Global Public Policy Report
ICSC publishes the Government Relations Report bimonthly to keep ICSC members informed of legislation and regulation that affect the shopping center industry, not only on Capitol Hill but at the states level. Comments may be directed to tself@icsc.org.
ASK THE EXPERTS
1999 TAX OUTLOOK
"Ask the Experts" is a regular column in Government Relations Report, featuring an interview with an expert about an important issue facing the shopping center industry. This month our expert is Ronald K. Snell, the Director of Fiscal and Human Resources for the National Conference of State Legislatures (NCSL). He is a graduate of Bates College and received a Ph.D. in history from Princeton University. Before joining NCSL in 1988, he was director of the fiscal staff for the Oklahoma House of Representatives. He has been on the faculties of the University of Oklahoma and San Diego State University.
Q. Most of this decade we have experienced significant economic growth and stability. How have state governments fared fiscally in this period of time?
A. States are financially stronger than they have been since 1980. General fund and reserve balances have grown to their highest levels in over twenty years. While tax collections grew 7.2 percent in 1997-1998, expenditure growth only increased slightly over 5 percent a year. Therefore, state year-end balances have grown substantially and revenue growth has allowed for substantial tax cuts as well as spending increases.
Q. If states have collected so much in taxes, what is happening to surpluses?
A. States are handling surplus revenue in a number of different ways--from spending increases, debt reduction and rainy-day funds--to tax shifts, indirect tax relief, and tax cuts. Forty-six states cut taxes at least once in the period of 1995-1998. Nineteen of those states cut taxes in each of those years.
Revenue has grown faster than taxes have been cut, especially in states with relatively progressive income taxes. Tax cuts over the last four years have been about $15 billion. The largest tax cuts were enacted in 1998, and will provide $6.1 billion in tax relief in tax year 1999. In addition, states will provide over $1 billion more in property tax reductions through subsidies to local governments in response to state-mandated property tax cuts or through direct expenditures to replace local revenue reductions due to property tax cuts.
Q. What kinds of taxes have been cut?
A. In recent years, state tax cuts have focused on income taxes, and to a lesser degree on sales taxes--the two major sources of state tax revenue. Personal income tax cuts have focused on increases in standard exemptions and deductions, but have included across-the-board rate cuts. Sales tax reductions have focused on groceries and equipment used in manufacturing or other business purposes. 1996 and 1997 reductions were mostly attributable to phased-in reductions in sales taxes on groceries in Georgia, North Carolina, Missouri, and Louisiana. The largest component of the 1998 sales tax cut is a temporary rate reduction in Nebraska ($82 million). There have been virtually no increases in either tax in the last four years, although some states extended taxes that would have otherwise expired.
Q. How much has business actually benefited from tax cuts, particularly in the area of property taxes?
A. State government actions in 1998 will reduce property tax collections by $2.1 billion in fiscal year 1999 and an additional $1.6 billion in fiscal year 2000, largely to benefit homeowners. Reduced property taxes on vehicles account for $740 million of the FY 1999 figure and $902 million of the FY 2000 figure.
Relatively minor reductions will benefit businesses in Kansas, West Virginia, and Wisconsin. State policy in recent years has provided little direct property tax relief for businesses other than reduced property taxes on inventories and intangibles, although Minnesota did realize substantial commercial property tax reform in both 1997 and 1998. Most states have authorized local governments to grant property tax exemptions to stimulate development. This trend of reducing property tax burdens for homeowners implies that commercial property will carry an increasingly larger share of the total property tax burden.
Q. What can ICSC members do to keep the property tax burden from shifting to commercial property owners?
A. ICSC members could make the argument to broaden the state sales tax base, while lowering the rate. The commercial tax rate is a much tougher issue to tackle.
Q. Will there be another round of tax cuts this year or is it more likely there will be no significant tax cuts?
A. While there are reasons to support both of these scenarios, the most likely events in 1999 will include: a continued interest in motor vehicle property tax cuts; sales tax cuts on groceries; concern over telecommunications taxes and taxes on electronic commerce; concern over local option taxes to substitute for or augment property taxes; one-time tax cuts; tax cuts contingent upon state revenues reaching some specific level; and reductions in or elimination of state inheritance and estate taxes.
Q. What is your prediction if taxes are not collected on electronic commerce?
A. Local governments will lose their governing power, especially in the south and the west, where they are heavily dependent upon state sales tax revenues.
The views expressed in this column are those of the author and do not necessarily represent the views of the International Council of Shopping Centers. We welcome your comments, questions, and suggestions.
CONGRESSIONAL CONTACTS MEETING QUICKLY APPROACHING
This is your last chance to register for ICSC's 1999 Congressional Contacts Meeting (CCM) to be held Tuesday, March 9 and Wednesday, March 10 in Washington, DC. You can register through ICSCNET Hurry, the registration deadline is March 2.
"Most people tend to underestimate the value of meeting face-to-face with their members of Congress. If ICSC members will come to CCM just once, they will have a much better appreciation of how powerful these meetings are."
Jimmy Maurin
ICSC Southern Divisional
Vice President and Trustee
Stirling Properties; Covington, LA
Join us for our two-day congressional meeting where you will have the opportunity to discuss industry issues directly with members of the 106th Congress. We have some exciting things in store that you will not want to miss!
Our host hotel, the Willard Inter-Continental, has long been a stopping point for those who make history-- including President Ulysses S. Grant who coined the term "lobbyist" here (after the powerbrokers who interrupted his afternoon brandy and cigar, which he took in the Willard lobby). Former assistant to the president and press secretary Mike McCurry will deliver the morning's keynote address at the Capitol Hill Club, and we anticipate hearing from the newly-elected congressional leadership in our afternoon issue briefings on Capitol Hill. Afterwards, we will relax during dinner in the historic "Cash Room" at the U.S. Department of the Treasury. The next day, we will canvass Capitol Hill to meet with over 200 members of Congress and their congressional staffs--who you will host later that evening at our annual Congressional Reception in the East Hall of Union Station.
At CCM, you'll learn everything you need--from advocacy skills and issue talking points to the latest industry data--to prepare you for these face-to-face meetings with members of Congress. Emphasizing our theme, Shopping Centers: America's Marketplace, 10 Million Jobs and Growing, we will educate members of Congress on how important shopping centers are to the economic vitality of their communities--contributing to a healthy economy and quality of life for all Americans. Get ready for an action-packed meeting!
"Our strength is in numbers, so please plan to attend today. We look forward to seeing you in March in the nation's capital."
Kemper Freeman, Jr.
Chairman of ICSC's Government Relations Committee and Trustee
Bellevue Square Managers;
Bellevue, WA
CHANGING OF THE GUARD
Ivan J. Novick, Chairman of Oakmont Realty Partners, Inc. (Pittsburgh, PA), recently assumed the Chairmanship of ICSC's Subcommittee on Economic Issues. Mr. Novick replaces Norman Kranzdorf (Kranzco Realty Trust; Conshohocken, PA) who had been Chairman of the Subcommittee since 1991.
Ivan J. Novick (Oakmont Realty Partners, Inc.; Pittsburgh, PA) was recently named Chairman of ICSC's Subcommittee on Economic Issues
ICSC's Subcommittee on Economic Issues develops and implements legislative and regulatory policy on tax and commerce issues affecting the shopping center industry. "Under Norman's leadership, the Subcommittee has been instrumental in establishing the legislative strategy for passage of new laws concerning passive losses, capital gains tax cuts, and tenant improvements," Mr. Novick commented. "I look forward to building on his efforts and helping the industry address the new challenges ahead."
Mr. Novick stated that the priorities of the Subcommittee in 1999 would include continuing to search for ways to lessen the tax burden on shopping center owners, working with federal and state legislators to find a workable solution for the taxation of electronic commerce, and working with the Treasury Department on its study of the depreciation methods for commercial real estate.
Although he is stepping down as Chairman of the Subcommittee, Mr. Kranzdorf will remain as Chairman of ICSC's Bankruptcy Task Force. "We have made tremendous inroads in proposing legislative solutions to many of the problems faced by shopping center owners during retail bankruptcies. Although Congress failed to enact bankruptcy reform legislation in 1998, I am hopeful that they will take up the challenge early in 1999," Mr. Kranzdorf noted.
Two members of the Subcommittee also assumed chairmanship of its two Task Forces. Donald Stone (Langford de Kock & Co.; Atlanta, Georgia) becomes Chairman of the Task Force on Tax Legislation. Michael Hirschfeld (Dechert Price & Rhoads; New York, New York) assumes the Chairmanship of the Task Force on Tax Regulation.
GROWTH MANAGEMENT: PRIORITY STATE LEGISLATIVE STRATEGY
For the last few years, the nature of growth and development has been given many labels: Growth Management, Suburban Sprawl, Sustainable Development, Livable Communities, Smart Growth; few with positive implications. The issue of how to control growth is becoming ever more pervasive in state legislatures across the country. With the sustained economic growth of the late 1990's and demographic forecasts of significant future population increases, there is great concern among state and local officials about their own ability to meet the challenges associated with growth.
During the 1998 state legislative sessions, growth management laws were passed in Arizona, Maryland, and Tennessee. Election Day ballots in 1998 contained more than 100 state and local referenda associated with growth and/or growth boundaries. Growth management was a hot topic in at least three campaigns for statewide office, most notably the race for Colorado governor. In 1999 legislative sessions, we expect legislative proposals concerning new controls (or expanded controls) on growth in Colorado, Georgia, Maine, New Jersey, New Mexico, Pennsylvania, and Virginia.
The increasing growth debate is also evidenced by the numerous media stories in national and regional papers and periodicals mostly disparaging the effects of "suburban sprawl" and development. ICSC has identified more than a thousand media stories in the last six months. Alan Ehrenhalt, Executive Editor of Governing magazine (a monthly publication whose primary audience is state and local government officials), said he identified more than a thousand stories in October alone; just preceding the 1998 November elections. An October 28, 1998, Washington Post article suggests that although the issue has been "long considered a local fringe issue dominated by pie-in-the-sky environmentalists, 'sprawl' is suddenly one of the hottest topics in state and national politics." The National Governors' Association held a "Smart Growth Conference" in the summer of 1998 and the U.S. Environmental Protection Agency and Urban Land Institute held a "Partners for Smart Growth" workshop in December 1998.
To be sure, the concern over growth was not created in a void. Traffic congestion and overcrowded public schools are most often noted as issues of great concern to the general public, especially those who live in the growing suburbs. But now many special interest groups and several think tanks are using these public concerns to promote their own agendas. These groups range from the mainstream to the extreme. Their focus ranges from promoting higher-density development, redevelopment of older facilities, and expanded public transportation, to the goal of stopping any and all future development.
Many of the solutions to "sprawl" call for growth boundaries, development concentrated near hubs for mass transit, tax and regulatory incentives for higher-density development, and a reduction of "subsidies" that promote development in "outer ring suburbs." The solutions also include greater conservation of open spaces, as is the case in Arizona's and New Jersey's new laws. New Jersey's law requires the purchase of more than half of the state's remaining agricultural and rural lands.
To help balance the debate, ICSC has joined with the National Association of Homebuilders (NAHB) and the American Legislative Exchange Council (ALEC) to publish a paper on the issue of growth boundaries. ALEC is an organization of state legislators based on principles of the free-market and limited government. With 3,000 state legislators as members, ALEC is the nation's largest group of elected state officials. Additional efforts with ALEC will involve drafting alternative legislation to the no-growth, slow-growth bills being introduced each session. The alternative legislation may require that economic impact analysis statements be conducted and considered by state governments before any growth restrictions laws are enacted. Such analyses would have to consider the impact of development restrictions on housing, land values, job losses, tax revenues, bond ratings, and even the impact on a state or region's environment for doing business. These model bills will become part of ALEC's model legislation publication, Sourcebook of American Legislation, distributed to every legislative chamber in the country.
Among the issues we hope to promote with state legislators are the positive aspects of growth and development, the negative aspects of unrestricted government controls, and the positive economic benefits that development in general, and retail development in particular, has on state and local economies. Our effort with state legislators will make clear that growth is both inevitable and essentially good. Development decisions and strategies are based on the demands of the market, and should not, except for local zoning authorities working within their communities, be dictated or restricted by a non-elected government regulatory agency. In an era of regulatory reform, growth boundaries and restrictive land uses suggest a real estate industrial policy with government trying to pick winners and losers. As ALEC has suggested, "growth boundaries do not stop movement to suburban America, they simply take important economic decisions away from consumers and businesses, placing them in the hands of government regulators and a few special interest groups." Such actions are likely to raise significant property rights concerns and impede consumer choice. The long-term effects of such restrictions on market choices will produce negative consequences on economic development.
For more information, call Rob Sweezy at 703-549-7404, ext. 223, or email him at dsweezy@icsc.org.
1999 STATE ACTIVITY
The 1999 state legislative sessions will be active ones for ICSC and its members.
As we enter new sessions following elections in nearly every state, ICSC will be monitoring and working with state legislatures on a number of important issues. Growth management tops the list--arising as an issue in elections last November and promising to be hotly debated in many states this year. The article on page 3 describes how the issue is playing out and ICSC's strategy.
The following is an overview of other pertinent activity ICSC members should expect to see in 1999.
Electric Utility Deregulation
The restructuring of the electric utility industry will continue to be an important topic of debate in most state legislatures. Notably, Michigan and Ohio are expected to address the issue early in the 1999 session. Although significant momentum was built for the restructuring debate in those two states, consensus could not be achieved before the legislatures finished their 1998 session work. Ohio Senate President Robert Finan (R), Public Utilities Commission of Ohio Chairman Greg Glazer and Governor-elect Bob Taft (R) are hopeful that Ohio legislators will pass legislation prior to the March budget work. Senator Mat Dunaskiss (R), a key player in the Michigan debate, has confirmed that he will reintroduce legislation in 1999 based on his 1998 bill as passed by the Senate. Industry sources are hopeful a bill will be presented to Governor John Engler (R) for his approval by July.
New Mexico legislators, who have studied deregulation for the past several interims, are expected to enact legislation offered by the chair of the Utilities and Telecommunications Review Interim Committee, Senator Michael Sanchez (D). After suffering a vitriolic media campaign by pro and con deregulation forces in the 1997 session, legislators, for all intents and purposes, turned the issue over to the state's Public Service Commission to investigate and make recommendations. Although legislation is likely to surface next session, it is unlikely it will have the momentum or the support to pass. Virginia legislators and Virginia Power have been developing restructuring legislation during the interim for the 1999 session.
In New Jersey, ICSC is actively participating in restructuring meetings being held in the Senate and Assembly. Although Governor Christine Todd Whitman (R) had hoped to put this issue on the "fast track" during her administration, legislators continue to hold hearings in order to develop consensus amendments to the Republican-sponsored legislation. ICSC is working with bill sponsors to craft legislation that affects our concerns regarding potential forced access by electricity vendors.
Also in the area of forced access, ICSC will be active in Florida which enacted a bill requiring Public Service Commission (PSC) study on the issues associated with telecommunications companies serving customers in multi-tenant environments. Florida SCAN members successfully blocked portions of this legislation in 1998 which would have allowed "unfettered access to multi-tenant buildings for any telecommunications company." ICSC has been preparing for the battle ahead in the 1999 legislative session.
Brownfields
Another issue that has been at the forefront of ICSC activities in the states which promises continued advancement in 1999 is state Brownfields law. ICSC members were active in helping to enact Massachusetts legislation last session that offers significant benefit for developers. A similar effort is under way in New York. Several bills have been introduced over the past several years; however, this year Governor George Pataki (R) has established a task force making it likely that the issue will be addressed in the upcoming session. ICSC has been meeting with Administration officials and legislative leadership, working towards ensuring that member interests are addressed and New York's law is reformed. On a smaller scale, other Brownfields initiatives that are likely this session include tax incentive legislation for Brownfields redevelopment in Arizona, Minnesota, and Texas.
Alliance Efforts
Finally, in 1999, we will continue to integrate our state relations' activities with those of ICSC's Alliance Program. The purpose of the Alliance Program is to forge closer relationships between the Council and economic development officials at the municipal level. As part of this activity, we will partner with groups like the National League of Cities, the National Council for Urban Economic Development and the U.S. Conference of Mayors on issues regarding equitable taxation, Brownfields development and burdensome regulations.
For more information, contact Rich Warren at 703-549-7404, ext. 222, or Rob Sweezy at 703-549-7404, ext. 223, or email them at dsweezy@icsc.org or rwarren@icsc.org.
STATE GOVERNMENT RELATIONS
STATE COMMITTEE MEETS TO DISCUSS 1999 PRIORITIES
The fall meeting of the State Government Relations Committee was held November 6-7 in New Orleans, Louisiana. We had a good turnout of State Government Relations Chairmen and issue subcommittee members. Those present included: John Ayres (MA); Beth Barton (CT); Ted Benning (GA); Frank Bentz (OH); JoAnne Bernhard (CA); Patricia Blasi (FL); Tony Brown (AL); James Chadwick (MA); Frank Cole (WY); Tom DeMille (CT); Beverly Dietz (VA); Sharon Douglas (VA); David Forsyth (LA); Kemper Freeman (WA); Susan Hays (CT); Garrett Hollands (MA); Jim Kaplan (IL); Larry Kilduff (WI); Bob Lefeber (OR); Jim Maurin (LA); Bill McCabe (MA); Ivan Novick (PA); Stephen Pohl (TX); Julian Rackow (PA); Gary Rappaport (VA); Marc Rosendorf (MD); Bill Shiel (IL); Paul Whitty (KY); Robert Wilson (AL); and Mike Zarpas (VA).
Members of the State Government Relations Committee meet in New Orleans.
Chairman of the Government Relations Committee Kemper Freeman (Bellevue Square Managers; Bellevue, WA) presided over the day and a half meeting which addressed the following topics: State Committee "Best Practices," State Activities Roundtable Discussion, State Budgets and Tax Reform, Telecommunications Deregulation Efforts, Alliance Efforts with Local Officials, Federal Issues Update, Congressional Contacts Meeting Update, and Growth Management Discussion.
Ron Snell, the Director of Economic, Fiscal and Human Resources at the National Conference of State Legislatures gave an excellent presentation on State budgets and tax reform. (He is also featured in this month's Ask the Experts column on page 1).
Florida State Government Relations Chairman Trish Blasi (Codina Group; Coral Gables, FL) followed with a discussion of Florida's telecommunications reform process in which she has successfully spearheaded efforts to protect shopping center rights in her state. Connecticut State Government Relations Co-Chairman Susan Hays gave the group an overview of ICSC's successful 1998 Alliance Program, discussing potential locations for 1999 meetings.
ICSC Government Relations Committee Vice Chairman Gary Rappaport, Chairman Kemper Freeman, and Vice Chairman William Shiel, lead the meeting discussions.
Ivan Novick, Chairman of the Economic Issues Subcommittee, and Tony Brown, Southern Divisional Government Relations Chairman and Co-Chair of the Task Force on Land Rights, gave an overview of the status of ICSC's federal issues including bankruptcy reform, Internet commerce, and environmental reform. Mr. Novick noted that bankruptcy reform, lessening the tax burden on shopping center owners, and finding a workable solution for the taxation of electronic commerce would remain top legislative priorities during the 106th Congress.
The government relations staff would like to thank everyone who participated in the meeting and looks forward to the next meeting of the committee scheduled for March 9th in conjunction with the Congressional Contacts Meeting in Washington, DC.
ICSC PAC CORNER
Q
How did ICSC PAC fare with its contributions to candidates in the November 1998 elections?
A
ICSC PAC gave contributions in 24 Senate races, of which 19 candidates won, a success rate of 80%. In races for the U.S. House of Representatives, ICSC PAC contributed in 114 races where 106 candidates were winners, a 93% success rate for the PAC.q