jan. 12)

The International Council of Shopping Centers, Investment Program Association, Nareit®, and the National Association of REALTORS® will join The Roundtable on an amicus brief to be filed early next month in Wayfair, urging the Supreme Court to overturn a pair of decades-old opinions prohibiting states from imposing sales and use tax collection obligations on web-based, catalog, and other retailers lacking an in-state physical presence.  The upcoming brief will re-iterate many of the points that the real estate coalition set forth in an initial amicus brief filed last November  (Roundtable Weekly, Nov. 3, 2017.)

Trump Administration Proposes Framework for Nationwide Infrastructure Improvements

Posted on by Trey Jackson

The Trump Administration on Monday released its long-awaited Legislative Outline for Rebuilding Infrastructure in America, which proposes at least $1.5 trillion in new investment across infrastructure asset classes; incentivizing greater state and local funding; shortening the project permitting process to two years; investing in rural projects; and improving worker training. (White House Fact Sheet, Feb. 12)

The Trump Administration on Monday released its long-awaited Legislative Outline for Rebuilding Infrastructure in America  , which proposes at least $1.5 trillion in new investment across infrastructure asset classes. ( White House Fact Sheet  , Feb. 12)    

President Trump proposes that the government would spend $200 billion in infrastructure investment to spur states, localities and the private sector to raise the $1.3 trillion balance. 

According to the Administration’s proposal, states, localities and the private sector are asked to “step-up” their presence to catalyze a larger, modernized, and broader investment market.  New federal funds would be allotted to boost existing federal infrastructure financing (like the TIFIA loan program for surface transportation) and expand federal financing platforms to reach airports, ports, short-line and passenger rail, rural broadband, stormwater, flood remediation and prevention, Brownfields remediation, and others. 

Transportation Secretary Elaine Chao will appear before Senate and House infrastructure panels in early March to discuss the Administration’s proposal. (Bloomberg Law, Feb. 13)   

Since odds for passing a bill with additional spending this year are slim, serious consideration of a specific infrastructure bill is not expected until after the mid-term elections and a new Congress is sworn-in. 

Roundtable President and CEO Jeffrey DeBoer commented on the positive economic benefits that such an infrastructure program would bring to the nation. “Modernizing our roads, tunnels, mass transit, drinking water, power grid, and telecommunications systems – in rural and urban areas alike – are vitally important to economic growth, productivity and America’s global competitiveness,” DeBoer said. 

He added, “Real Estate Roundtable members are experienced in addressing the financing, permitting and government partnership issues that frequently slow or stop infrastructure projects.  We intend to provide positive feedback and ideas to all policymakers working to facilitate improvements in our nation’s infrastructure.”  (Roundtable Letter on Infrastructure Funding, Jan. 11) 

Policymakers Pledge to Issue Technical Corrections and Guidance to Implement New Tax Law

Posted on by Trey Jackson

Treasury Secretary Steven Mnuchin testified before Senate and House tax-writers this week about implementation of the new tax law – including needed corrections affecting carried interest limitations and a drafting mistake that subjects qualified property improvements to a 39-year recovery period, rather than 15 years.

Secretary Mnuchin testified on tax issues before the Senate Finance Committee on Feb. 14, followed by his appearance before the House Ways and Means Committee on Feb. 15.

Ways and Means Chairman Kevin Brady (R-TX) pledged during a Feb 15 hearing to address errors included in the Tax Cuts and Jobs Act (P.L. 115-97).  Brady stated, “We know that certain parts of this provision are having unintended consequences” and that he was “committed to working with our Ways and Means Members, with Senator Hatch and the Senate Finance Committee, and the Administration and stakeholders to develop the right solution now – one that is thoughtful, carefully crafted, and successful  restoring balanced competition in the marketplace.”  (Brady’s Opening Statement, Feb. 15) 

[Earlier that day, Brady invited input from stakeholders on potential problems and unintended consequences arising from the new tax law. “We expect to develop a punch list of provisions that need to be addressed either administratively or through changes in the code itself,” he said.  (BNA, Feb. 15)] 

During the House hearing, Rep. Jim Renacci (R-OH) explained to Secretary Mnuchin that Ways and Means members are working on a tax reform drafting mistake that should have provided for a 15-year recovery cost-recovery period to qualified property improvements, instead of the 39 year period that was enacted.   

Mnuchin responded to Renacci: “I am aware of the error and it obviously was unintended. We are looking at whether there is anything we can do with regulations. I think it is likely that this is something that may need to be fixed in the bill. We look forward to working with you.” (Ways and Means Committee, Mnuchin’s testimony and hearing video) 

If a focused corrections bill cannot be quickly passed by Congress, policymakers are considering adding a corrections provision to a must-pass spending bill to keep the government funded beyond by March 23.  (Bloomberg Law, Feb. 13) 

Mnunchin also testified during a Feb 14 Senate Finance Committee hearing that Treasury will issue guidance this month regarding new tax laws affecting carried interest. Under the new tax law, investment fund managers and others qualify for carried interest tax treatment after holding assets for three years, instead of one year.  Yet the new law doesn’t apply to S corporations’ carried interest profits. (The Hill, Feb. 14) 

“We will be putting out guidance and regulations to make sure that people can’t abuse the pass-throughs,” Mnuchin testified. “The IRS and [Treasury office of] tax policy intends to send out within the next two weeks guidance that we do believe that taxpayers will not be able to get that loophole by going through [S corporations],” he added.  (Bloomberg, and CQ, Feb. 14) 

In January, The Roundtable wrote to Treasury Secretary Mnuchin  offering several suggestions aimed at ensuring the long-term success of the Tax Cuts and Jobs Act (TCJA).  [Roundtable Letter, Jan. 18]

International Visitor Spending in the U.S. Drops; “Visit U.S.” Coalition Aims to Spur Tourism and Economic Growth

Posted on by Trey Jackson

Spending by international travelers to the U.S. decreased 3.1 percent over the past year, the second consecutive annual drop in 15 years, according to Department of Commerce data released Tuesday.  (U.S. Travel Association, Feb. 7)

Travel Exports vs. All Other Exports  
(U.S. Travel Association)

— enlarge —   

As the U.S. hospitality sector is a vital component of the commercial real estate industry – providing significant capital investment, opportunities and infrastructure improvements in local communities throughout the country – The Real Estate Roundtable recently joined 12 other national trade organizations as a member of the “Visit U.S.” Coalition to work with policymakers in reversing the decline. (Roundtable Weekly, Jan. 19).  

The two-year fall-off in international visitor spending confirmed by Commerce data also tracks America’s loss in long-haul market share – a decrease from 13.6 percent in 2015 to 11.9 percent in 2017.  Overall travel volume increased 7.9 percent in the same period – meaning that foreign travelers are opting to visit other countries than the US and spending their money elsewhere. (U.S. Travel Association, Travel Exports vs. All Other Exports, Feb. 2)

“The slide (in international travel to the U.S.) has deprived our economy of an estimated $32 billion in additional spending and 100,000 additional jobs.”

 U.S. Travel Association President and CEO Roger Dow     

“We are certainly concerned about the statistics,” said Craig Kalkut, vice president of government affairs at the American Hotel and Lodging Association (AHLA) – a founding member of the Visit U.S. coalition.  Kalkut added, “It’s important for the hotel industry but also the businesses that surround [and occupy] hotels and the economy overall, so it’s time to take some action.” (Commercial Observer, Feb. 8)

USTA President and CEO Roger Dow stated, “International inbound travel is America’s No. 2 export overall; directly supports more than a million American jobs; and brings in $245 billion a year to our economy. But the U.S. share of the growing global long-haul travel market has been eroding since before the start of the Trump administration … That slide has deprived our economy of an estimated $32 billion in additional spending and 100,000 additional jobs. The good news? The problem is fixable, through balanced messaging and sound policymaking.”  (USTA, International Visitors Are Crucial to President Trump’s Priorities, Feb. 7)

In the coming weeks, Visit U.S. will advance policy recommendations that support its shared objectives with the Trump administration. (Visit U.S., Jan. 16)

Janet Yellen Concludes Tenure as Federal Reserve Chair; Jerome Powell Begins Four-Year Term on Feb. 5

Posted on by Trey Jackson

Janet Yellen concluded her final meeting as chair of the Federal Reserve on Wednesday after four-years of overseeing a cautious approach to monetary policy at the central bank.  The Fed released a statement the same day about positive trends in the national economy, citing information “that the labor market has continued to strengthen and that economic activity has been rising at a solid rate.” (Federal Reserve Statement, Jan 31)

The  Federal Reserve in Washington, DC

The Senate on Jan. 23 voted 84-13 to confirm Fed Governor Jerome “Jay” Powell as the next Fed chairman.  After the Fed’s Federal Open Market Committee (FOMC) this week unanimously affirmed Powell as its chair, he will be sworn into office for a four-year term on Feb. 5. 

President Trump now has the opportunity to fill four of seven seats empty on the Fed’s board.  

Powell is expected to continue monetary policies pursued in the Yellen-era.  In December, Ms. Yellen said, “There is strong consensus in the committee for the gradual approach that we’ve been pursuing, and governor Powell has been part of that consensus.”  (Wall Street Journal, Jan. 31) 

During her tenure, Yellen raised borrowing costs five times since late 2015 and recently initiated a reduction process in the central bank’s 4.5 trillion dollar balance sheet.  Most economists foresee another interest rate increase when the Fed meets for its next scheduled policy meeting in March under Chairman Powell.  (Los Angeles Times, Jan. 31) 

Before President Barack Obama appointed him to serve as Fed Governor in 2012, Powell served at the Treasury Department under President George H.W. Bush and served as a managing director at Carlyle Group.

House Judiciary Committee Passes Infrastructure Expansion Act to Counter Inequities in “Scaffold Law”

Posted on by Trey Jackson

Legislation aimed at lessening the harsh impact of an antiquated 133 year-old labor “Scaffold Law” – an economic burden on infrastructure projects crossing state lines – passed the House Judiciary Committee on Tuesday.  (Committee Mark-up Video, Jan. 30)

The Jan. 29, 2018 industry coalition letter in support of the Infrastructure Expansion Act (H.R. 3808). 

The Infrastructure Expansion Act of 2017 (H.R. 3808), sponsored by Rep. John Faso (R-NY), passed along party lines by a 16-14 vote.  The Real Estate Roundtable, Associated General Contractors, and 17 U.S. organizations representing the contracting, insurance and real estate sectors urged the committee to pass the bill. (Coalition Letter, Jan. 29) 

The coalition letter provides several examples of transportation projects (such as the Northeast Corridor Gateway Program) that would benefit multiple states and the national economy, yet are hindered by application of the Scaffold Law. 

Courts have interpreted the New York law to subject property owners and contractors to “absolute liability” for slips, falls, and height-related accidents that occur during commonplace painting, cleaning, remodeling, and construction activities.  

Under this standard, any negligence by a worker that may cause an accident or intensify his own injuries is disregarded.  As an example, an inebriated worker who stumbles and falls at a project site would not be held accountable to the extent his intoxicated state caused his own injuries. (Roundtable Weekly, Jan. 19).  As a result, absolute liability under the Scaffold Law has caused premiums for general liability insurance at New York development sites to skyrocket. 

H.R. 3808 would deny federal funding to construction projects that use New York’s “absolute liability” standard for workplace injuries caused by falls. The bill does not diminish or alter Federal or state OSHA obligations, nor does it foreclose “no-fault” workers’ compensation.  

Committee Chairman Goodlatte (R-VA) broadened the bill’s scope to require states use either a “comparative negligence” or “contributory negligence” standard for falls on federally subsidized projects.  In a statement, Goodlatte also offered  detailed reasons explaining why the legislation should be enacted. 

Although the Infrastructure Expansion Act may continue to gain predominantly GOP support in the House, its prospects in the Senate are far more challenging.

Trump Administration Prepares to Unveil Nationwide Infrastructure Proposal; Roundtable Submits Specific Suggestions for Innovative Infrastructure Financing Sources

Posted on by Trey Jackson

A six-page document leaked to the media this week purports to show details of the White House’s anticipated infrastructure plan just before President Trump is scheduled to offer his first State Of The Union address on Jan. 30.  White House spokeswoman Lindsay Walters declined to comment on the contents of the leaked document, but said the Administration looks forward to announcing a plan “in the near future.” (Axios, Jan. 22)

A  six-page document  leaked to the media this week purports to show details of the White House’s anticipated infrastructure plan just before President Trump is scheduled to offer his first State Of The Union address on Jan. 30.

According to the document, leaked Monday to Axios and Politico, approximately 10 percent of the plan’s funds would go to  “transformative projects” – a category that includes a “commercial space” sector that could compete for funds.  (CQ, Jan. 25)
 
The  Roundtable on Jan. 11 sent a comment letter to President Trump offering specific suggestions on how innovative financing sources may be used to help pay-for infrastructure – and how restructuring a lengthy permitting process and cutting unnecessary red tape will help control project costs and delays. 
 
Sen. John Barrasso (R-WY), chairman of the Senate Environment and Public Works Committee, said that permit streamlining would be an important part of an infrastructure plan. (CQ, Jan. 23).  Barrasso’s committee oversees all public works projects and the Environmental Protection Agency, which would be a path to streamlining EPA and other agencies’ permitting approvals.
 
The  Roundtable letter suggests several innovative financing sources, including:

  • Responsibly and sustainably increase the federal gas “user fee;”
  • Allow states to capture lost tax revenues from Internet sales – and devote it to infrastructure;
  • Attract more foreign investment to U.S. infrastructure by repealing or scaling back the Foreign Investment in Real Property Tax Act (FIRPTA);
  • Assess whether IRS “volume caps” and other limitations on private-activity bonds (PABs) should be revised to boost infrastructure development;

The Roundtable on Jan. 11 sent a comment letter to President Trump offering specific suggestions on how innovative financing sources may be used to help pay-for infrastructure – and how restructuring a lengthy permitting process and cutting unnecessary red tape will help control project costs and delays.

  • Couple successful federal loan programs (like TIFIA) with state and local “value capture” techniques to re-pay that debt – and attract private investors;
  • Develop best practices that channel public-private partnerships (P3s) for appropriate projects in appropriate geographies;
  • Prioritize the limited proceeds from the Highway Trust Fund with a “Fix it First” strategy;
  • Limit “formula grants” and move toward performance-based criteria;
  • Enact common sense reform measures that limit taxpayers’ carrying costs for exorbitant liability insurance premiums on public infrastructure projects. 
  • Ease regulatory burdens for projects of same size and scope in same location as existing infrastructure.

More details on each of the suggestions above are included in The Roundtable letter.  
 
Also this week, Special Assistant to the President for Infrastructure Policy DJ Gribbin met on Tuesday with Roundtable members in an open exchange of ideas about a national infrastructure plan.  On Thursday, Gribbin spoke to the U.S. Conference of Mayors about the Trump Administration’s upcoming plan, stating that it will not require any new funding.  Gribbin said that 200 billion dollars in existing federal funds would be shifted to infrastructure projects, which would be leveraged to attract an additional 800 billion in state and private investment. (CQ, Jan. 25)
 
Infrastructure was a major topic of discussion during The Roundtable’s Jan. 24-25 State of the Industry meeting (see story above).  The Roundtable will remain engaged with policymakers as the Administration’s infrastructure plan moves forward in 2018.