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House and Senate Approve Budget Plans
Voting along party lines, the House and Senate this week each approved $3.5 trillion in spending in their respective versions of the fiscal 2010 budget. The budget serves as a broad blueprint that will permit President Obama to focus on his key goals -- an expansion of health care coverage for the uninsured, a cap-and-trade system to reduce greenhouse gas emissions and increased funding for education reform and college loans.
The broad budget outline contains provisions that are both supported and opposed by NAHB. However, the final outcome on any of these provisions remains unclear because the congressional budget represents more of a sense of the Congress and its spending priorities then the specifics that will be applied to various spending programs. There is nothing in either budget that binds any standing congressional committee to take any specific action and it is highly unlikely that the final budget approved by Congress will be enacted into law as written.
While the budgets approved this week by both chambers of Congress contain tax elements of interest to NAHB, these provisions in no way bind the tax-writing committees to any specific action. Below are topics of interest to home builders:
- Cap on the Value of All Itemized Deductions. Unlike the White House budget plan, neither the House nor Senate budget contains any proposal to cap the value of all itemized tax deductions, including the mortgage interest and real estate tax deductions, for higher-income taxpayers.
- Home Buyer Tax Credit . An amendment by Sen. Johnny Isakson (R-Ga.) was accepted by unanimous consent to provide a deficit-neutral reserve fund for a nonrefundable $15,000 federal income tax credit for the purchase of a principal residence during a one-year period.
- Estate Tax. The underlying Senate budget resolution freezes the estate tax at the 2009 level ($3.5 million exemption per individual, 7 million per couple/45 percent tax rate above that amount). Then two conflicting amendments were adopted which should make conference negotiations interesting. The first amendment offered by Sen. Jon Kyl (R-Ariz.) increased the exemption to $5 million per individual with a 35 percent tax rate above that limit. The second amendment put forth by Sen. Blanche Lincoln (D-Ark.) created a point of order against any estate tax legislation beyond the “baseline” $3.5 million/45 percent proposal in the resolution unless it provides equal relief to those earning less than $100,000. Meanwhile, the House budget resolution allows the estate tax to be addressed with a cost cap of $72 billion over five years if the House also reinstates pay-as-you-go rules to ensure this proposal remains budget neutral.
- Net Operating Loss (NOL) Carry Back. The Senate bill contains an explicit expansion of the NOL carryback along the lines of the original Obama stimulus proposal while the House resolution mentions business tax relief generally with nothing specific on NOL. In a related development, a broad NOL bill was introduced in the Senate this week (see next story).
The biggest dispute between the two budgets is whether to use a tool known as "reconciliation" that would allow the Senate to approve Obama's health, energy and education initiatives by a simple majority of 51 rather than the usual 60, which would require Republican support. The House voted to include the procedure in its budget plan for health care and education legislation. The Senate rejected reconciliation for Obama's cap-and-trade proposal while the House budget does not include cap-and-trade in its reconciliation provisions. The bottom line: When the House and Senate go to conference to produce a final budget, the door has been left open to employ reconciliation on any or all of these initiatives.
For more information on the proposed tax elements within the House and Senate budgets, contact Greg Brown at 1-800-368-5242, x8421. For other information on the fiscal 2010 budget, contact Jenna Hamilton at x8407.
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NAHB Expands Efforts to Address AD&C Credit Crunch
NAHB is stepping up our game plan to address the severe problems builders are facing with acquisition, development and construction (AD&C) loans. A central component of our strategy calls for developing compelling case studies to clearly portray the issue for regulators, legislators and others whose actions can help resolve the situation. This will involve collecting specific examples of the problems our members are encountering on a day-by-day basis. Of particular interest are stories coming from builders or developers located in relatively stable markets, which can most vividly illustrate inappropriate regulatory actions.
Accordingly, NAHB is now developing a quick-and-easy online template that you'll be able to use to share your AD&C experiences. We'll have more information on how to access this template as soon as it is ready. Other parts of our stepped-up strategy on AD&C lending will include seeking new coalition partners, continuing meetings with bank regulators, and implementing our very strong grassroots network to increase congressional outreach, as well as engaging the media where appropriate to increase awareness of AD&C loan problems. Stay tuned to this report and NBN Online for further updates. For more information, contact John Dimitri at x8529.
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FASB Approves NAHB-Advocated Guidance on Mark-to-Market Accounting
NAHB-advocated guidance on mark-to-market accounting was approved by the Financial Accounting Standards Board (FASB) on April 2. The two newly approved proposals are intended to clarify the valuation of assets in inactive markets and the treatment of impairments. In so doing, they will relieve financial institutions from the heavy hits to earnings and capital that resulted from flaws in previous accounting requirements. Institutions will also be permitted to reverse some of the write-downs they have taken on mortgage-backed securities and report an increase in earnings and capital for the first quarter.
This decision comes after months of pressure from Congress and others, including a recently formed coalition that NAHB joined to collectively seek solutions to fair value accounting problems. NAHB and coalition members had submitted comment letters to FASB that supported the proposed guidance and requested certain modifications and revisions to clarify it. However, the FASB's April 2 decision contained one concerning element in its departure from the proposed guidance on management's ability to use judgment in securities valuations. In this case, NAHB is concerned that FASB has taken a backward step in recognizing illiquid and non-functioning markets for valuation purposes. We will therefore continue working with our coalition partners and the Federal Home Loan Banks to correct these outstanding issues. FASB is scheduled to issue its final position on the proposals this week. For more information, contact John Dimitri at x8529.
Important note: The FASB action affects accounting treatment of mortgage-backed securities but not AD&C loans, because AD&C loans are subject to different accounting requirements that don’t involve the mark-to-market process that FASB is revising. AD&C loans are undergoing valuation reductions that are causing severe problems for home builders, and NAHB is working to address that problem through separate channels.
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Baucus, Snowe Introduce NOL Carryback Relief Bill
Senate Finance Committee Chairman Max Baucus (D-Mont.) and senior committee member Olympia Snowe (R-Maine) this week introduced the Net Operating Loss (NOL) Carryback Act, legislation to allow formerly profitable businesses to carryback losses incurred in 2008 and 2009 for five years.
“The bottom line here is that this measure will help generate immediate cash for businesses and prevent further job loss, which is critical for our economic security. This bill offers tax relief that gives owners and entrepreneurs better means to make payroll and invest in new equipment, put people back to work, and create new jobs when they can,” said Baucus.
“While the recently enacted economic stimulus bill included a modest NOL carryback provision to assist smaller firms, this legislation will help any company that has losses from 2008 or 2009 carry back those losses to offset taxes paid in the previous five years when they were profitable. This will go a long way in helping to keep more workers on payroll and stabilize overall operations," said Snowe.
Under the provisions of the economic stimulus package signed into law in February, businesses with average gross receipts of no more than $15 million over the prior three years and with a net operating loss in 2008 can elect to offset this loss against income earned in up to the five prior years. Typically, an NOL can only be carried back for two years. The NOL Carryback Act would expand current law to include small, medium and large firms. In addition, the bill would block companies that receive cash from the Trouble Asset Relief Program (TARP) from utilizing the tax incentive. NAHB continues to support broad NOL relief. For more information, contact Greg Brown at x8421.
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Feingold Bill Would Greatly Expand Scope of Clean Water Act
Since January of 2007, NAHB has been working as a member of the Waters Advocacy Coalition (“WAC”) to educate Capitol Hill staff and members of Congress on the problems with The Clean Water Restoration Act, and why this legislation would have an adverse impact on the home building industry. Introduced in the previous Congress by Rep. James Oberstar (D-Minn.) in the House and Sen. Russ Feingold (D-Wis.) in the Senate, the legislation would remove the word “navigable” from the Clean Water Act (“CWA”) and subsequently expand federal jurisdiction to include every wet area in the United States. The result of this expansion would be an exponential increase of federal permits for home builders.
This week, Sen. Feingold unveiled S. 787, an updated version of the legislation that still fails to address any of NAHB’s original concerns with the bill. The measure would provide virtually limitless federal Clean Water Act jurisdiction over all waters and wet areas within the United States. This expansion would increase the number of federal permits required, which would in turn exacerbate the current permit backlog that is already approximately 20,000 permits deep with a three year waiting period.
At this time, there is no word on when Oberstar will introduce a companion bill in the House. NAHB will continue to reach out to lawmakers and staff on Capitol Hill to explain why this legislation is flawed and why it would harm the home building industry. To read the legislation, click here and type the bill number in the box in the upper center screen. For more information, contact Annie Raymond at x8307.
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