Capitol building

Washington Begins Preparing for Divided Government in 2019

The outgoing Republican-led Congress still has some business to finish before the end of the year.

For starters, Congress needs to pass appropriations for the departments of Treasury, Commerce, Justice, Agriculture, State, the Interior, Transportation, and Housing and Urban Development by December 7. For his part, President Donald Trump has pledged to demand funding for a border wall, which could threaten budget negotiations. This House has only a few legislative days before it is scheduled to wrap up for good on December 13.

Lawmakers will also be working on making technical corrections to last year’s tax bill. NAIOP is working with a coalition to encourage this Congress to fix a mistake it made with regard to Qualified Improvement Property (QIP). This is also called the “retail glitch.”

Lawmakers intended to allow property owners to write off the cost of improvements over 15 years. But because of a typo in the tax law, current policy requires then to write improvements off over 39 years. Fixing the QIP mistake would require passing a new law, though, so it would require bipartisan support in the Senate.

The House has taken the first step, introducing a sweeping bill this week that would fix QIP and renew other expiring provisions. Negotiations between the House and Senate are expected to continue over the next week to determine which provisions might be included as part of the must-pass appropriations bill.

But that’s all so 2018.

Lawmakers are already looking ahead to the new Congress, which will usher in key changes. Divided government returns to Washington in 2019, as Democrats will take charge of the House of Representatives for the first time since 2010, while Republicans will enjoy a slightly expanded majority in the Senate. In a recent webinar for NAIOP members, NAIOP’s Vice President for Government Affairs Aquiles Suarez and Director of Federal Affairs Alex Ford took a look at what divided government in Washington may deliver.

Suarez began by noting that the tax-writing committee in the House will now be run by Rep. Richie Neal of Massachusetts. “Neal is a moderate, pragmatic Democrat,” Suarez said. The lawmaker may use his committee power to attempt to obtain Trump’s tax returns, a step that would certainly cause friction with the White House. But Neal will also want some accomplishments of his own. He may attempt to strengthen the Affordable Care Act, and address some errors and inconsistencies in the 2017 tax reform act.

For the commercial real estate industry, the picture remains bright. Suarez points out that the 2017 tax reform was a big win. Lawmakers created Opportunity Zones, delivered lower tax rates, and protected some provisions that are crucial to CRE. These include real property like-kind exchanges, interest expense deductibility and a three-year holding period for carried interest. NAIOP will be working to protect those provisions in the years ahead.

Another priority in the new Congress is expected to be infrastructure. Rep. Peter DeFazio (D-OR) will chair the Transportation and Infrastructure Committee in the House. He’s complained in the past that the Trump administration didn’t provide dedicated revenue for its infrastructure proposals. The lawmaker is suggesting spending some $500 billion on projects nationwide. That money could come from an increase in the federal gas tax, a carbon tax or elsewhere.

NAIOP supports projects that would improve the nation’s infrastructure. Spending proposals should use public-private partnerships to encourage private sector investments and increase the size and scope of projects. Lawmakers should also streamline the permitting process and set firm approval deadlines for government officials to meet. Congress should also insist on regulatory reform to make it easier to start projects.

The new Congress should also take a crack at regulatory reform. Ford pointed out that the federal Waters of the United States (WOTUS) rule is a confusing thicket. Because of dueling court rulings, a 2015 WOTUS policy is in effect in 22 states. A pre-2015 rule is in effect in the rest of the country.

To clear up the confusion, NAIOP is working with the administration and lawmakers. Priorities include delivering certainty for developers through clear and definable rulings that apply across the board, rather than on a case-by-case basis, as the 2015 rule does. WOTUS should also reflect economic realities.

The Endangered Species Act (ESA) may also be in play. Ford explained that certain elements of the Trump Administration’s proposal to overhaul the law align with NAIOP’s preference for economically viable regulations. However, the proposal will likely remain on hold until the Supreme Court issues a decision in the Weyerhaeuser v. U.S. Fish and Wildlife Service case, which is expected to address this particular issue. Congress has also worked to advance ESA reform legislation, although that has been opposed by Democrats. That said, NAIOP thinks there are pieces of these bills which are bipartisan in nature, and will work to advance them in the coming year.

Lastly, the Environmental Protection Agency’s (EPA) Energy Star program remains an area of interest for NAIOP members, particularly in the wake of a recent update of its scoring models.

EPA made the changes to account for the latest buildings consumption data, but there have been numerous reports of disparate effects to properties in different climates, which the scoring models are supposed to take into account. EPA temporarily suspended new Energy Star building certifications as it conducts a review of these changes. NAIOP supports the program in general, but will work to ensure that any updates to it don’t harm the CRE industry over the next two years of divided government leading up to the 2020 presidential election.

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