Top Legislative News

REO Rental Project Pilot Kicks Off
Omnibus Spending Bill Reverses Incandescent Light Bulb Ban
Internet Sales Tax and IREM
Super Committee Failure: Now What?
Recent Decision Regarding Fair Credit Reporting Act
Commercial Real Estate Coalition Formed on Carried Interest
Comments of the Asset Rating Program Request for Information
California Right to Hire Bill(AB 350) Dies in the Senate
Smoke-Free Rental Housing Bill is Enacted in California
ADA Regulation Update
Federal Regulation Reduction Efforts
Risk-based Pricing Notice and Credit Reports Update
No Wipe Test Needed in Lead-paint Testing
DOE Issues Final Rule on Energy Efficiency for New Federal Buildings
Retention Notice of Proposed Rules
Capitol Hill Issue Update:  Energy Efficiency
FASB Lease Accounting Update - August 2011
Debt Ceiling Legislation Overview - S. 365
Fiscal Realities of State and Local Governments
Illinois Community Association Manager Licensing and Disciplinary Act – Proposed Rule
Uniform Residential Landlord and Tenant Act Update, May 2011
Pool Drain-Covers Recalled on May 26, 2011
FASB-Lease Accounting Update - Spring 2011
President Obama's Better Buildings Initiative
Update on Mark-to-Market
How will the Frank-Dodd Act Impact Me!?
Tax Bill En Route for President’s Signature
Bed Bug Laws and Pending Legislation
Homeowner Association / Common Interest Development (CID)
FASB-Lease Accounting - Fall 2010
Lead Based Paint in Commercial Properties
Fluorescent T12 Ballast Manufacturing Update
Tax Extenders Update, July 2010
Status of Tax Extenders Bill
Final Rule – Lead Based Paint

Real Estate Owned (REO) Rental Project

February 2012
On Wednesday, February 1 the Federal Housing Finance Agency (FHFA) announced preliminary plans for the Real Estate Owned (REO) Initiative that President Obama mentioned in late 2011 and that was addressed in a Request for Information (RFI) on August 10, 2011.  The pilot Initiative will give investors the opportunity to purchase pools of foreclosed single-family homes, vacant properties, and non-performing loans.  Many of these properties will be located in the most negatively impacted regions in the United States. 

Although the details of the pilot program are unknown at this point, what we do know is that investors must pre-qualify in order to bid on certain properties.  This pre-qualification aspect of the Initiative is important as it will only allow investors who are committed and capable of maintaining and managing the properties they rent. The properties that are purchased also must remain rental units for a specific number of years before sold or altered. 

The pilot, in essence, is a common sense approach to addressing the 250,000 foreclosed properties that FHFA and Fannie Mae have in their possession.  There are concerns, however, in how well the program will work.  Scattered-site developments are difficult to manage, and many wonder how well the investors will actually keep-up the properties.  On February 2, IREM legislative staff participated in a conference call with representatives from the White House, the Department of Housing and Urban Development (HUD), and the Treasury to discuss various housing market issues, including the REO pilot.  It was noted that the final details of the program have not been ironed out, but the initiative will kick-off in February, 2012, by selling roughly 500 to 1,000 foreclosed homes.  FHFA has listed three minimum criteria to qualify to purchase a property, including:  financial clout, the prior experience and expertise in understanding risk, and agreeing to keep sensitive information regarding the REO confidential.  As the program unfolds, more will be understood on the success of the REO initiative. 

Click here to download the IREM letter that was sent on September 14, 2011, providing comments on the REO matter.

IREM legislative staff will monitor this important issue and report back to members when necessary.

For more information on the REO Rental Initiative, please follow the link below:
http://www.fhfa.gov/Default.aspx?Page=360

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Omnibus Spending Bill Reverses Incandescent Light Bulb Ban
The $1 trillion budget bill passed by the U.S. House of Representatives and Senate last Thursday, December 15, will block federal light bulb standards that would have banned incandescent light bulbs.  The omnibus spending bill had in it a rider that removes funding from the Department of Energy’s (DOE) 2007 light bulb standards law that would have gone into effect on January 1, 2012.  This delays the ban of the bulbs until October, 2012.  Democrats added language onto this rider that requires recipients of DOE grants greater than $1 million to confirm they will conform all lighting to or exceed the 2007 energy law’s standards. 

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Internet Sales Tax and IREM
Recently, there has been much attention paid to the issue of internet sales taxes.  On the federal level, several pieces of legislation have been introduced as a way to enforce the collection of these remote sales taxes.  To give a brief timeline and overview of the legislation, see below:

• July, 2011 – Main Street Fairness Act introduced in both House (H.R.2701) and Senate (H.R.2701)
•   U.S. Senator Dick Durbin (IL) proposed Senate Bill 1452 (Representative John Conyers proposed the same bill in the House (H.R. 2701) or the “Main Street Fairness Act” was developed to grant the consent of Congress to the “Streamline Sales and Use Tax Agreement” (Agreement).  The Agreement was created to encourage states to sign on to the Agreement and thus collect sales tax from out-of-state customers regardless of whether or not they have an actual physical presence in that state.  This would cover all “remote sellers” (internet, catalog merchants, and “1-800” offers) to collect sales taxes, if the state has signed onto the Agreement.  The Agreement focuses on improving sales and use tax administration systems through various methods including but not limited to:  simplification of state and local tax rates, simplifying tax returns and remittances, and the uniformity of major tax base definitions.
• October, 2011 – Marketplace Equity Act introduced in House (H.R. 3179)
• Representative Steve Womack introduced the Marketplace Equity Act, a similar bill to the Main Street Fairness Act, in order to authorize states to require all sellers conducting remote sales to collect and remit sales and use taxes.  This bill requires this tax system to have: 1) exceptions for remote sellers with gross annual receipts not greater than $1 million (federal) or $100,000 (state), 2) a single sales and use tax return for use by remove sellers, and 3) a uniform tax base in the state.
• November, 2011 – Marketplace Fairness Act introduced in Senate (S. 1832)
• Senator Michael Enzi’s bill is essentially the same as the Main Street Fairness Act, due to the reference to the “Streamline Sales and Use Tax Agreement.”

IREM’s Position:
The IREM legislative statement of policy, adopted in 2004 and most recently updated in 2009, states that IREM members oppose federal sales tax on internet purchases and that federal legislation should not preempt state efforts to address their own sales and use tax disparities. 

On November 23, 2011, IREM signed onto a letter to Senators Enzi, Durbin, and Alexander regarding internet sales tax legislation.  The letter supports the recently introduced Senate Bill 1832, the Marketplace Fairness Act, and brings attention to the inequity that brick-and-mortar retailers experience due to unfair competition with the internet from the inability to regulate and enforce internet sales tax.  IREM Staff will continue to monitor this legislation and report back any changes when necessary.

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Super Committee Failure
Yesterday the Super Committee, tasked with reducing the federal deficit, failed to agree on a proposal for Congress. Failure of political leadership to negotiate a deal means uncertainty over the next year. For 2012, the Bush-era tax cuts will remain in effect and are set to expire on December 31, 2012. Congress may make amendments to the mandatory across the board cuts of federal programs. The political impasse will more than likely continue as 2012 is a presidential election year. National budget discussions could change on a daily basis. IREM will continue to monitor this issue and report back any drastic actions.

What does this mean for IREM?
Although no deal was reached, beyond 2012 tax rates will be unpredictable. This perpetuates a market of insecurity and a lack of confidence for economic growth. Carried interest will be a possible revenue source for federal funding which means IREM Members must remain on alert. The national political debate over the budget will now move toward extending or ending the Bush-era tax rates.

How does across the board cuts of $1.2 trillion impact IREM Members?
Federal government programs will be required to cut their budgets by about eight to nine percent over the next ten years. This may be good for individual taxpayers. Although this means the federal government will have to reduce spending, healthcare and military programs may also be impacted. The effects of reduced government spending could have unintended consequences, such as reduced funding to state and local governments that are already struggling to balance their budgets.

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Recent Decision Regarding Fair Credit Reporting Act
On October 3, 2011, the U.S. Court of Appeals for the Seventh Circuit delivered a decision that there is no private right of action under Section 623 of the Fair Credit Reporting Act (FCRA) if a party provides erroneous credit information to consumer reporting agencies.  This provision is to be enforced only the state and federal authorities.

Please see the attachment to read the entire decision.

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Commercial Real Estate Coalition Formed on Carried Interest
IREM has joined coalition monitoring potential proposals on carried interest from the federal Deficit Reduction or Super Committee.  No legislative proposals have been made public at this point.  Although nothing is proposed, as a coalition we decided to communicate our position on carried interest as this will have unintended and far reaching consequences if carried interest rates are increased.  This week we issued a letter to Senator Murray and Representative Hensarling, the Committee’s Co-Chairs.  The letter contains several reasons why carried interest tax rates should not change. 

In closing, the letter summarizes “increasing the tax on carried interest will hurt entrepreneurship, investment in communities and job creation in commercial real estate at a time when the economy is still struggling under the weight of a 9.1% unemployment rate.”

Read the letter

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California Right to Hire Bill(AB 350) Dies in the Senate
California Assembly Bill 350 was defeated in the Senate on September 10, 2011 after several repeated failures to pass this sweeping legislation. The bill received 17 Ayes–18 Nays, just three votes short of passage. This bill would have mandated any property with service contracts (janitorial, security and food service companies) to hire the employees of the previous company that held the service contract. The prior contractor's employees must be hired for at least 90 days. This would have forced numerous service companies to fire their own workers in order to hire their competitors' employees. The overreaching legislation infringes on the rights of property owners and managers, including IREM members, to have the freedom to hire the best qualified candidate.

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Smoke-Free Rental Housing Bill is Enacted in California
California Governor Jerry Brown signed Senate Bill 332 into law on September 7, 2011. This legislation will allow real estate managers to prohibit smoking in rental units in California. The law also permits landlords to modify active lease agreements to include new restrictions on smoking without violating terms of the agreement. Up until this new law, nothing statutorily allowed landlords to prevent smoking in certain rental units. This law will give property managers the freedom to prevent the spread of second-hand smoke from one unit to neighboring units.

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Americans with Disabilities Act Update on New Regulations
August, 2011
Monday, July 26 marked the 20th anniversary of the signing of the Americans with Disability Act (“Act”) of 1991.  Since the historic legislation became law twenty years ago, there have been a number of revisions and additions to the Act.  In July, 2010,   several changes were approved and published by the Department of Justice (“Department”) as a final rule to Title III.  Revised regulations that are pertinent to the property management and commercial real estate industry are:

• Adoption of the 2010 ADA Standards for Accessible Design:  The Department has adopted revised design standards and they have been harmonized with the Federal standards implementing the Architectural Barriers Act as well as with private sector codes that most States have adopted.


• Effective Date:  These revised regulations will become effective six (December 26, 2010) months after publication in the Federal Register.  Compliance with the new 2010 Standards will be required within eighteen months (December 26, 2011) of publication for new construction, alterations, and barrier removal.


• Element by Element Safe Harbor:  1991 covered facilities Standards are not required to comply with 2010 Standards until the project was subject to a planned alteration. 


• Service Animals:  The recent rule defines “service animal” as a dog that has been trained to do work or perform tasks for the benefit of an individual (including dogs that assist with emotional support) with a disability.  The rule states that other animals, wild or domestic, do not qualify as service animals.  Dogs that are not trained to perform tasks that mitigate the effects of a disability (including emotional support) are not service animals.  The rule allows the use of properly trained miniature horses as alternatives to dogs, with some limitations.  A miniature horse is not included in the definition of a “service animal.”


• Wheelchairs and Other Mobility Devices:  A two-tiered approach was taken regarding wheelchairs and other “power driven mobility devices” in the final rule.  Other powered mobility devices include a variety of devices, such as the Segway®, not designed specifically for people with disabilities.  Wheelchairs and other similar devices must be permitted in all areas open to pedestrian use.  Other “power driven mobility devices” must be permitted unless the covered entity can demonstrate that such use would alter its programs, services or activities, create a direct threat, or create a safety hazard.  The rule gives factors to consider in making this determination.


• Timeshares, Condominium Hotels, and Other Lodging:  The rule requires that timeshare and condominium properties that operate like hotels are subject to Title III; also lists facility requirements if not an inn, motel, or hotel to qualify as a place of lodging.  The rule limits obligations for units that are not owned or substantially controlled by the public accommodation that operates the place of lodging.  Such units are not subject to reservation requirements pertaining to the “holding back” of accessible units.  These units are also not subject to barrier removal and alterations requirements if the physical features of the guest room interiors are governed by their individual owners rather than by a third party operator.


• Egress and Access to Properties:  The 1991 Standards require the same number of accessible means of egress to be provided as the number of exits required by applicable building and fire codes.  The International Building Code (IBC) requires at least one means of egress and at least two accessible means of egress where more than one means of egress is required by other sections of the building code.  The changes in the 2010 Standards are expected to have minimal impact since the model fire and life safety codes contain the very similar requirements regarding the number of accessible means of egress.
  
  The 2010 Standards include the requirements established by the IBC.  The IBC requires a building with four or more stories to have an evacuation elevator with standby power that can be used by people with disabilities in an emergency.  Exit stairways and evacuation elevators must be able to be used as an accessible means of egress in conjunction with areas of refuge or horizontal exits.  This change will have minimal impact due to fire and safety codes, already adopted in most states, containing similar requirements.


• Parking Spaces:  The 2010 Standards require accessible parking spaces to have signs that display the International Symbol of Accessibility.  Section 215.6, Exceptions 1 and 2, of the 2010 Standards exempt certain accessible parking spaces from this signage requirement.  One exemption is sites that have four or fewer parking spaces.  The other exemption is residential facilities where parking spaces are assigned to specific dwelling units.


• Handrails:  The 1991 Standards at sections 4.8.5, 4.9.4, and 4.26, and the 2010 Standards, at section 505 contain technical requirements for handrails.  The 2010 Standards add a new technical requirement at section 406.3 for handrails along walking surfaces and also give more flexibility than in 1991. Information on individual gripping surfaces, dimensions and diameters are located in sections 4.1.6(3), 4.26.4, 4.8.5, and 4.9.4 of the 1991 Standards and sections 505.3, 505.6, 505.7, 505.8, and 505.10 of the 2010 Standards.

Update
In September, 2010, there were substantive and typographical corrections made to the Title II and Title III of the final rule of the 2010 changes to the Americans with Disability Act of 1991.  Details of these changes can be found here:  http://www.ada.gov/regs2010/titleII_2010/titleII_techedits_fr.pdf.pdf 
A summary of all changes can be found here:  http://www.ada.gov/regs2010/factsheets/title2_factsheet.html

These revisions took effect on March 15, 2011.  The Standards for Accessible Design section does not take effect until March 15, 2012 for new buildings.

You can also call the ADA Information Line at 1-800-514-0301 (voice) or 1-800-514-0383 (TTY).

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Federal Regulation Reduction Efforts
President Obama issued an executive order in January 2011 that began a process of rules and regulatory review.  The executive order provides details on how agencies are to review regulations.  The review process asks agencies to provide justification costs of the regulation, to select an alternative approach to maximize net benefits and specify performance objectives of the regulation under review.

As of August 2011 there are over 100 actions pending review.  Agencies are to submit their reviews to the Office of Information and Regulatory Affairs.  So far, the review process will save businesses about $10 billion over five years. 

The most substantial changes come in streamlined administrative procedures.  For example, businesses will be provided with an electronic submission for paperwork, hospitals will have less reporting requirements, and contractors of government projects will see an expedited payment process. 

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Risk-based Pricing Notice and Credit Reports Update
The Federal Trade Commission and the Federal Reserve have made final changes to the Risk-Based Pricing Rule that require creditors, and in most cases, property managers, to present a letter that includes credit score information to clients or rental unit applicants when a credit score is used in determining certain terms of credit.

Since January 1, 2011, the Rule has required creditors to provide consumers with a “risk-based pricing” notice when, based on the consumer’s credit report, the creditor provides credit to the consumer on less-favorable terms than it provides to other consumers.

The Rule was amended, in conjunction with the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act, and now requires creditors to disclose a credit score within the risk-based pricing notice if one was used in making the credit decision, along with certain other additional information.  A risk-based pricing notice is essentially a document that will contain certain information and be given to respective consumers after a credit check has been completed. Such cases would include an apartment rental application being declined or the credit check results in any additional conditions; such as a higher deposit, or a co-signer.

These new requirements went into effect on July 21, 2011. 

To read the full final rule, please follow this link:  http://www.ftc.gov/os/2011/07/110706riskbasedpricingfrn.pdf
For more information on this change, please contact:
Catherine Henderson,
Board of Governors of the Federal Reserve System
Division of Consumer and Community Affairs
(202) 453-3667

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No Wipe Test Needed in Lead-paint Testing - August, 2011
On Friday, August 5, the U.S. Environmental Protection Agency released a Final Rule regarding Testing Requirements for the Renovation, Repair and Painting Program (“RRP”) of testing for lead-based paint in pre-1978 housing and child-occupied facilities.  This Final Rule does not require a dust wipe test as one was originally proposed in 2010.  Instead, a certified renovator must take a paint chip sample and send it to a recognized lab to obtain an analysis of any possible lead-based paint.  Other changes include minimum enforcement provisions for authorized renovation programs, and minor revisions to the training and certification requirements for renovators.  EPA has also clarified the requirements for vertical containment on exterior renovation projects, and the mandatory standards for high-efficiency particulate air (HEPA) vacuums.

IREM legislative staff will continue to monitor the lead-based paint issue and report back when necessary.

To see the Final Rule, please follow this link:  http://www.gpo.gov/fdsys/pkg/FR-2011-08-05/pdf/2011-19417.pdf

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DOE Issues Final Rule on Energy Efficiency for New Federal Buildings
The Department of Energy (DOE) will require energy efficiency design standards for new federal buildings beginning October 2011.  The final rule was issued in August denoting the changes for the construction of new federal commercial and multi-family high-rise, low-rise residential buildings. 

The DOE rule requires that federal buildings be designed to achieve energy consumption levels that are at least 30 percent below ASHRAE and IECC standards.

DOE’s final rule does not apply to privately-owned building construction plans.  However, one objective is for the requirements to be cost-effective for use in the private sector.

Review the final rule: http://www.gpo.gov/fdsys/pkg/FR-2011-08-10/pdf/2011-20024.pdf

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Federal Agencies Propose Credit Risk Retention Requirements
IREM submitted a letter to six federal agencies (Securities and Exchange Commission, Office of Comptroller of the Currency, Federal Reserve System, Federal Deposit Insurance Corporation, Federal Housing Finance Agency and Department of Housing and Urban Development) commenting on a proposed rule on credit risk retention.  Agencies proposing the rule are tasked with implementing sections of the Dodd-Frank Wall Street Reform and Consumer Protection Act (section 941(b) of Dodd-Frank Act has been codified as Section 15G of the Securities Exchange Act of 1934).

Credit risk retention proposed rules would apply to all forms of assets that can be securities, including commercial real estate (CRE) and commercial loans.  The proposal suggests a five percent risk retention requirement, unless asset-backed securities (ABS) backed exclusively by loans meet specific standards to quality for the proposed zero percent rate.

The proposed rule defines CRE loans as those secured by five or more residential units or by non-farm, non-residential real property, with the primary source of repayment to be derived from rental income or from the proceeds of the sale, refinancing, or permanent financing of the property.  Land development and construction loans, loans on raw or unimproved land, loans to real estate investments trusts (REITs) and unsecured loans are excluded.

According to the proposed rule, a qualifying commercial real estate (QCRE) loan must meet five requirements for assurance of repayment, property value, and risk management to be exempt from the risk retention requirements.

1. Ability to Repay—the originator must conduct an analysis of the borrower’s ability to repay all outstanding debt.  Looking back two years at the borrower’s credit history.
2. Loan Terms—Debt service coverage (DSC) of at least 1.7 is proposed, although 1.5 would be permitted for properties with a demonstrated history of stable net operating income (NOI).
3. Loan-to-Value (LTV) Requirement—the combined LTV cannot be more than 65 percent. 
4. Valuation of the Collateral—the originator of a QCRE must determine that the purchase price for the property secures the loan and reflects the current market value of the property.  The agencies want to ensure that the collateral is sufficient to recover any unpaid principal in the event of default and the borrower has sufficient equity in the property.
5. Risk Management and Monitoring Requirements—there are certain covenants to be included in the loan documents, which are intended to facilitate the ability of the originator to monitor and manage credit risk over the full term of the loan.

There are exemptions in the NPR for any residential, multifamily, or health care facility mortgage loan asset, or securitization based directly or indirectly on such asset, that is insured or guaranteed by the United States or an agency of the United States.

The NPR provides that Fannie Mae and Freddie Mac, will not have to meet the risk retention requirements.  Any temporary successor to Fannie Mae or Freddie Mac, would also be exempt from the risk retention requirements.

IREM is concerned about the proposed Credit Risk Retention rules.  We believe the risk retention requirement will slow the process of CRE loans and punish responsible and honest borrowers.  As stated in our comment letter, the proposed rule is not a viable solution to curb overzealous and past lending practices.  Please review the letter for details.

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Capitol Hill Visit Update: Energy Efficient Buildings
Background
In 2010, the buildings Americans live and work in used around 40 percent of the energy in the U.S. economy at a cost of over $400 billion according to the U.S Department of Energy. 

In February 2011, President Obama proposed the Better Buildings Initiative to make commercial buildings 20 percent more efficient by 2020.  While the Better Buildings Initiative offers a moving target, funding sources for building owners must supplement the Initiative’s goals. 

2011 Capitol Hill Visit
During the Capitol Hill Visit Day, IREM members asked their U.S. representatives and senators to enact tax and other tax incentive programs to encourage energy efficiency and “green” building.  The key position on energy efficiency is voluntary programs rather than government mandates.

Update
Since our visit to Capitol Hill, the Energy Savings and Industrial Competitiveness Act (S. 1000) was introduced in the Senate.  The bill would provide rule making authority to the U.S. Department of Energy (DOE) if energy efficiency and building codes (ASHRAE 90.1) fail to meet efficiency targets. 

A hearing was held in early June by the Senate Energy and Natural Resources Committee.  Following the hearing, the bill overwhelmingly passed the senate committee in mid-July.  It appears to have significant bipartisan support spearheaded by Senators Jeanne Shaheen (D-NH) and Rob Portman (R-OH).

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FASB Lease Accounting Update - August 2011
On July 21, the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) announced they would re-expose their recently proposed lease accounting standard changes.  This decision came as both FASB and IASB were flooded with hundreds of comment letters discussing concerns with the proposed lease accounting revisions.  The proposed rules would require businesses to recognize assets and liabilities arising from lease contracts which is different from current regulations that allow leases to be considered operating expenses which do not appear on balance sheets.  This could lead to a bloated balance sheet that would result in a host of potential problems.

FASB Chairman, Leslie Seidman, stated there will be several changes to the standard.  The Boards will reintroduce a revised proposal for public comment at a later date this year.  This version will include new revisions from the original proposal that was introduced last year.  

IREM has participated in the past comment period and has sent in three separate letters to FASB and IASB detailing the issues that will arise from these new lease accounting changes.  IREM legislative staff will monitor this issue closely and will take full advantage of the next opportunity to submit comments.

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Debt Ceiling Legislation Overview – S. 365
August, 2011 – Beth Price
The United States Congress brokered a debt ceiling deal in the eleventh hour just before the August 2, 2011 deadline hit.  Both parties found common ground and allowed Senate Bill 365, also known as the “Budget Control Act of 2011,” to first pass the House of Representatives on Monday with a vote of 269-161.  The bill swiftly went to the Senate for a vote and was passed in the afternoon of August 2 with a vote of 74-26.  

There are several important provisions included in S. 365; however, there is no new language that directly impacts IREM members and commercial real estate practitioners (ie. Carried interest).  Please see the bullets below with information on what was included in the debt ceiling legislation.

• Debt Limit Increase:  Allows for a debt limit increase of between $2.1 and $2.4 trillion.  The first $400 billion increase is automatic and take effect instantly.  President Obama will then have the authority to extend the debt limit by $500 billion, subject to a vote of disapproval by Congress.

The legislation subsequently leads to a second debt limit increase of between $1.2 and $1.5 trillion.

• Discretionary Spending Caps:  Distinct spending caps were set of $1.043 trillion in 2012 to $1.234 trillion in 2021.  The Congressional Budget Office projects that these caps will reduce spending by $840 billion over these ten years.
• Joint Select Committee on Deficit Reduction:  The bill also creates the Joint Select Committee on Deficit Reduction, a 12 member committee (House and Senate members) charged with the responsibility in making recommendations to Congress on ways to reduce the deficit.  They have a goal of reducing the deficit by at least $1.5 trillion.  The committee’s work must be completed by November 23, 2011.
• If the Committee’s recommendations do not lead to the creation and enactment of a bill, $1.2 trillion would automatically be cut over the next ten years per S. 365. One half of this amount would be in cuts to defense spending.
• Balanced Budget Amendment:  S. 365 requires a future vote on a Constitutional amendment to balance the budget.  If Congress does in fact pass a Balanced Budget Amendment, there will be a $1.5 trillion debt limit increase for the second phase (mentioned above) rather than the $1.2 trillion (over ten years).
• Pell Grants:  The legislation fills a gap of $17 billion for the federal Pell Grant program over two years.  This provision is paid for by terminating Direct Loan Repayment Incentives and ends most subsidized loans for graduate students.
• Tax Hikes:  This bill does not contain any provisions that increase taxes or create new revenue generators.

Although this legislation did not include any changes to the carried interest tax rates, currently at 15% (set to expire at the end of 2012 and rise to at least 39.5%), there is a high level of certainty that this issue will be on the chopping block in the near future.  President Obama has been quite vocal about his plan to let the Bush Tax Cuts expire thus resulting in the increase of the carried interest rate back to its 39.5% rate.  IREM legislative staff intends to monitor this issue very closely and will be prepared to send out a Call-to-Action to all members if necessary.

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Fiscal Realities of State and Local Governments
June, 2011

Would your city declare bankruptcy? Will municipal bonds default? What will happen to public employee pensions? How have states eliminated budget gaps?

Real estate professionals should be aware of the fiscal condition of their state and local government. A local tax increase or new fee could impact a real estate management organization’s bottom line. It is important to anticipate such changes so real estate managers can be prepared for any financial changes.

All these questions press forward as the economic outlook for 2012 leaves us with many unanswered questions. According to Governing, state and local governments are doing better but not out of the woods. The good news for states is that revenue has increased an average of 6% or $36 billion in fiscal year 2011. This is better than 2009 and 2010 but not as good as 2008. The bad news is that 30 states are expected to have budget gaps and a huge bulk of available federal stimulus money is ending in 2012.

Despite the bad news, states cannot legally file for bankruptcy and it is extremely rare for local governments to claim bankruptcy. In Congress this year the issue of state bankruptcy came up but nothing significant transpired. Only one local government has experienced a major bankruptcy this year (Boise County, Idaho which lost a federal lawsuit). Cities must get permission from the state government prior to declaring bankruptcy. The aftermath alone may deter local governments from bankruptcy. Legal procedures could cost millions of dollars, sometimes doubling the city’s debt. Furthermore, states have a tendency to bail local governments out of major financial distress before reaching bankruptcy.

There were dramatic predictions about municipal bonds defaulting this year. To date, only 14 defaults (a little more than $600 million) occurred in the muni market. This was far from the feared prediction of hundreds of billions of dollars.

Public pensions have been a major issue of debate in many states. Are pensions an eminent threat to state and local finances? Not really. If funding solutions for pensions are not properly handled within the next few years it will become a problem. Public sector benefits will change over time, not just the pension system but other areas such as raising the age of retirement and/or lowering employee average salaries. Some of these public sector benefits are constitutionally protected, so changes will not be easy by any means. New hires will more than likely receive the brunt of reduced benefits.

Some strategies states are using to eliminate budget gaps include: reducing local aid, layoffs, furloughs, across-the-board-cuts, targeted cuts, rainy day funds, or reorganized agencies.

Raising revenue for any governmental body is a creative art form. Some cities and states are looking to implement an internet sales tax to generate revenue. Governments have also resorted to selling off some of their assets. The real issue in government financing is the state and local services that are being reduced to close the budget gap.

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The Illinois Community Association Manager Licensing and Disciplinary Act
On May 6, a notice of proposed rulemaking was released regarding the Illinois Community Association Manager Licensing and Disciplinary Act.  Although the law became effective on July 1, 2010, rules pertaining to the act are still being developed.  A seven member board was appointed by the Illinois Department of Financial and Professional Regulation and is responsible for creating regulations that will implement this law.  The Board consists of five real estate managers and two unit owner representatives.  As established by law, the Board released the first of two notices of proposed rules for public comment within 45 days or June 20, 2011.  

Through these proposed rules, individuals who manage more than 10 units of condominiums, cooperatives, and town homes must obtain a management license in order to continue to perform duties such as collecting assessments and preparing a budget.  General staff, administrative personnel and volunteers do not fall under the category of an employee who needs a license. 

In order to obtain a license from the state of Illinois, an applicant must:

1. Be 21 years of age or older;
2. Complete 20 hours of community association management education;
3. Pass one of two qualifying exams;
4. Be of good moral character; and
5. Has not committed any acts in violation of this law.

Anyone who has a real estate broker or salesperson license is exempt from requirements #2 and #3 above.  An applicant has three years from the date of application to complete this process.  The application fee is $300.

If an individual has obtained a designation from a recognized organization (IREM is a qualified organization), the person is grandfathered into this statute and does not need to fulfill and requirements above if they apply for their license within six months of the date of enactment of the final rule. 

Real estate managers, who have not obtained a qualifying designation but have had five years of experience within the last 10 years or have received qualifying professional designations from a recognized community association management organization, such as IREM, are exempt from the education and test requirements.  These individuals will need to apply within six months from the effective date (unknown) for the license itself.  The initial license fee is $300 and a $150 renewal fee each year.

In addition, community associations must pay an annual fee of $50 plus $1 per unit in order to fund this licensing law.  This only applies to associations who manage more than 10 units and are registered in Illinois as a not-for-profit. These fees, among others, will be sent directly to the Illinois Department of Financial and Professional Regulation.

Please see this link for the May 6 Illinois Register: http://www.cyberdriveillinois.com/departments/index/register/register_volume35_issue19.pdf

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Uniform Law Commission – Uniform Residential Landlord and Tenant Act, May 2011
In recent weeks, the Uniform Law Commission (ULC) has discussed the idea of revisiting the Uniform Residential Landlord and Tenant Act (URLTA).  URLTA was originally created in 1972, amended in 1974 and adopted by many states as the uniform law regarding the relationship between tenants and landlords.  The ULC was established in 1892, and is compiled of attorneys to provide states with non-partisan recommendations on legislation in an attempt to clarify state statutory law.  In the summer of 2010, ULC’s Joint Editorial Board on Uniform Real Property Acts recommended that a study committee should be created to examine the need for a drafting committee to revise of URLTA. 

On March 31, 2011, ULC held its first stakeholders meeting in Washington, D.C. to discuss the possibility of a drafting committee.  A Study Committee was formed as a result of the recommendation. The first meeting included stakeholders and committee members as well as “observers” who could partake in the discussion but not have any voting privileges.  IREM participated as an observer.

Prior to the first meeting, the Study Committee identified potential issues that should be considered to be revised by a Drafting Committee.  These issues include:

• Various definitions (ie. “ordinary wear and tear”)
• Distinguishing landlords
• Grace periods for payment of rent and late fees associated with late rent payment
• Subletting
• Domestic Violence
• Security Deposits
• Premature lease terminations
• Scope of Housing Units Act – to include university/married housing
• Attorney fees

In summary, the first meeting allowed an in-depth discussion on which issues to potentially revise.  Many participants felt that a whole revision of URLTA was not necessary, and instead it would be prudent to look at the issues mentioned above.  Oppositely, some participants believed there was a need to move forward with a comprehensive overview of the Act. 

The meeting continued with a conference call on May 11, 2011 where participants spoke in depth about the possibility of a comprehensive overview of URLTA.  Committee Members voted to create a Drafting Committee and move forward with a revision of URLTA. 

IREM Legislative Staff will continue to be active in monitoring UCL’s activity with regard to the Uniform Residential Landlord and Tenant Act and report back when necessary.

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Pool Drain-Covers Recalled on May 26, 2011
Federal authorities have urged swimming-pool operators to address the recent recall of faulty pool drain-covers.  In a sweeping announcement on May 26, thousands of pool drain-covers were found to be flawed in preventing potentially deadly “entrapment” accidents.  Per the Virginia Graeme Baker Pool & Spa Safety Act (P&SS Act) that was signed into law in late 2007, U.S. pool operators are to install anti-entrapment drain covers and other safety devices, as needed.

On May 26, over 1 million pool and spa drain-covers were recalled in conjunction with the U.S. Consumer Product Safety Commission (CPSC).  It was determined that some of the tests that check the safety of covers were flawed, thus questioning the effectiveness of the cover itself. CPSC states that all public pools should be closed until either the drain is replaced or fixed or the operator determines the drain is not one of the recalled products.  Faulty drain covers were sold between December, 2008 and April, 2011. 

To determine if you have a faulty swimming-pool drain-cover, first check the brand of the cover.  If your pool is filled, be careful not to block or remove the drain cover while searching for the brand or model number.  This is important in avoiding potentially dangerous entrapment from defective covers.  You can call the recall hotline at 866-478-3521 or visit www.apsp.org/draincoverrecall  for more information, including a list of recalled brands.

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FASB – Lease Accounting Update - Spring 2011
With the Financial Accounting Standards Board’s (FASB) proposed changes to lease accounting standards, many firms and organizations have expressed concern.  Over 780 comment letters were sent to FASB and the International Accounting Standards Board (IASB), most with a concern over how a company’s balance sheet could be misinterpreted if rules are not well-reasoned.  IREM participated in the comment period by submitting letters addressing concern with the proposed changes.

The comment letters have been important in helping to shape new accounting rules and delaying full implementation.  IREM is prepared to partner with NAR and CCIM Institute to issue comment letters.  A number of issues remain unresolved from an industry standpoint on the proposed lessee and lessor rules.  For more details review our comment letters to FASB and IASB.

• FASB-Lease Accounting - Fall 2010
• FASB Comment Letter - Spring 2011

Both FASB and IASB concluded that lease accounting proposed changes will be delayed due to a high level of apprehension by multiple industries, particularly the real estate sector.  Due to re-exposure of the changes, the final rule will more likely be delayed from 2011 to early 2012, with a 60-90 day comment period.  With no firm date mentioned, the implementation date will more likely be moved to 2015 or 2016 to allow more time for adjustments. 

IASB Chairman David Tweedie and FASB Chairwoman Leslie Seidman both stated that the timeline extension will allow both Boards to further examine revenue recognition, leasing, financial instruments and insurance projects.  Ms. Seidman also noted that the common theme among the comment letters was the concern over an unnecessarily added level of complexity to the already onerous accounting process. She also addressed the smaller businesses not having the resources to implement the new lease accounting changes; both boards will be looking into how these new standards can be managed better with regard to smaller companies.

IREM Legislative Staff will continue to monitor this issue and report back to members when necessary.  Please contact Beth Price, the IREM Legislative Liaison with any questions at bprice@irem.org

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Speeches From 2010 Orlando Legislative Forum
Commercial Mortgage Liquidity
Health Care Reform
Federal Taxes
State Budget Shortfalls

President Obama's Better Buildings Initiative
On February 3, 2011 President Obama released a plan to create more energy efficient American businesses through the “Better Buildings Initiative.”  This includes voluntary programs to encourage green retrofitting of commercial buildings using tax incentives and a new grant program.  The President hopes to make commercial buildings 20% more energy efficient by the year 2020 as well as lower companies’ energy costs by roughly $40 billion each year. 
The new initiatives include:

• More financing opportunities for commercial retrofits:  Increase access to financing these energy efficient upgrades by encouraging lenders to take advantage of recently increased loan size limits to promote new energy efficiency retrofit loans. Through the President’s budget, there will be a proposal to create a pilot program through the Department of Energy to secure loans for energy efficiency upgrades at hospitals, schools and other commercial buildings.
• Training the next generation of commercial building technology workers:  The Administration is currently working to implement several reforms including launching a Building Construction Technology Extension Partnership and providing increased workforce training in energy auditing and building operations.
• The Better Buildings Challenge:  This will challenge CEOs and University Presidents to make their organizations more energy-friendly. They will in turn become eligible for benefits including public recognition, technical assistance, and best-practices sharing through a network of peers.
• “Race to Green”:  Encourages states and municipalities to regulate and alter codes, and performance standards relating to commercial energy efficiency.
• Tax incentives for building efficiency:  President Obama is encouraging Congress to implement a more generous tax credit rather than the existing Section 179D tax deduction for energy efficient upgrades on commercial buildings.

Along with these new initiatives, the President hopes to build on previous plans for government and residential buildings that were included in the American Recovery and Reinvestment Act (“ARRA” or “Stimulus Bill”).

IREM has historically supported voluntary and positive incentive programs such as the existing EPA Energy Star program consisting of voluntary opportunities for increased energy efficiency and the Green Lights program, aimed at promoting energy efficiency through investment in energy-saving lighting.   IREM has been an Energy Star Partner for over twelve years, and has signed on to EPA’s Energy Star Challenge to make companies aware of the economic benefits of energy efficiency.

IREM is also a member of the U.S. Green Buildings Council (USGBC), an approved education provider for continuing education credit towards USGBC’s LEED AP designation, and an industry-sector partner for their annual Greenbuild conference and trade show.  IREM’s Sustainable Real Estate Management course (SRM001) is also approved for elective credit towards the National Association of Realtor’s Green Designation; and it can be used to satisfy education requirements to participate in the U.S. Housing and Urban Development (HUD), Office of Affordable Preservation Green Initiative providing incentives for green building principles and practices.

IREM publishes A Practical Guide to Green Real Estate Management, and has created a “Sustainability” Knowledge Center on its interactive, online knowledge management system, IREMFIRST.  The site is available to the public and has articles, checklists, and other tools and resources for practicing sustainable real estate management.

We remain consistent in our opposition to any mandatory energy-efficient retrofitting and encourage Congress to support voluntary energy efficiency programs which are encouraged by using incentives and tax credits.

Although IREM initially supports the concepts of President Obama’s Better Buildings Initiative, this is not a piece of legislation and we will wait to analyze any bill language relating to this new plan.  IREM Legislative Staff will monitor this initiative and report back when necessary.

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Update on Mark-to-Market
Late in January, 2011, The Financial Accounting Standards Board (FASB) decided to ease-off the proposed “mark-to-market” or “fair value” reporting requirements they had proposed in May 2010.  At this point, banks can continue to report assets and liabilities at the amortized cost.   Fair value reporting would force the value of assets and liabilities to be based on current market value.  Reporting at amortized cost is more reliable, some say, because it includes long-term cash flow whereas fair value is short-term and susceptible to misrepresentation from fluctuations in interest rates.  

FASB will continue to reconsider various aspects of this proposal. The final rule is to be released in June of 2011.  This decision came in response to the Board being inundated by over 2,800 letters of opposition.  IREM Legislative Staff will monitor this issue and report back when necessary.

Additional information can be found at:
http://www.ccim.com/newscenter/volume-xiv-number-2-december-2009#number4

How will the Frank-Dodd Act Impact Me!?
In July 2010 President Obama signed the Dodd-Frank Act into law.  At a time when the U.S. economy is stumbling to get back on its feet, the Dodd-Frank Act is an attempt to prevent future catastrophic economic falls.  The legislative origins of the Dodd-Frank Act are rooted in modernizing bank regulation. 

With the progression of time and the legislative process, the Dodd-Frank Act morphed into one of the most significant financial pieces of legislation.  The overarching themes to this law are consumer protection and accountability for Wall Street and big banks.  While consumer protection and corporate accountability are at the forefront of the Dodd-Frank Act, the world of real estate may be impacted.

The Dodd-Frank Act will change the dynamics to some existing financial regulatory bodies while creating entirely new rule making bodies.  Some of the specific rules will be ironed out over the next year or so.  The comment period for some rules have started and the final rulemaking period will continue through 2012 and beyond. 

Regulatory Agencies Undergoing Change:

• Consumer Financial Protection Bureau (CFPB)
• Federal Insurance Office
• Financial Stability Oversight Council
• Federal Deposit Insurance Corporation (FDIC)
• Office of Financial Research
• Office of Credit Ratings
• Office of Minority and Women Inclusion
• Office of Housing Counseling
• Office of Municipal Securities
• Securities and Exchange Commission (SEC)
• Securities Investor Protection Corporation

The National Association of Realtors (NAR) helped to secure language in the final bill signed into law which is “exclusion for real estate brokerage activities”.  This exclusion applies to the Consumer Financial Protection Bureau (CFPB).  CFPB “may not exercise any rulemaking, supervisory, enforcement, or other authority under CFPB with respect to a person that is licensed or registered as a real estate broker or real estate agent.” (Section 1027b Dodd-Frank Wall Street Reform and Consumer Protection Act).  This is good news for real estate; however, there are possible regulations other Departments can propose and implement.

IREM Legislative Staff will monitor and track the implementation of this Act including changes to existing regulatory bodies and the development of new ones.    For more information or clarification contact IREM’s Legislative Liaison, Beth Price, toll free at (800) 837-0706 ext. 6021 or bprice@IREM.org.

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Tax Bill En Route for President’s Signature

December 17, 2010
Last night the House of Representatives passed a tax cut bill, previously passed by the Senate, extending the Bush tax cuts just two weeks before they were set to expire.  This is relatively good news for virtually all Americans.  Although the tax bill is temporary (two years), there will not be any substantial changes in regard to federal tax policy until 2012.  Eliminating unknown tax changes allows individuals and businesses to move somewhat confidently forward into 2011.
A boost in confidence will offset several reservations in the marketplace.   Individuals may feel more inclined to make big ticketed purchases and businesses may increase hiring or spending on capital improvement projects.  Basically this tax bill is an economic stimulus.  Efforts to boost spending on several fronts will help to create a healthy flow of dollars in America.  At least that is the theory.

Federal tax policy beyond two years will be up for debate as Congress must re-examine taxes in 2012.  Debate may begin next year.  Highlights of last night’s bill include:

• Individual tax brackets—six brackets same as 2010, including maintaining the Capital Gains tax at 15% which was an IREM Call to Action item in 2010
• There is no change to carried interest, at capital gains rate of 15%, an issue we lobbied on in 2010
• Social Security tax on wages from 6.2% to 4.2%
• Alternative Minimum Tax (AMT)—extends the patch for 2010 and 2011
• Leasehold Improvements—extended 15 year depreciation timeline
• Businesses are able to write off 100% of capital investments between Sept. 9, 2010, and Dec. 31, 2011
• Extends research and development tax credit
• Extends unemployment insurance benefits for 13 more months
• Estate tax plan with a $5 million exemption per individual and at a 35% rate

IREM is pleased with the passage of this tax cut legislation.  We believe it is beneficial to members, particularly with regards to the Capital Gains tax rate extension (15%).  We will continue to monitor any pertinent legislation and report back when necessary.

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Bed Bug Laws and Pending Legislation
With the recent uprising of bed bug infestations in the United States, several states have introduced legislation to mitigate this pest.  Currently there are some states that have laws already enacted to address this problem.  Recently, state-wide legislation was passed in Maine, New Jersey and New York. 

The law in New York only pertains to areas within New York City, although there are plans to introduce similar legislation that would apply to the whole state.  Governor Paterson signed this bed bug legislation in late August, 2010 and decrees that landlords must disclose any history of bed bugs in a building within the preceding year to prospective tenants.  In 2009 there were 11,000 reported bed bug complaints in the city.

The law in Maine was signed into law in March and took effect July 12, 2010.  This law requires landlords to disclose existing or past problems with the bugs, but also addresses how and who will pay for the remedy of the pests.  Landlords are required to pay for the extermination of bed bugs if detected.  However, if tenants do not cooperate with the extermination efforts, the tenant could then be held responsible for subsequent treatment costs.

A bed bug bill has also been in the works in New Jersey.  A bill was passed in the House and sent to the Senate where it awaits further action. This bill states that landlords of multiple-dwelling units must provide pamphlets to tenants and other information on bed bugs and preventative methods.  Landlords must have bed bug infestations exterminated directly after learning about them.  Landlords who do not take immediate actions may face fines for infested bedroom and/or infested common areas.

Massachusetts law states that bed bug infestation issues fall under current statute that landlords are required to “maintain the dwelling you own without insect infestation” (MA: 105 CMR 410.550).  Landlords must inspect each unit and take action to remedy any bed bug infestations.

Other states have introduced and pushed for state-wide legislation addressing the bed bug issue.  Alabama had pending legislation that would define the responsibilities of landlords, however, this bill failed.  Illinois has pending similar legislation and also has discussed the possibility of petitioning the federal government to waiver previously banned insecticides in order to treat bed bugs in residential units.  Ohio has already signed on to petition the federal government to use these chemicals.  Ohio also has pending legislation that would establish a bed bug awareness and prevention program.  There is a federal bill pending in the US House of Representatives that would establish a grant program to assist states in inspecting hotel rooms for bed bugs.  This legislation is pending in multiple committees.

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Homeowner Association / Common Interest Development (CID)
Condominiums offer an affordable option and are the first step to homeownership for many home buyers.  In many areas across the country, the real estate crisis left the condominium market devastated. Today, the condo market isn't stabilizing as quickly as other types of housing, resulting in significant losses for current condo homeowners and tighter underwriting guidelines for potential buyers. In order for the housing economy to stabilize, it is important that there be a healthy condo market. With this said, Homeowners Associations (Common Interest Development-CID) and the management of those properties will be affected by these conditions.

FHA, and the GSEs (Freddie Mac and Fannie Mae) have implemented a number of new policies that will impact the operation and management of condominium associations.   Association legal counsel should review lender provisions in the CC&Rs to see if the association needs to comply with GSE guidelines. These policies include:

• Limit single entity investment ownership to 10% of a project
• No more than 15% of units delinquent in dues (even 30 days)
• New Insurance Requirements
• Reserves funded at 10% of budget

Condominium association should consider changing their bylaws to meet the following guidelines:

1. Investors. Associations should amend their CC&Rs to limit persons or entities from owning more than 10% of a project.
2. Insurance.  Some blanket and self-insurance plans are no longer permitted.  In light of the new Fannie Mae guidelines, all PUD and Condominium boards should have their insurance brokers review their policies and make recommendations.
3. Unit Insurance.  If an association's CC&Rs require owners to provide their own insurance, no action is required by the board. If the CC&Rs are silent, boards should consider amending their documents to require owners to carry their own insurance and to allow the association to purchase "bare walls" policies. This will keep premiums down.
4. Fidelity Insurance. Associations with 20 or more units are required to obtain fidelity insurance.
5. Collection Policy. Boards should have written collection policies in place and closely follow those policies.
6. Future Fannie Mae Requirements. Associations should consider adding language that gives boards the ability to amend their documents to meet Fannie Mae requirements without the    slow, costly, and uncertain process of a membership vote every time Fannie Mae changes its requirements.  Boards should check with their legal counsel about doing the same.

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FASB-Lease Accounting - Fall 2010
Recently, the Financial Accounting Standards Board (FASB) proposed changes to the way lessors and lessees account for leases. Under these new rules, entities must recognize assets and liabilities arising from lease contracts which is different from current regulations that allow leases to be considered operating expenses which do not appear on balance sheets.  This could lead to a bloated balance sheet that would result in a host of potential problems.  IREM has become aware of this issue and has worked to voice concern for these changes.  Please see the links below to view the newly adopted Statement of Policy on FASB Lease Accounting as well as two coalition letters IREM signed onto to formally voice their opposition.  IREM Legislative Staff will be attending hearings regarding this issue on January 5 in Chicago and will report back if necessary.  Please contact IREM Legislative Liaison, Beth Price, with any questions.  She can be reached at bprice@irem.org or 312-329-6021.

Statement of Policy on FASB Lease Accounting
Coalition Letter #1
Coalition Letter #2

 

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Lead Based Paint in Commercial Properties
In July, IREM partnered with various associations in the commercial real estate and property management industry and formed a coalition in response to the Advance Notice of Proposed Rulemaking issued by the U.S. Environmental Protection Agency (“EPA”) concerning the Renovation, Repair and Painting Program (“RRP”) for Commercial and Public Buildings (lead based paint).   The Coalition submitted comments to the EPA with respect to RRP activities.  The letter hit on multiple various points including:

• Coalition believes that EPA must consider the scope of its authority before proceeding with any regulations. The Toxic Substances Control Act limits the Agency’s authority to promulgate regulations that govern RRP activities in commercial and public buildings.
• Among other things, EPA must complete a congressionally-mandated study of RRP activities in commercial and public buildings and the extent to which they create lead-based paint hazards before it can proceed with any regulations.
• In addition, EPA must consider a variety of factors in any rulemaking efforts related to RRP activities in commercial and public buildings. For example, the Agency should take into account the fact that RRP activities in commercial and public buildings may present very different patterns of exposure to lead-based paint hazards than the RRP activities in residential settings on which the Agency has previously focused.
• In addition, EPA should take into consideration the very limited use of lead-based paint in commercial buildings since 1978. EPA must also consider the potential impacts that the imposition of regulatory requirements may have on other national priorities such as increasing energy efficiency.

IREM legislative staff will continue to monitor this issue and report back to members if necessary.

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Fluorescent T12 Ballast Manufacturing Update
According to the National Lighting Bureau, the July 1, 2010 date marks the last step of a multi-step phase-out plan that began on July 1, 2005, the date when ballast manufacturers could no longer sell T12 magnetic ballasts for use in new fixtures with full-wattage T12 lamps.   March 31, 2006 was the last day lighting-fixture manufacturers could incorporate the ballasts in new fixtures with full-wattage T12 lamps.  And on July 1, 2010, the manufacturing of T12 magnetic ballasts solely for replacement purposes that do not meet the new requirements will cease.

There are, however, exceptions to this rule, including ballasts designed:

• for dimming to 50 percent or less of their maximum light output;
• for use with two F96T12HO lamps at ambient temperatures of -20ºF and for use in outdoor signs; or
• labeled for use only in residential applications and have a power factor of less than 0.90.

On July 14, 2012, recently enacted DOE regulations will take effect that will also eliminate the T12 lamps that the ballasts operate.

To find out how to purchase energy efficient and compliant fluorescent ballasts, visit the link below:
http://www1.eere.energy.gov/femp/procurement/eep_fluor_ballast.html

For more information on this rule, please click on the link below:
http://www1.eere.energy.gov/buildings/appliance_standards/residential/fluorescent_lamp_ballasts.html

To see an article summarizing these regulations, see the link below:
http://www.aboutlightingcontrols.org/education/papers/2010/2010_lighting-upgrades.shtml

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Tax Extenders Update, July 2010
Since the early months of 2010, IREM legislative staff has been monitoring Federal tax issues, including the controversial carried interest tax language. During the recent recession, Congress focused on extending several tax cuts set to expire at the end of 2010. In order to fund these extensions, Congress sought other sources of revenue. Included in the original legislation, H.R. 4213, is a provision to change the tax treatment on carried interest from capital gains to ordinary income. Currently, the capital gains rate is 15% and would jump to 39.5% if changed to ordinary income rates. Changing the tax treatment of carried interest would be detrimental to commercial real estate because taxing the general partner at an ordinary income rate would create a disincentive for real estate investment, further damaging an already fragile market.

IREM members took this issue to their respective U.S. Congressional members during the 2010 Capitol Hill visits and participated in two concurrent Calls to Action urging elected officials to vote against this provision. Your efforts and consistent involvement in the carried interest tax issue have not gone unnoticed. In fact, because of your swift action, the Carried Interest language was completely removed from the "Tax Extenders" bill (H.R. 4213, later changed to “The American Jobs and Closing Tax Loopholes Act of 2010”) before it passed the U.S. Senate on July 20. We are very grateful that our elected officials listened to the voices of real estate and property management professionals, thus removing this damaging provision from the bill. Despite the carried interest tax issue being defeated four times, we believe this issue may arise again in the distant future. The IREM legislative staff will continue to monitor this issue and report back when necessary.

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Status of Tax Extenders Bill
Over the last several months, IREM and CCIM Institute members have lobbied their members of Congress on the issue of tax treatment of carried interest. This issue is critical to both the recovery of commercial real estate, as well as the overall economic recovery.

On May 5, 2010, 265 members of IREM and CCIM Institute participated in a joint visit to Capitol Hill lobbying their federal lawmakers on issues affecting the commercial real estate industry. One of the key issues members presented to lawmakers was the issue of tax treatment of carried interest.

Under consideration was a piece of legislation known as the “Tax Extenders Package” (H.R. 4213). The bill aimed to extend certain Bush era tax cuts, as well as fund an extension of unemployment benefits set to expire. However, the legislation also carried a price tag of $127 billion, and would have added $84 billion to federal deficit over the next decade. In order to fund the extensions, Congressional members included $43 billion of tax increases- including a provision to change the tax treatment on carried interest from capital gains to ordinary income. This would raise the tax rate on carried interest from 15% to as high as 39.5%, adding further stress to the already overburdened commercial real estate industry.

On May 14, 2010 and June 2, 2010, IREM and CCIM Institute initiated a Call to Action, urging members to contact their federal lawmakers and ask them to oppose the carried interest provision in the Tax Extenders Package. Following the Calls to Action, IREM legislative staff received an overwhelming number of emails and phone calls from members who had contacted their legislators and expressed their opposition to the bill.

To date, lawmakers have held three votes on legislation concerning tax extensions and carried interest. Each attempt to pass the legislation has failed. IREM legislative staff would like to stress that the bill appears to be stalled, not defeated. It is likely that the measure will be taken up again.

IREM legislative staff would like to thank all who took action in contacting their members of Congress and expressing their position on the carried interest issue. Your actions have served to educate lawmakers regarding the negative economic impact posed by the legislation, preventing them from passing this dangerous bill. Thank you for taking action on this important matter.

IREM legislative staff will continue to update you on any future developments regarding this issue.

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Final Rule – Lead Based Paint
On June 18, 2010, the U.S. Environmental Protection Agency (EPA) issued an amendment to the final Renovation, Repair and Painting Rule (RRP Rule), effective April 22, 2010. The RRP Rule requires that contractors who work in residential buildings built before the 1978 outlaw of lead based paint be certified by a government-approved trainer and follow particular safety rules. The ruling aims to reduce the amount of lead dust created during home renovation and repair, and affects tens of millions of homes, including multifamily units.

The RRP Rule requires that certified firms engaging in repair, renovation, or painting activities that disturb lead based paint be certified by the EPA. Some of the requirements outlined in the RRP Rule include information distribution to building occupants to notify them of the work being conducted, obtaining written certification from the adult occupant that the information has been received, postage of signs defining the work area, isolation of the work area by covering all ducts with taped down plastic, closing window and doors and covering them with plastic sheeting, covering the floor with taped down plastic, negatively pressurizing the work space, storing daily waste under containment that prevents the release of dust, disposing of the waste in a sealed bag approved by the EPA, placing all waste in a lined container and disposing of it into an EPA approved site, etc.

Following an outcry from industry groups including IREM and CCIM Institute, politicians, and homeowners, all claiming the new rule would drive up development costs and derail economic recovery, the EPA postponed enforcement of the RRP Rule’s certification requirement until October 1, 2010. The EPA will also not enforce against individual renovation workers who have applied to enroll in, or have enrolled in, a certification class no later than September 30, 2010. Renovators must complete training by December 31, 2010.

You may access the RRP Rule Memorandum issued by the EPA through the following link:
www.epa.gov/lead/pubs/giles_RRP_memo.pdf

IREM and CCIM Institute legislative staff will continue to monitor this issue, and will keep you informed of any new developments.

To view archived legislative news from 2009, click here.

To view archived legislative news from 2008, click here.

To view archived legislative news from 2007, click here.

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