HBAI Newsletter 9.27.18

Government Affairs Update

State

• November Election: Plan to get out and vote! Do it absentee. Don't take it for granted. So many of the policies affect our industry, as does our tax climate, economic development initiatives, skilled trades programming, etc. Please pay attention and make plans to cast that ballot.
• Blum Seat in Eastern Iowa: If you live in Eastern Iowa, please make sure that you pay attention to the Blum/Finkenauer race. Congressman Blum is a home builder, developer, home building software company owner (who is an exhibitor at IBS every year) – it doesn't get any stronger than that as a friend of our industry. NAHB has endorsed both he and Congressman David Young. HBAI doesn't really endorse any candidates, but he has been very good for our Federation. Here are Ballotpedia entries for: Rod Blum and Abby Finkenauer
• 2019 Legislative Priorities: No matter what happens, a few of our priorities currently include a reduction in the statute of limitations, right to repair before litigation, state codes, skilled trades initiatives, and regulatory relief.

Federal

• Softwood Lumber: America's residential construction industry needs a stable and affordable supply of softwood lumber, wood most commonly used for wood-frame residential construction. U.S. domestic timber production is not enough to meet demand. In 2017, the United States consumed 47.62 billion board feet but produced only 33.86. Of the 15.18 bbf shortfall in 2017 (factoring 1.42 bbf in exports), Canada provided 14.17 bbf, or roughly 93%. In an effort spearheaded by NAHB, 171 Republican and Democratic members of the House and a dozen Republican and Democratic members of the Senate, sent letters to the Trump administration calling on the U.S. to resume softwood lumber trade negotiations with Canada.
• Chinese Tariffs Act as a $1 Billion Tax Hike on Housing, Could Jump to $2.5 Billion: On September 17, President Trump announced he is moving immediately to impose 10% tariffs on an additional $200 billion worth of Chinese imports, including $10 billion of goods used by the home building industry. This 10% levy represents a $1 billion tax increase on residential construction. Making matters even worse, the tax hike will rise to $2.5 billion on Jan. 1 when the president said the tariff rate will jump to 25% if the two nations have not resolved their differences by year end. If China retaliates, Trump has vowed to place tariffs on an additional $267 billion worth of imports – a move NAHB has strongly opposed.
• Tax Reform 2.0: In September, House Republicans unveiled a package of tax changes (known as Tax Reform 2.0) intended to build on the enactment of last year's Tax Cuts and Jobs Act (TCJA) and voted the legislation out of the House Ways and Means Committee. Tax Reform 2.0 is a package of three bills. The Protecting Family and Small Business Tax Cuts of 2018 (H.R. 6760) would make permanent the provisions of the TCJA that are scheduled to expire on December 31, 2025. This includes making permanent:
  • the new Section 199A 20% deduction for pass-through businesses
  • the increased AMT exemption amount
  • the new $750,000 cap on the mortgage interest deduction
  • the $10,000 limit on the deduction of state and local taxes (SALT)
  • the lower marginal tax rates of 10%, 12%, 22%, 24%, 32%, 35%, and 37%
  • the increased standard deduction ($12,000 singles, $24,000 couples)
  • the repeal of the overall limitation on itemized deduction (Pease limitation)

The Family Savings Act of 2018 (H.R. 6757) focuses on promoting individual and retirement savings.  Notable changes included in this bill would give small businesses a more cost-effective means to offer employees retirement savings plans through the creation of Open Multiple Employer Plans, which is a change NAHB has supported.

Also, families that have Section 529 savings plans for higher education would be permitted to tap into those funds to cover costs associated with apprenticeships.

And the bill includes a new savings program known as Universal Savings Accounts (USAs), which would allow individuals to save up to $2,500 a year on a pre-tax basis. Distributions from a USA could be taken for any purpose, giving individuals a simple, tax-free savings vehicle, which could benefit younger home buyers saving for a down payment.

The American Innovation Act of 2018 (H.R. 6756) would provide start-up businesses with new tax benefits. The bill would expand the Section 195 deduction for certain start-up costs and provide an exception to current rules that limit the use of net operating losses and certain tax credits when there is an ownership change and when a start-up business engages in additional rounds of financing.

At this point, the House leadership remains committed to a vote by the full House on all three bills this month. The Senate, however, has indicated that it will not considered these bills prior to the elections.  Of the three bills, the retirement savings changes have the best prospects for future enactment, as there has been strong bipartisan support in this area.

Contribute to BUILD-PAC before Election Day

The 2018 election cycle is proving to be one of the most competitive midterm elections in history. There are an unprecedented number of open seats and extremely close races around the country. It is critical that the home building industry elect a pro-housing, pro-business Congress on November 6. BUILD-PAC is the best tool we have to protect our industry, but we need more funds in our coffers in order to elect a Congress full of “Defenders of Housing.”

Grassley Request GAO Report on Median Construction Costs

The Government Accountability Office (GAO) released its long-anticipated report on Low Income Housing Tax Credit (LIHTC) development costs.  This is the third GAO report examining the LIHTC, stemming from a request by Senate Judiciary Chairman Chuck Grassley (R-Iowa) to examine the cost-efficiency and effectiveness of the housing tax credit. Examining projects completed from 2011 to 2015 across 12 allocating agencies, the report found median per-unit cost of construction ranging from about $126,000 in Texas to a high of $326,000 in California. From this construction cost data, the GAO reached a number of non-surprising conclusions:

1. Larger projects (more than 100 units) cost less, consistent with economies of scale;
2. Urban projects cost more than non-urban; and
3. Senior housing costs less than housing serving other tenants, potentially due to smaller unit sizes.

The GAO study also examined price differences from nonprofit participation, finding that for projects completed using a non-profit set-aside, the per unit cost of these projects was about $15,000 higher. In general, the report notes that the vast majority of allocating agencies have policies and practices to limit costs, but the report raises as a “known fraud risk” that few agencies guard against misrepresentation of contractor costs.

However, a limited number of allocating agencies have begun implementing controls to address the risk of fraud involving misrepresentation of contractor costs. The GAO report recommends to Congress that it designate an agency to collect cost-related data from allocating agencies and periodically assess and report on LIHTC development costs. In addition, the GAO recommends that the IRS:

1. Require general contractor cost certifications;
2. Encourage allocating agencies to collaborate on standardizing the collection of cost data; and
3. Communicate to allocating agencies how to collect information on and review LIHTC syndication expenses, including upper-tier partnership expenses.

The IRS, in an appendix to the GAO report, disagreed with all three recommendations.

Apply for 10,000 Small Businesses Program

Iowa small business owners and entrepreneurs can grow their businesses with the help of the Goldman Sachs “10,000 Small Businesses Program.” Beginning in January 2019, the program will be hosted in the State of Iowa and is free to Iowa businesses. The program includes curriculum developed by Babson College, recently named No. 1 for Entrepreneurship by U.S. News & World Report for the 22nd year in a row.

Accepted applicants receive hands-on education for business growth, access to highly-trained, small business professionals and an expanded peer network of small business owners from across the country.

Eligible businesses have been in business for at least two years, have at least $100,000 in revenues and employ at least two employees (including the business owner). Qualified prospects can apply and gather additional information at www.10KSBapply.com/Iowa. Applications are due by Monday, October 15, 2018.

“Small business owners drive our state's economy, and their companies are the heart and soul of our communities,” Gov. Kim Reynolds said. “I encourage all Iowa small businesses to apply to this exciting program. As Iowa small businesses grow and thrive, the entire state benefits.”

Participants may also learn more through online information sessions offered Sept. 25, Oct. 3 and Oct. 9. To register, visit: www.tinyurl.com/10kSBIowa.

Iowa Budget Closes with $127 Million Surplus

Gov. Kim Reynolds announced Tuesday the State of Iowa will end Fiscal Year 2018 with an estimated balance of $127.3 million in its general fund. That's $95.6 million more than what the Revenue Estimating Conference predicted in March.

“We are striving to be fiscally responsible with your tax dollars, and I am proud to announce Iowa will end the fiscal year with a $127 million surplus,” Gov. Reynolds said. “Our economy is growing, incomes are rising and our state's budget is a reflection of that. But I'm never satisfied. I'm going to continue to push for policies that grow our economy, invest in education and affordable health care and maintain Iowa's status as the #1 state in the country.”

Registration Open for the 2019 Builders' Show

The 2019 NAHB International Builders' Show – Feb. 19-21 in Las Vegas – is THE place to be for any housing industry professional. Come for the latest and greatest products from hundreds of exhibitors. Come to attend as many of the 140+ educational sessions as your schedule permits. Come to network with the best and brightest in the business. Come to hear Dana Carvey at the opening ceremonies and the Goo Goo Dolls at the closing concert. Network, learn and build at the 2019 International Builders' Show. Register today for the best deals. Prices go up October 1.

Split Sales 

With existing home sales flat in July, and August at a rate of 5.4 million/year (solidly down from a peak rate of 5.7 million/year last November), I think existing sales move sideways from here on. Rising prices, higher interest rates, and tight inventories make a meaningful rise unlikely despite a strong labor market and rising wages. That said, new home sales should keep rising by 10%/year for a while longer. – Elliot F. Eisenberg, Ph.D.

Iowa Awards 10 Programs to Grow Registered Apprenticeship Programs

There are eight schools and organizations will receive funding to grow Registered Apprenticeship programs in Iowa. Each will receive $10,000 to create or provide ongoing support of a Quality Pre-Apprenticeship Program.

• Waverly-Shell Rock Community School District, Waverly
• The New Bohemian Innovation Collaborative Inc. (New BoCo), Cedar Rapids
• Plumbers and Steamfitters Local #33 Joint Apprenticeship Training Center, Des Moines
• Iowa Laborers' Education & Training Trust Fund, Des Moines
• Hawkeye Community College, Waterloo
• Dubuque Senior High School, Dubuque
• Dubuque Hempstead High School, Dubuque
• Cedar Rapids Community School District

There were two schools chosen to receive $15,000 each for High School Registered Apprenticeship Programs:

• West Delaware Community School, Manchester
• Pella Career Academy, Pella

“I'd like to congratulate these schools and organizations for their commitment to exposing more Iowans to Registered Apprenticeship opportunities,” Gov. Kim Reynolds said. “This commitment to growing Iowa's skilled workforce in high demand jobs using the Registered Apprenticeship model is an important strategy to help us meet our Future Ready Iowa goal. It also helps keep the cost of higher education down, and students are able to earn money while training for a rewarding career.”