This document summarizes several national legislative issues related to the apartment industry in January 2010. It discusses federal issues around housing finance, tax matters, and the environment. It also outlines state and local concerns, including budgets/taxes, energy/green building policies, building codes, bed bugs, and additional regulatory issues. The National Apartment Association is tracking these issues and lobbying on behalf of the apartment industry.

1. National Legislative IssuesJanuary 27, 2010

2. Federal IssuesHousing FinanceTax MattersEnvironmentDraft FCC IssuesState and Local IssuesBudget & Taxes

3. Energy and Green Building

4. Building Codes

5. Bed Bugs

6. Additional IssuesNAA Tracking Info

7. Housing FinanceCapital Markets InitiativeGoal is to restore apartment industry’s access to capital11/30/09 NAA/NMHC met with HUD Deputy Assistant Secretary to encourage HUD to streamline its operations and increase volume.12/15/09 NAA/NMHC met with Treasury Secretary Geithner to discuss a future model for CRE lending.

8. Housing FinanceGovernment Sponsored Enterprises ReformSenate Banking Committee trying to determine the future of Fannie and FreddieObama Administration developing its own plan (Feb 2010)NMHC/NAA working with committees to make sure that they understand the multifamily perspectiveTreasury Department announced it will provide unlimited financial support beyond the $100 billion per institution limit for Fannie & Freddie

9. Housing FinanceAt 9/30/09, $51 billion provided to Freddie and $60 billion to FannieTreasury announced conservatorship extended through 2012NMHC Task Force developing a policy for GSE Reform that includes the needs of the apartment sectorAt the March 2010 NAA Legislative Committee meeting, I will push for NAA/NMHC to lobby for Fannie and Freddie to remain separate institutions and get leverage back to at least 80%

10. Housing FinanceCRE Loan ModificationsPolicy statement issued 10/30/09Gives banks more flexibility to extend or refinance CRE loans without adverse classificationLoans to good borrowers will not be adversely classified solely because value of collateral has declined to less than loan balanceWill make it easier to renew loansWill allow banks to begin to move distressed assets from their balance sheetsRelies more on ability to pay rather than value of collateral

11. Housing FinanceFinancial Regulatory Reform exempts CMBS from Risk Retention RequirementsHouse has passed a bill exempting CMBS for risk retention by issuerBill requires companies selling mortgage backed securities to retain 5% of credit risk but can use a third party investor for this “B” piece.Senate has not considered a bill yet.

12. Housing FinanceApartment related tax incentives allowed to expireSenate failed to pass tax extension billTax credit exchange programNew markets tax creditCredit for new construction of energy efficient homes50% bonus depreciation provisionIncrease in small business expensing limits (Section 179)

13. Tax MattersCarried InterestOn 12/9/09 House passed HR4213 which, among other things, taxes carried interest at ordinary income tax rates instead of capital gain as in current law.This has been a top priority for NMHC/NAA for several yearsSenate has not considered the measureNMHC/NAA will work with other real estate organizations to educate lawmakers of consequences including slowing recovery and hindering affordable housing shortage.Carried Interest tax change has passed House 3 times but never been considered by the Senate

14. Tax MattersCarried InterestIn January 2010 the Executive Committee of the U. S. Conference of Mayors unanimously adopted resolution to keep capital gains treatment of carried interest.Intense lobbying effort by NAA/NMHC and other real estate groups.NAA/NMHC now engaging National Association of Counties, National League of Cities and various governor's associations.

15. Tax MattersEstate TaxOn 12/3/09 House passed HR4154 to permanently extend the 2009 Estate Tax Law (3.5 million per person exemption and 45% tax rate) and preserved stepped up basisSenate did not take up this legislation before adjournment1/1/2010 Estate Tax is repealed completelyAs a part of the repeal (no estate tax) stepped up basis will be replaced by roll over basis

16. Tax MattersNet Operating LossNew law – (11/6/09) – NOL carryback expanded from 2 years to 5 years.Applies to losses incurred in 2008 and 2009Applies to all companies regardless of revenue (cut off was $15 million or less)Can only offset 50% of taxpayer income in year 5.

17. Environment Climate Change BillHouse passed its Climate Change Bill on 6/26/09. Includes a provision requiring a building code 30% more efficient by 2010 and 50% more efficient by 2016.NMHC/NAA has opposed this provision for some timeSenate has passed a bill thanks to NMHC/NAA that eliminates specific energy efficiency building code targets and timelines, leaving those decisions to EPA rulemaking

18. Environment Lead Based Paint Renovation, Repair and Painting RuleIn effect in April 2010 Creates new compliance obligations for pre-1978 properties not certified lead free.Requires workers who disturb lead coated surfaces to complete an EPA certified training course on lead safe work practices

19. Draft FCC OrderA draft before the FCC would allow exclusive contracts between apartment properties and cable providers and satellite operatorsIn 2008 FCC banned exclusive access agreementsDraft is expected to allow bulk billing and exclusive marketing arrangementsUnclear when FCC might vote on this draftNAA and NMHC lost the exclusive access banning case in Federal Court in 2008

20. State and Local Issues

21. 1. Budgets and TaxesFiscal pressure on state budgetsStates looking at increased income taxes, excise, property and business taxes.Several states looking at goods and services not currently taxed.

22. 2. Energy / Green BuildingGreen Building Mandates, energy auditing/reporting and incentives for green building are hot topicsNAA currently tracking 172 green building related bills at state level aloneEPA declared carbon dioxide a pollutantGovernments are starting to regulate the factors in development that cause it to be emitted into the atmosphereSome governments have created “carbon taxes”

23. 3. Retroactive Building Code RequirementsMany state and local governments considering building codes to contain expensive retrofit requirements (especially relating to health and safety)These codes, if adopted, will cost members many thousands of dollars per propertyNAA currently tracking over 100 building code proposals at state levelCover carbon dioxide and smoke detectors, sprinkler and elevator mandates (Hoover example)Accessibility proposals also under review

24. 4. Bed BugsBed bugs are becoming an area of concernVery costly to eradicateLegislation being considered to shift responsibility for remediation onto property owners and managersIf passed will result in rent abatement and sometimes legal and punitive damagesBed bug lawsuits becoming more commonplace, including claims for overexposure of pesticide, gross negligence, battery, breach of warranty and emotional distress.Some cities have set forth strict protocols governing extermination and disposal procedures and subjecting non-compliant properties to fines, inspection costs and even jail time.

25. 5. Additional State and Local Issues Apartment community registration and inspectionsSmoke free housing requiredAdding new groups to protective classes such as sexual orientation, applicants with criminal histories, mandatory Section 8 and victims of domestic violenceForeclosure reform – policy makers misunderstand apartment operations and believe tenants would be unexpectedly removed from their units in the case of a foreclosure. Due to this, several states are considering proposals that provide tenants with notice and hold over rights.

26. NAA Tracking Information

27. New Information for 2010 from NAAIssues / Bill Tracking for 2010