Real Estate Roundtable Weekly

  • BUDGET & TAX POLICY – Ad Hoc, Bipartisan Efforts Underway Among Senators to Head Off “Fiscal Cliff”; U.S. Businesses Reportedly Scaling Back Job Creation, Investment Amid Uncertainty on Taxes, Budget Cuts
  • DODD-FRANK REGULATION – Business End-Users Submit Comment Letter on Pending Margin Requirements for Non-Centrally Cleared Derivatives
  • ENERGY POLICY – Real Estate, Environmental Groups Tout Potential Job Creation, Energy Savings From Senate Bill to Reform Section 179D Tax Deduction; GSA Tests Energy Saving Technologies


BUDGET & TAX POLICY

Ad Hoc, Bipartisan Efforts Underway Among Senators to Head Off “Fiscal Cliff”; U.S. Businesses Reportedly Scaling Back Job Creation, Investment Amid Uncertainty on Taxes, Budget Cuts

In a letter to Senate Majority Leader Harry Reid (D-NV) and Minority Leader Mitch McConnell (R-KY) on Monday, a bipartisan group of Senators warned of the “devastating” impact of upcoming “sequestration” budget cuts — particularly for the U.S. national defense and economy. The Sept. 24 letter, which was signed by Sens. Carl Levin (D-MI), John McCain (R-AZ), Jeanne Shaheen (D-NH), Lindsey Graham (R-SC), Sheldon Whitehouse (D-RI) and Kelly Ayotte (R-NH), said the Congressional Budget Office (CBO) has “already warned sequestration, in combination with the expiration of current tax policy, could send our fragile economy back into a recession and raise unemployment above 9 percent.”

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The  Congressional Budget Office (CBO) has warned that sequestration could send our economy nto a recession and raise unemployment above 9 percent.

The letter concluded that Congress and President Obama cannot “afford to wait until January to begin to develop a short term or long term sequestration alternative,” asserting that “all ideas should be put on the table and considered.”

As CQ Today Online reported Sept. 25, this is one of several “ad hoc” groups in the Senate that is working behind the scenes to avert the “fiscal cliff” and restructure the automatic spending cuts scheduled to begin Jan. 2.

A group of eight Senators led by Dick Durbin (D-IL) and Mark Warner (D-VA) is reportedly the most promising of these, as it includes four senators from each party and veterans of the 2010 Bowles-Simpson fiscal commission. The group, which is trying to craft a plan that would trim at least $4 trillion from the federal budget deficit over the next 10 years, includes retiring Senate Budget Chairman Kent Conrad (D-ND), Sen. Tom Coburn (R-OK), Michael Crapo (R-ID), Saxby Chambliss (R-GA), Mike Johanns (R-NE) and Michael Bennet (D-CO).

Another such group, led by Senate Finance Committee Chairman Max Baucus (D-MT), is working on tax-cut extensions and a possible tax overhaul.

Several reports out in recent days show U.S. businesses increasingly pulling back in their near-term hiring plans as a result of the looming federal budget cuts and uncertainty over tax policy. In a Business Roundtable survey released Wednesday, approximately 34 percent of U.S. CEOs indicated plans to cut jobs in the United States over the next six months — up from 20 percent in the previous quarter. Only 30 percent of those surveyed said they intend to increase capital spending, compared with 43 percent previously (Reuters, Sept. 26).

At next week’s Fall 2012 Roundtable Meeting, senior industry and trade association executives will have an opportunity to discuss the looming fiscal cliff, the Fed’s latest round of quantitative easing, concerns about global economic slowing and U.S. commercial real estate market conditions with Federal Reserve Board Governor Jerome Powell. Sen. John Cornyn (R-TX) will also join us at our Oct. 2 business meeting to offer GOP perspectives on budget and tax policy (including potential tax code reform in 2013), while Sen. Mark Begich (D-AK) will share a Democratic Senate viewpoint during a special briefing later in the day.

With the Nov. 6 elections closing in fast — elections that could determine the fate of many lame-duck policy issues of concern to commercial real estate — we’ve invited veteran political analyst and election handicapper Charlie Cook to share his thoughts on what to expect and why. Rounding out the program areWashington Post editor/reporter Bob Woodward, who will discuss his new book on the 2011 debt standoff (The Price of Politics); and former Joint Chiefs of Staff Chairman Gen. Peter Pace (USMC, ret.), who will address global security issues including the Sept. 11 attacks on the U.S. embassy in Libya and their implications for U.S. homeland security going forward.

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DODD-FRANK REGULATION

Business End-Users Submit Comment Letter on Pending Margin Requirements for Non-Centrally Cleared Derivatives

The Roundtable and its partners in the Coalition for Derivatives End-Users today submitted comments to the Switzerland-based Basel Committee on Banking Supervision and the Madrid-based International Organization of Securities Commissions (IOSC) regarding their emerging consultative document on margin requirements for derivatives trades that are not centrally cleared. These comments are intended to maintain the cost-effectiveness of derivatives used by end-users such as real estate firms who use derivatives to manage interest rate and currency risks.

The two bodies were tasked by the G-20 with developing common global margin standards, as part of a broader effort to ensure consistency among pending derivatives reforms around the world (thereby minimizing differences between different countries’ regulatory regimes). As part of these efforts, the G-20 created a Working Group on Margining Requirements, which is co-chaired by the U.S. Federal Reserve. The consultative document being worked on by the Basel Committee and IOSC is expected to influence U.S. regulators as they work toward a final proposal on margin requirements for non-centrally cleared derivatives (part of the implementation of the 2010 Dodd-Frank Act).

Although Dodd-Frank includes strict capital and margin requirements for custom derivatives contracts, it gives regulators final say over which entities must meet the new requirements. Margin proposals unveiled by financial regulators last year only exacerbated ambiguity over potential margin requirements among end-users.

As today’s coalition letter explains, such end-users (which include commercial real estate firms) “do not use derivatives to take on risk for speculative or investment purposes.” Instead, they “use derivatives to hedge or reduce risk [e.g., interest rate spikes]. This use of derivatives to hedge risk benefits the global economy by allowing a range of businesses—from manufacturing to health care to agriculture to technology—to improve their planning and forecasting and offer more stable prices to customers.”

While recognizing that margin requirements play an important role in mitigating counterparty credit risk, the Sept. 28 coalition letter warns that such requirements may impose excessive burdens on end-users, potentially preventing them “from using the derivatives markets efficiently” or causing them “to stop using derivatives markets altogether.”

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The Sept. 28, 2012 comment letter from the Coalition for Derivatives End-Users.

Such a result would be “contrary to the clear objectives of policymakers in both the U.S. and Europe, who have created exemptions that would help allow end-users to continue managing risks in the OTC [over-the-counter] markets effectively and efficiently,” the letter stated.

Business groups participating in a Capitol Hill “fly-in” meeting in June said companies should not be confronted with a minefield of new regulations when they attempt to use derivatives as a risk mitigation tool, and in ways that help raise funds and make productive investments. The Coalition for Derivatives End-Users has pressed for amendments clarifying congressional intent in the Dodd-Frank Act.

Amid ongoing ambiguity, a bipartisan group of Senators on Aug. 1 introduced legislation that would clearly exempt non-financial end-user companies from margin requirements applied to their derivatives trades under Dodd-Frank [Roundtable Weekly, Aug. 10]. Similar legislation cleared the U.S. House earlier this year.

Today’s letter to the Basel Committee and IOSC was co-signed by the European Association of Corporate Treasurers (EACT), the primary organization focused on derivatives end-user issues in Europe.

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ENERGY POLICY

Real Estate, Environmental Groups Tout Potential Job Creation, Energy Savings From Senate Bill to Reform Section 179D Tax Deduction; GSA Tests Energy Saving Technologies

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The joint statement of support for the “Commercial Building Modernization Act” (S. 3591).

The Real Estate Roundtable, U.S. Green Building Council (USGBC) and Natural Resources Defense Council (NRDC) yesterday issued a joint statement of support for the “Commercial Building Modernization Act”(S. 3591), legislation introduced last week that should help encourage whole-building energy efficiency retrofits by making much-needed reforms to the federal Section 179D tax deduction for energy efficient commercial and multifamily buildings.

The bill was unveiled on Sept. 20 by Senator Olympia Snowe (R-ME) — with Sens. Jeff Bingaman (D-NM), Dianne Feinstein (D-CA), and Benjamin Cardin (D-MD) signed on as co-sponsors. In an official press release yesterday, the four Senators acknowledged The Roundtable, USGBC and NRDC endorsements.

“By making commonsense reforms to the existing 179D tax deduction, we will help encourage energy savings, create good-paying jobs in the construction industry, and reduce energy bills for American consumers,” said Snowe, a senior member of the tax-writing Senate Finance Committee. She added, “Our legislation would also make this critical incentive more accessible and effective for existing buildings that are currently using inefficient lighting systems, antiquated heating and cooling systems, and poor insulation. By targeting this tax credit for retrofits we can bolster a beleaguered construction industry that has experienced unemployment levels of more that 20 percent, and lower the cost of energy for our nation’s businesses.”

An analysis released by The Roundtable, USGBC and NRDC in 2011 concluded that more than 77,000 construction, manufacturing, and service jobs would be created by a reformed Section 179D tax deduction, along with improved U.S. energy security and energy independence.

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Roundtable President and CEO Jeffrey DeBoer testifying before the Senate Energy Committee

S. 3591 is “exactly the type of forward-thinking policy America needs right now,” said Roundtable President and CEO Jeffrey D. DeBoer. “Saving energy is cheaper than producing energy. Modest incentives such as a reformed 179D tax deduction give us great bang-for-the-buck in terms of creating jobs, saving businesses billions of dollars on utility bills, and leveraging private sector funds to enhance GDP and jump-start the sluggish economic recovery.”

In June 28 testimony before the Senate Energy Committee, DeBoer listed Section 179D reform as one of six policy actions that Congress could take immediately to help unleash financing for energy efficiency retrofits of commercial buildings.

In response to questioning from Energy Committee ranking Republican Lisa Murkowski (R-AK) about the kinds of incentives that would encourage comprehensive, whole-building retrofits [see video @ 93:25], DeBoer asserted there are “simple ways” to make the Section 179D tax deduction more workable and to “truly incentivize these kinds of deep retrofits” [Roundtable Weekly, June 29].

GSA Tests Energy Saving Technologies

Separately, the U.S. General Services Administration (GSA) is rolling out a host of new technologies to better measure and optimize energy usage in federal facilities — including a wireless irrigation system, electrochromic windows and power-generation technologies. The technologies are being installed as part ofGSA’s Green Proving Ground program, which seeks to “transform the agency’s 9,600 properties into test-beds of sustainable technologies.”

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GSA’s Green Proving Ground program seeks to “transform the agency’s 9,600 properties into test-beds of sustainable technologies.”

GSA on Wednesday also released its assessment of two technologiesthat underwent full-scale evaluations over the past year:

 responsive-lighting systems involving workstation-specific lighting (e.g., lighting individual cubicles vs. an entire room), along with dimmers and sensors that helped cut energy costs by 27- 63 percent at five federal buildings;

 advanced power strips that allowed employees to set timers specifying when circuits can be switched off — a feature that helped cut “plug-load” energy consumption by 26 percent at eight federal buildings in the mid-Atlantic. GSA estimates that these plug loads — from a proliferating number of devices in tenant offices — account for as much as 25 percent of an office building’s total energy consumption.

The Roundtable has long urged policymakers to recognize the distinction between energy used by building infrastructure and operating systems, and the energy used by appliances owned and controlled by building occupants —i.e. plug loads, which are not within the power of codes, architects, engineers (or, in many cases, building owners) to influence.

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Source:  The Real Estate Roundtable

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