Big government action from REBNY.

Now more than ever as our industry faces difficult and challenging times, The Real Estate Board of New York (REBNY) has been busy advocating a wide range of ideas and proposals to benefit our members at all levels of government.

We have been extremely active in Washington, Albany and at City Hall. In Washington, we have advocated for provisions that would stimulate new investment, restore credit and lure buyers back into the market. In Albany, we have urged the State to dramatically control spending as the principal means of balancing the budget. We have voiced strong opposition to the numerous tax increases in the Governor's proposed budget as well as the substantial increase in the personal income tax discussed in the legislature.

At the same time, we have focused our attention on proposed legislative changes in the rent regulation system. The New York State Assembly passed a series of bills that, if passed by the New York State Senate and enacted into law, would lead to disinvestment, abandonment and dramatic declines in new housing production.

At City Hall we have recommended enhancements to a number of successful economic development programs as a method of promoting business activity. We have objected to the tax increases enacted (the real property tax and the hotel tax) and to the proposed sales tax. This additional financial burden on taxpayers--businesses and residents--would impede the capital investment, the consumer spending, and the economic growth that is urgently needed.

The current economic climate is the worst time to impose new taxes and more restrictive regulations that discourage investment, especially on rental housing. We will fight vigorously against the growth in government spending and new tax increases, and will be equally vigilant in our support of legislation that promotes economic recovery.

Here are highlights of some of our recent activities and accomplishments.

WASHINGTON

As a result of our efforts, the Housing and Economic Recovery Act of 2008 includes a provision to increase for two years the amount of private activity bonds available to the states. New York anticipates an additional $600 million allocation and plans to make these additional tax-exempt bonds available for new affordable and market rate housing development.

The American Recovery and Reinvestment Act (the stimulus bill) was signed on February 17, 2009. This act extends to 2009 the benefits created by the Emergency Economic Stabilization Act of 2008, which provides a 50 percent bonus depreciation of investments. For capital expenditures including leasehold improvements, and furniture and equipment used in a business, the taxpayer is allowed an immediate deduction of 50 percent of the cost of the investment and the balance will then be depreciated over its depreciable life (39 years for leasehold improvements; 3 or 5 years for equipment).

The stimulus bill also includes a new cancellation of debt (COD) income provision, which defers any tax on 2009 and 2010 income until 2014, providing a significant tax relief for businesses that reacquire, satisfy or otherwise discharge debt obligations at a discount in 2009 and 20l0.

The COD provision expands the potential number of companies that can benefit since it applies to debt-for-debt acquisitions as well as cash-for-debt transactions. REITS and corporations benefit since these entities previously had no relief from taxation on COD. The provision also offers individuals and partnerships with an alternative to a previous requirement on COD--that it was taxable unless a basis reduction was associated with secured real property.

We have also supported two key provisions in the stimulus bill that provide benefits for housing. One provision is a refundable first-time homebuyer credit. Last year, Congress provided taxpayers with a refundable tax credit that was equivalent to an interest-free loan equal to 10 percent of the purchase price of a home (up to $7,500).

The provision applies to homes purchased on or after April 9, 2008 and before July 1, 2009. Taxpayers receiving this tax credit are currently required to repay any amount received under this provision back to the government over 15 years in equal installments, or, if earlier, when the home is sold.

The credit phases out for taxpayers with adjusted gross income in excess of $75,000 ($150,000 in the case of a joint return). The stimulus bill eliminates the repayment obligation for taxpayers that purchase homes after January 1, 2009, increases the maximum value of the credit to $8,000, removes the prohibition on financing by mortgage revenue bonds, and extends the availability of the credit for homes purchased before December 1, 2009.

The other provision is the establishment of low-income housing grants from the Treasury Department in lieu of tax credits. Under current law, taxpayers are allowed to claim a low-income housing tax credit for certain investments made in low-income housing. These tax credits help attract private capital to invest in the construction, acquisition, or rehabilitation of qualified low-income housing buildings.

Current economic conditions have severely undermined the effectiveness of these tax credits. As a result, the bill would allow taxpayers to receive a grant from the Treasury Department in lieu of tax credits.

Under this provision, States' housing agencies would receive a grant equal to up to eighty-five percent (85%) of forty percent (40%) of the state's low-income housing tax credit allocation in lieu of the low-income housing tax credits they would have received.

These grants are subject to the same requirements (including rent, income, and use restrictions on such buildings) as the low-income housing tax credit allocations. The grant program would apply to each state's 2009 low-income housing tax credit allocation.

ALBANY

We have applauded the Governor for opposing the imposition of an increase in the personal income tax on households with incomes greater than $250,000 (a proposal has been deceptively labeled a millionaire's tax) and for his recognition that the State has a spending problem, not a budget problem. However, in closing a near'y $15 billion budget gap for this year and next, the Governor in our view has relied too heavily on new taxes and lees.

We have begun a more aggressive campaign to oppose the increase in the personal income tax which would increase taxes between twenty and fifty percent. To convey our concern about the other new taxes, we wrote to the Governor stating our opposition to the imposition of sales tax on the labor portion of capital improvements. (Material is already subject to the sales tax.)

We pointed out in our letter that renovation activity is likely the first type of investment to be made and that such investment is crucial to making buildings "green." Renovation has played a crucial role, especially in Lower Manhattan, in transforming older obsolete structures to productive use, particularly residential.

As a result of our efforts, this sales tax proposal was eliminated from the proposed 2009-2010 Executive Budget. We commend the Governor, the Assembly Speaker, and the Senate Majority leader for their recent announcement eliminating this tax, as well the other taxes eliminated from the budget (such as the tax on sugared soft drinks, cable television, movies and a number of others).

We have also expressed our concern about the impact that the luxury tax will have on the demand for retail space and the tax on non-residents sale of a partnership interest if more than 50 percent is comprised of real estate. We opposed this tax on the sale of partnerships last year and it was not enacted.

We have been working with the Association for a Better New York (ABNY), the Business Council, and the Citizens Budget Commission (CBC) to promote fiscal reform. A recent report issued by CBC highlights the staggering growth in fringe benefit costs for police officers, firefighters, and teachers. As part of our call for fiscal reform, the state, and the city as well, must control spending. We recognize that some of these changes necessary to control spending growth will not produce significant savings immediately. Other changes, such as requiring city employees to pay for a portion of their healthcare, could reduce spending by almost $500 million a year and could be enacted quickly. However, unless government reduces spending, taxpayers will continually face tax increases as the principal way to address the deficits resulting from uncontrolled growth in expenses.

The other major issue is the proposed changes in rent regulations. In February, the New York State Assembly passed a package of rent regulation bills that would have an adverse economic impact on the more than one million rent regulated units in New York.

The New York State Senate Majority Leader Malcolm Smith said he would not address the proposed amendments to the rent stabilization system until they have an agreement on the budget that requires closing a $13 billion deficit. The deadline for adopting a budget is April 1.

The major changes in the package of Assembly bills on rent regulation would increase the income (to $240,000 from $175,000) and rent (to $2,700 from $2,000) for luxury and vacancy decontrol; would reduce the vacancy allowance to 10% from 20%; would extend rent stabilization to Section 8 properties that come out of the program; would extend rent stabilization to all post-1974 Mitchell-Lama projects which have or will leave the program; and would transfer responsibility for rent regulations to the New York City Council.

The bills would restore failed housing policies that resulted in disinvestment in housing and a dearth of housing production. New York City had very little housing production in the 1970's, 80's and early 90's. During that period the existing stock deteriorated as owners could not afford to make needed improvements and maintenance. Abandonment was a major problem. Only after the changes to the rent laws, which began in 1993, did production pick up and money moved into rental housing as an investment.

In the last decade, a number of national housing corporations (Avalon Bay, Equity Residential, Archstone) have invested in residential rental properties in New York for both new construction and existing properties. This was a direct result of the changes in the rent laws, which signaled that we were moving to a more market-based housing economy. Expanding rent regulations sends the message that New York is closing its doors to outside investors--that the rules keep changing and public policy is unpredictable. These proposals are harmful to housing and to our economy.

We have been working with the Rent Stabilization Association (RSA) in assembling and developing information that demonstrates the benefits to our housing stock and to our city's economy as a result of the capital-inducing amendments to the rent regulation system enacted in 1993. We hope that the New York State Senate will recognize the problems we've identified with this package and leave the current rent stabilization system, which has led to an improvement in the quality of our housing stock, unchanged.

CITY HALL

In the State of the City address, Mayor Bloomberg announced his proposal to significantly reduce the number of individuals and unincorporated businesses subject to the Unincorporated Business Tax (UBT). Currently, firms subject to the UBT receive a 100 percent tax credit if their tax liability is $1800 or less, and a partial credit if their liability is between $1800 and $3200.The proposal would increase the credit to provide a 100 percent credit for tax liability up to $3400 and a partial credit for tax liability between $3400 and $5400.

REBNY has been an advocate for the elimination of the UBT. This proposal is an important reduction in the cost of doing business in New York, especially for brokers, and should encourage the creation of new businesses and new jobs.

We hope that raising the threshold for the credit on UBT is the initial step in its complete elimination. REBNY has developed a series of economic development proposals intended to stimulate job creation, job retention and real estate activity, particularly office and retail leasing and new housing production.

The commercial proposals include: establishing a market New York campaign; develop a commercial leasing program for small to mid-sized firms modeled after the Lower Manhattan program; introduce amendments to the Industrial and Commercial Abatement Program (ICAP which is the successor program to ICIP) that correct structural flaws in the determination of the level of benefits (The new methodology to determine program benefits is counterproductive in a declining market.); broaden eligibility for the REAP program; restore 421g (incentive program for the conversion of non-residential property to residential use).

The retail proposals include: establish a shopper's marketing campaign, analogous to NYC & Co's campaign that attracts tourists to New York to promote shopping; in connection with a marketing campaign, institute a sales tax-free-week as often as once a month; create a Capital Program for Storefronts for stores with less than 2500 square feet; establish a Liaison for small retail stores for permit and other approvals needed to open and work to streamline this process; and institute a rent insurance/guarantee program so that retail stores would not have to put six months of rent into escrow.

On housing, and particularly 421a, we have recommended that the transition period, which delayed the imposition of assessment caps in as-of-right locations and on negotiable certificates, be pushed back to December 2010 when the program is scheduled for renewal and to extend the period to complete construction which is now 36 months to 48 months.

These changes are needed to address the turmoil in the production of affordable and market rate housing as a result of the credit crisis.

As with all of the above described proposals and provisions, REBNY will continue to advocate positions at all levels of government over the next few months to benefit our membership, our industry and our city.

The goal of our efforts is to help bring us out of the recession, restore confidence in the credit market, control government spending and lower taxes.

BY STEVEN SPINOLA PRESIDENT, REBNY