Be Thankful for Congress’ Pokey Progress

Dec. 1, 2009

Energy and tax proposals require the full and deliberate attention of legislators

2009 has been a rough year for the global economy, for our country, and for the real estate industry. Congress – with an ambitious agenda fueled by a democratic majority, President Obama’s election, and hopes that the Democrats would finally be able to make a lasting impact – hasn’t fared much better.

And, to tell the truth, I’m more than a bit relieved that Congress hasn’t made more progress. When 2009 began, atop the agenda were increasing the taxation rate on carried interest, ending private ballot election procedures for unionization, and increasing the energy-efficiency mandates on real estate. As 2009 comes to a close, those issues have no clear outcome in sight.

In late 2007 and early 2008, Congress dedicated funds to shore up the financial sector in moves we hoped would also free up capital for the commercial real estate industry. Since the recession and credit crisis began, BOMA has been hard at work educating Congress on the issues; how the financial sector’s woes impact our industry; how even performing, fully tenanted real estate assets were in a downward spiral; and how state and local economies would suffer as a result. We’ve worked alongside many other real estate groups, including the Real Estate Roundtable and the National Association of Real Estate Investment Trusts (NAREIT), to engage Congress, Treasury, and the Federal Reserve in enacting short- and long-term regulatory solutions.

At the beginning of the 111th Session of Congress last January, the spotlight was rightly focused on the flailing economy, creating jobs, and ending the free fall. The stimulus bill was to pump $787 billion into the economy, including $16.8 billion for spending on energy efficiency and renewable energy. What we’ve found out, however, is that it is difficult to spend so much money quickly and responsibly in a manner that will create immediate jobs and long-term value, and much of that money still remains to fund 2010 projects, and perhaps beyond.

To combat global warming, Congress also hoped to pass cap-and-trade legislation, coupled with energy requirements on new and existing buildings. The House of Representatives was fixed on meeting its early summer target for passing a bill, even if it meant that there had not been time for the majority of legislators, or even the appropriate staff, to read all 1,000-plus pages – let alone consider its implications – prior to casting their votes (largely along party lines).

The Senate moved at a slower pace, probably due more to the fact that it put healthcare reform ahead of energy on its agenda than to give the senators more time to read and study the proposals. At press time, the Senate still had not moved forward, though legislation has been introduced and hearings are ongoing. Some of the building energy provisions under consideration include increased (and somewhat arbitrary) energy-efficiency targets for ASHRAE 90.1 (affecting new construction and major retrofits), the creation of a national building code, development of a building labeling program (whereby a statement of energy performance would be required for all transactions for all interested parties), and incentives to retrofit existing buildings.

Karen Penafiel,
Vice President of Advocacy
for BOMA International
Taxing Matters

For the past few years, the real estate industry has been at risk of seeing tax code changes that would require carried interest to be taxed as ordinary income rather than capital gains, as under current law. In the “pay-go” world of Congress, where every piece of legislation that has unfavorable revenue implications must find a way to offset the revenue loss, carried interest remains on the table. It was originally expected to be chosen as an offset to the healthcare bill, and we managed to dodge that bullet. However, it’s now under consideration to offset the extenders package. “Extenders” is the name given to expiring tax policies that Congress lumps together and extends for an additional year. In an ironic twist for real estate, also included in the extenders package is the extension of the 15-year depreciation period for leasehold improvements, as well as incentives for brownfield remediation, thus pitting some favorable tax changes against other changes we clearly and adamantly oppose.

So Congress does not receive a passing grade on accomplishing its agenda – and that’s a good thing! Sometimes, the slow, deliberate process envisioned by the founding fathers (even if it looks like deadlock) is the most responsible way to legislate.

Karen Penafiel is vice president of advocacy for BOMA International. She can be reached at [email protected]. For more information on this and other topics, call BOMA International at (202) 408-2662 or visit www.boma.org.

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