A Future for Infrastructure
With potential bipartisan support for infrastructure, could 2021 be the year for a breakthrough in Washington, D.C.?
The new Congress and President Joe Biden’s administration have kicked off the year with a major legislative package and a flurry of executive orders. This activity signals what could be an active year for policymaking as the new administration strives to deliver on its campaign
promises and legislative priorities — continuing the busy legislative year that 2020 proved to be. With the presidential campaign in full swing, many expected 2020 to be a year of legislative gridlock. But the coronavirus turned predictions on their heads.
Congressional leaders came together in the early months of the pandemic to enact several major legislative packages to address the crushing impact of COVID-19, including the $2.2 trillion CARES Act. The CARES Act created the Paycheck Protection Program and expanded the Small
Business Administration’s Economic Injury Disaster Loan program, providing desperately needed assistance to businesses suddenly shut down or curtailed due to the pandemic. The CARES Act also authorized the Federal Reserve’s Main Street Lending Program to provide loans to support small and midsized businesses. Additionally, the legislation
included provisions for an employee retention tax credit, a technical correction to the inadvertent 39-year cost recovery period to qualified improvement property rendered during tax reform, mortgage forbearance, direct payments, and expanded unemployment benefits.
Supplemental legislative relief was provided throughout the year to fine-tune aid measures, better target relief, and authorize additional funding. Additionally, provisions unrelated to the pandemic but significant for commercial real estate were passed in an
end-of-the-year omnibus bill, including a provision making the Section 179D deduction for energy-efficient commercial buildings permanent. Over the last several years, CCIM Institute has been advocating for the long-term extension or permanence of the Section 179D deduction to encourage sustainable
development. The omnibus package also included a five-year extension of the New Markets Tax Credit program and significant energy provisions, including renewable energy and carbon capture project incentives.
Latest Coronavirus Relief
Since January’s inauguration, the Biden administration’s top priority has been getting the coronavirus under control and providing relief to those who continue to be harmed by the virus and its economic toll. President Biden signed the $1.9 trillion American Rescue Plan
Act on March 11, bringing the total amount of authorized federal aid to address the pandemic to $6 trillion. The American Rescue Plan Act provided:
- Additional stimulus checks to individuals and households.
- $45 billion in rental, utility, and mortgage assistance.
- $7.25 billion in additional funding and expanded nonprofit eligibility for the Paycheck Protection Program.
- $350 billion for state and local governments.
- $130 billion to schools.
- Funding to assist with businesses reopening.
- $25 billion for a restaurant grant program.
- $14 billion for vaccine distribution.
- An extension to federal weekly unemployment payments.
- An expanded child tax credit.
With optimism that the effects of the pandemic lessen as Americans continue to get vaccinated and the American Rescue Plan Act infuses relief, Congress is poised to tackle additional policy issues — like infrastructure investment, taxes, and cannabis business financing — that
could impact commercial real estate.
Second in priority only to the pandemic relief bill for the new administration is the proposed Build Back Better plan to repair America’s crumbling transportation, water, and energy infrastructure systems while also addressing the impact of increased climate risk and extreme
weather events. The new administration is also considering pushing for a comprehensive infrastructure package that would be an essential piece of pandemic relief by providing good paying jobs to further jump-start the economy. Biden’s infrastructure proposal envisions repairing and modernizing
America’s transportation, energy, water, and digital infrastructure so they are globally competitive, equitable across communities, and resilient to extreme weather events. The February deep freeze in Texas that crippled the state’s electric grid and the water crisis in Jackson, Miss., similarly devastated by a
winter storm, demonstrate the urgent need for sustainable infrastructure upgrades.
In its latest quadrennial report card, the American Society of Civil Engineers (ASCE) gave America’s infrastructure system a C-minus grade. During a recent U.S. Chamber of Commerce virtual infrastructure policy conversation, Thomas Smith, executive director of ASCE,
noted that, “Chronic underinvestment in our infrastructure has pretty serious consequences. Over the next 20 years, the average American household will spend $3,300 a year due to infrastructure deficiencies.”
Many of our country’s infrastructure categories fared poorly. The ASCE’s report, Failure to Act, which examines the economic impacts of derelict infrastructure, concludes that if we do not act, we are forecasted to lose $10.3 trillion in GDP from 2020 through 2039.
Leaders on both sides of the political aisle have expressed enthusiasm for repairing and modernizing our infrastructure systems. What remains to be settled are the size of such a proposal and how to pay for it.
“There is a lot of bipartisan optimism with moving forward in the House and Senate on transportation infrastructure issues, but the issue is the cost,” says Russell Riggs, senior policy representative at the National Association of REALTORS®. “After passing a $1.9 trillion pandemic
relief bill, will Congress have the appetite to enact another large legislative package?”
Yet, as the ASCE economic analysis demonstrates, extraordinary costs are incurred by avoiding these necessary investments. Increasing the gas tax to adequately fund the Highway Trust Fund has been considered in prior infrastructure proposals. “[But] the Highway Trust
Fund is reliant on people putting gas in cars, and that only pays for roads and transit projects,” Riggs says. “Fewer cars are going to be running on gasoline. General Motors has committed to producing all electric cars by 2035.”
Even if the gas tax continued to fill the Highway Trust Fund at adequate levels, it is only structured to fund surface transportation and transit projects. At a February hearing by the Senate Committee on Environment and Public works, Committee Chairman Tom Carper (D-DE)
discussed a national “vehicles miles traveled” approach to fund our nation’s transportation infrastructure, explaining “those of us who use our nation’s roads, highways, and bridges have a responsibility to help pay for them.” Taxing carbon emissions is another funding approach that has been suggested.
Raising the capital gains rate for investors making over $1 million annually would also effectually alter the preferred tax treatment of carried interest for those earners.
Another hurdle to overcome is the gap between the Republican and Democratic visions of an infrastructure plan. Many on the left envision a comprehensive package that encompasses climate risk and green job creation policies while some on the right envision a slimmer package. Nevertheless, after a March 4 infrastructure meeting with Biden, Secretary of Transportation Pete Buttigieg, and members of the House Transportation and Infrastructure Committee, Ranking Member Sam Graves (R-MO) was optimistic in an interview with The Hill explaining, “I thought it was good, it seemed to be productive. The president was very engaged and very open.” Both sides seem receptive to compromise.
NAR® is an active member of the U.S. Chamber of Commerce and Bipartisan Policy Center’s Build by the Fourth of July infrastructure coalition that currently has over 310 members. These coalition members represent an array of organizations, from the National Wildlife Federation
to the National Bankers Association, which could signal an infrastructure package might finally be in reach. “A bipartisan package is going to be bigger in scope than many on the right would initially prefer,” Neil Bradley, chief policy officer at the U.S. Chamber of Commerce, explained in a recent New York
Times article. “It’s also going to be narrower in scope than many on the left would prefer.”
Changes in tax policy could also be on the table this year. Biden has proposed raising the corporate tax rate to 28 percent, after being lowered to its current 21 percent after the 2017 tax bill, to fund the administration’s infrastructure proposal. When asked about a
possible wealth tax, Treasury Secretary Janet Yellen took that possibility off the table explaining that a wealth tax has “been discussed but it is not something that President Biden has come out in favor of. I think it is something that has very difficult implementation problems.” The Biden
administration has also suggested raising the capital gains rate on long-term gains for earners making over $1 million a year.
The capital gains treatment of carried interest could also be facing scrutiny. The Tax Cuts and Jobs Act of 2017 mandated that for carried interest to qualify for long-term capital gains treatment, investments must be held for three years. While President Biden has
not explicitly proposed altering the treatment of carried interest, when asked about it, Yellen responded that “I think it is something that certainly deserves to be on the list of things to look at.” Raising the capital gains rate for investors making over $1 million annually would also effectually alter the
preferred tax treatment of carried interest for those earners. In February, a group of House Democrats introduced the Carried Interest Fairness Act of 2021, which would require carried interest to be treated as ordinary income instead of a capital gain.
Some good tax policy news for commercial real estate is that a group of bipartisan Congress members introduced legislation to make permanent the Section 199A 20-percent deduction for qualified pass-through business income. The pass-through deduction is intended
to give businesses organized as S corporations, partnerships, and sole proprietorships tax parity with often larger corporations that received a tax cut in 2017. The deduction is currently set to expire in 2025, though the Main Street Tax Certainty Act would make this deduction permanent. CCIM Institute
joined a letter to congressional leaders in support of this legislation detailing how the impacts of the pandemic on small businesses make this deduction even more critical.
Cannabis Banking Legislation
Sixteen states and the District of Columbia have legalized adult recreational use of marijuana, and yet cannabis businesses still sometimes struggle to access capital and other financial services because marijuana remains an illegal substance at the federal level. In April, the
House of Representatives passed the bipartisan Secure and Fair Enforcement (SAFE) Banking Act, which would provide a safe harbor to banks, insurance companies, and other financial institutions that serve cannabis businesses in states where marijuana is legal. Access to capital can be a constraint for both the
businesses and the real estate owners who host them. In addition, many insurance companies are not willing to underwrite cannabis businesses.
Advocates of the SAFE Banking Act are cautiously optimistic it could see movement in the near future. Senate Banking, Housing, and Urban Affairs Committee Chairman Sherrod Brown (D-OH) indicated his support if the legislation is coupled with drug sentencing reform. In an
interview with Politico, Ranking Member Pat Tommery (R-PA) also expressed his support, “I am sympathetic to the idea that people who are involved in [the] cannabis industry — in an entirely legal fashion, in the state in which they operate — ought to be able to have ordinary banking services.”
Congress is facing myriad policy demands to assist the country in fully recovering from the pandemic. With infrastructure the next priority of the Biden administration, a bipartisan effort in enacting a comprehensive bill could invigorate the economy and provide the much-needed
infrastructure improvements that would benefit all Americans.