Governments Respond to COVID-19’s Economic Challenge
As our nation deals with business shutdowns, mandated stay-at-home orders, and other measures necessary to mitigate the spread of the novel coronavirus, our economy is suffering damage at levels not seen since the Great Recession of 2008, and possibly the Great Depression. In an effort to address the crisis, governments at all levels have engaged in a head-spinning amount of activity designed to limit the damage, help individuals, and keep businesses from going bankrupt.
Last week, President Donald Trump signed into law a $2.2 trillion economic relief bill – “Phase III” of a trio of bills aimed at providing immediate help. As NAIOP President Thomas Bisacquino said in his message to members: “The CARES Act will provide critical relief as businesses and individuals strive to manage the economic challenges created by the COVID-19 pandemic.”
NAIOP worked with industry partners and with lawmakers on both sides of the aisle to help shape this important legislation, and to ensure that the importance of the commercial real estate industry to our economy is understood by Congress. The bill takes several actions crucial to the commercial real estate industry:
- Provides a technical correction to the Qualified Improvement Property (QIP) depreciation drafting error from the 2017 Tax Cuts and Jobs Act (TCJA) that resulted in a 39-year depreciation period for QIP instead of the intended 15-year depreciation. The mistake had also rendered QIP ineligible for 100% bonus depreciation, which had been designed to spur investment.
- Includes $350 billion in loans for small businesses, many of which are commercial real estate tenants, designed to help them meet their financial obligations and keep their employees on payrolls over the next few months. The new Paycheck Protection Program loans are available up to $10 million, with a maximum interest rate of 4%, and are forgivable if requirements are met. The loans will provide many of our tenants with needed liquidity to keep them operating during the crisis.
- Allows 5-year carryback of net operating losses (NOL) for non-REIT businesses for 2018, 2019 and 2020. The availability of NOL to offset past or future income had been radically cut back in the TCJA.
The QIP fix and NOL changes are of particular help for commercial real estate. Businesses that had undertaken tenant improvements since September 2017 have essentially been overpaying on taxes because they were taking less depreciation than had been intended by Congress. The NOL changes will allow this year’s losses to offset gains farther back in time. As a consequence, many NAIOP members will be able to file amended returns and get refunds from the IRS, which will help alleviate some of the liquidity issues they may currently be facing.
The CARES Act followed two other pieces of economic legislation passed during the month of March, but it certainly will not be the final action taken by the federal government. Already discussions have begun on what should be included in a “Phase IV” economic relief bill that Congress is likely to push after they return from their recess on April 20. This could include additional funding for state and local governments, a major infrastructure initiative, and additional tax changes. NAIOP is working with a broad industry coalition on ideas for this next phase of legislation.
Meanwhile, states and local governments have taken actions of their own, including implementing telework directives and issuing the aforementioned “stay-at-home” orders. Because of these, however, many local governments are unable to inspect or issue permits, having closed offices or because of staff teleworking.
Local governments need to conform to their state orders and recognize inspections as an essential government service in order for critical construction projects to move forward. This was the case in Wisconsin, where NAIOP’s chapter immediately recognized the inconsistency between the governor’s “Safer at Home” order and Milwaukee Mayor Tom Barrett’s local order that closed the Department of Neighborhood Services. The chapter quickly sent the mayor a letter and worked with his office to restore the city’s construction permitting and inspection functions.
Finally, it’s worth noting that the virus is a global problem that does not recognize international boundaries. The Canadian government has taken action to stem the spread of the virus and flatten the curve in North America by restricting all non-essential crossings at the border with the United States.
Among many actions taken, Canada’s government also enacted Bill C-13 which consolidates the federal government’s response into the Canada Emergency Response Benefit. The legislation provides any Canadian worker who has been impacted by COVID-19 with $2,000 each month through July, along with $55 billion in tax deferrals for businesses and employees.
The Bank of Canada is also playing a major role. Its top priority is to establish an “economic bridge” for Canadian businesses, employees and families. This includes ensuring that credit is affordable and available for businesses negatively impacted by COVID-19. It has lowered interest rates and expanded purchases of Canada Mortgage Bonds.
The federal government has established a general homepage on Canada’s response to COVID-19. It includes updates on the outbreak, travel advisories, such as restrictions on non-essential crossings at the U.S. border, economic support and more.
In the midst of the outbreak, there is optimism. “This, too, will run its course,” NAIOP Chairman Larry Lance noted during a webinar last week. As the nation recovers, commercial real estate is going to play a key role getting the economy growing again, and NAIOP and its chapters will be working with elected leaders at the federal, state and provincial levels to ensure that the industry can effectively contribute to recovery.
