Capitol building

Much More Than Impeachment Is Happening in Washington

The headlines out of the nation’s capital these days mostly concern impeachment as the House of Representatives races to try to complete that process before the end of the year. If the Democrat-controlled House approves any articles of impeachment against President Donald Trump, the proceedings would move to the Senate for a possible trial over whether to remove the president from office.

However, even as lawmakers seem to be focused on this single topic, there are plenty of other issues being addressed that are important to commercial real estate. NAIOP is working in several areas to enact important changes that would create a better economic environment for the industry.

For example, last month, the bipartisan Terrorism Risk Insurance Program Reauthorization Act of 2019 (TRIA) passed out of a Senate committee. The House of Representatives overwhelmingly passed a similar TRIA reauthorization act. Both bills would extend TRIA by seven years, which is important because the private insurance market does not have the ability to provide terrorism risk insurance nationwide and meet the needs of the commercial real estate industry. This bill could be enacted before the end of the year.

Also, NAIOP is part of a coalition working to fix a typographical mistake in the 2017 tax bill. When lawmakers passed that bill, which preserved a number of incentives critical to the commercial real estate industry, they made at least one mistake. Instead of providing 15-year depreciation for Qualified Improvements (QIP), they inadvertently demanded a 39-year schedule.

This longer QIP depreciation schedule lowers the value of deductions, which limits cash flow and hinders these kinds of investments. NAIOP has spoken with lawmakers in both parties, and they acknowledge this was a mistake. NAIOP is working to move bipartisan technical corrections bills in the Senate and House, with the hope that these bills will be enacted before the end of the year.

Another change NAIOP has discussed with lawmakers concerns Section 118 of the tax code. Prior law allowed tax deferral for non-shareholder contributions to capital. That is, if a state or local government provided economic incentives such as Tax Increment Financing (TIFs), land grants, or tax abatements, recipients could defer the tax that would otherwise be incurred upfront.

Federal lawmakers wanted to prevent local governments from vying against each other to attract a big company, such as what happened when essentially took bids on where to build its second headquarters. So they changed tax policy to make these incentives immediately taxable. In reality, though, changing Section 118 increased costs for public entities, put projects on hold, leads to less development in under-served areas, and forced utilities to pass taxes on to developers. Lawmakers should encourage development by reverting to the former policy.

Congress is also considering legislation that would reward sustainable development. The draft legislation would be known as EE-QIP, for Energy Efficient Qualified Improvement Property. It would provide 10-year, accelerated depreciation for efficient QIP, such as new HVAC, windows, lighting and so forth. The legislation would also encourage retrofitting of existing buildings.

Lawmakers should also make sensible changes to improve the Foreign Investment in Real Property Tax Act and Opportunity Zones. FIRPTA broadly defines “real property” and allows foreign capital to flow in to invest in the United States. That would help to generate spending on infrastructure and investment in public-private partnerships, which are legislative priorities for NAIOP.

As for opportunity zones, this was another policy enacted as part of the 2017 tax reform law. Lawmakers are considering legislative tweaks that are aimed at improving reporting requirements, and in some cases implementing stricter regulations. Any changes, however, will probably be delayed until 2020.

Meanwhile, NAIOP is also tracking some on-going threats, such as proposed changes to carried interest, the capital gains rate, like-kind exchanges, corporate and individual pass-through tax rates and the estate tax (namely the current allowance for a step-up in basis, as well as rate increases or tweaks to exemption thresholds). These were all protected in 2017, and aren’t expected to change over the next year.

There are several other key legislative issues that could arise over the next year. The existing transportation bill expires in September, and lawmakers should enact a broad infrastructure bill that includes the expanded use of public-private partnerships, continues federal funding for maintenance and repair, and delivers a more effective, transparent and streamlined regulatory environment for major infrastructure projects.

Before the end of the year, lawmakers should also pass the U.S.-Mexico-Canada trade agreement to update NAFTA. This free trade bill has bipartisan support, which makes sense, because USMCA would be good for the economy.

Lawmakers in both parties can walk and chew gum at the same time. They can handle impeachment, and still pass smart proposals that benefit commercial real estate and the economy as a whole. NAIOP is working to help them identify and enact better policies.

To learn more about NAIOP’s legislative priorities, access the members-only Legislative and Political Update Advantage Series webinar (Nov. 2019) and visit the Advocate section of NAIOP’s website.

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