Government Affairs Update July 2017
Barbara Koelzer, Regional Government Affairs Director
Council Approves Capital Expansion Fees: On June 6, the City Council approved increased capital expansion fees (CEFs) for parks, police, fire and general government. The Fort Collins Board of Realtors®, the Fort Collins Area Chamber of Commerce and the Home Builders Association of Northern Colorado expressed concerns with the 2016 original proposal and successfully convinced the Council to adopt lower fees saying housing would take on more of the burden for new infrastructure than commercial development. (More detailed information on the fees can be found in my May 24th update available here: https://ires-net.com/ires-mls-blog.) In addition, the Council approved the creation of a new citizen task force to address future fee structures and review timelines for implementing them.
While the Council’s decision to approve lower CEFs is a victory, the coalition remains concerned because the City is also considering updated capital & transportation, water and electrical capacity CEFs. It is expected that those fees will be considered by Council next spring.
Supreme Court Ruling May Stimulate Condo Market: On June 5th, the Colorado Supreme Court upheld the right of condominium developers to require disputes go to binding arbitration, essentially putting into state law a provision that construction defects reform advocates said was the key to reviving a largely defunct condo market. The decision to uphold a lower-court ruling in Vallagio at Inverness Residential Condominium Association v. Metro Homes Inc. is likely to have wide-ranging effects, especially after Gov. John Hickenlooper last month signed into law a separate bill concerning defects reform.
The Vallagio decision, handed down by a 5-2 vote of the State’s highest court, clears out what may be the biggest impediment to reinvigorating what has been a largely dead market for the past 10 years. The majority opinion of the court affirmed the ruling of the Colorado Court of Appeals that developers can retain a right to consent to any homeowners association’s proposed amendments on contracted declaration regarding arbitration for construction-defects claims, and rejected the Vallagio association’s claim that the Colorado Consumer Protection Act (CCPA) precludes this right to consent.
To reach their decision, justices looked at the language and legislative intent of both the CCPA and the Colorado Common Interest Ownership Act (CCIOA), which governs rules between developers and property owners in communities with shared walls. The Court found that while CCIOA bars developers from requiring thresholds higher than 67 percent of residents to make changes to contracted declarations, it found that nothing in either law prohibited a developer from including a provision requiring it give its consent for particular amendments in perpetuity, because such a clause was not considered when establishing a voting threshold for other parts of the declaration.
Along with House Bill 1279, which was passed by the legislature this year, this ruling could provide developers with the confidence to build more affordable condo products. HB-1279 requires a majority of condo owners to approve any legal action against developers. Advocates such as CAR, have long argued that binding arbitration and requiring a majority in an HOA to approve construction defect lawsuits, are key revisions needed to protect builders and homeowners from frivolous lawsuits. Time will tell if these revisions make a difference in the stagnant condo market.
Independence Institute Considering Transportation Ballot Measure: John Caldera of the Independence Institute is considering a transportation initiative for the November ballot. “Fix Our Damn Roads” has been approved by the Secretary of State’s title board with signatures due from voters by August 7. The proposal would ask voters to authorize the State to issue $2.5 million in bonds for transportation funding with a list of projects for which the proceeds would be spent, including North I-25, South I-25 and I-70 West. It specifically excludes transit projects. The Institute is looking for allies because it’s estimated the cost to gather signatures is $1.2 million and another $3 million for a campaign.
NAR – Tax Reform Could Hurt Homeowners: The National Association of Realtors® has published a study focusing on the impacts of comprehensive tax reform. While the study did not say so, the reforms identified in the study closely mirror President Trump’s proposed tax reform plan. *
NAR’s study focused on how lower and consolidated marginal tax rates would impact income taxes. Specifically, Lowering and consolidating tax rates to three rates with a top rate of 33 percent, doubling the standard deduction, eliminating all itemized deductions other than charitable contributions and mortgage interest, and eliminating personal exemptions, which is comparable to several other income tax proposals released in the past few years. The study indicates the reforms would result in higher income taxes for those with an adjusted gross income (AGI) between $75,00 and $250,000 and lower taxes for another with an AGI over $200,000.
In addition, the study concludes comprehensive tax reform would impact the demand for owner-occupied housing by reducing the number of homeowners who claim the mortgage internet deduction, eliminating the itemized deduction for property taxes and decreasing the marginal tax rate. The authors conclude the after-tax cost of homeownership would increase and home prices would fall in the short run as housing becomes a less attractive investment. Read NAR’s summary here:
* The Trump Plan recommends a top rate of 35 percent, doubling the standard deduction and eliminating deductions except for the mortgage interest and charitable contribution deduction.
NAR Opposes USDA Reorganization: The US Department of Agriculture (USDA) has provided a report to Congress proposing their reorganization. The new plan creates an Under Secretary for Trade and Foreign Agriculture Affairs. However, it also eliminates the Under Secretary of Rural Development, a department which includes rural housing programs. Instead, rural development agencies will report directly to the USDA Secretary.
While the USDA report calls this move an “elevation” of the program, NAR is concerned that it will undermine the importance of these programs, which provide valuable access to housing financing in rural communities. USDA is not required to eliminate an Under Secretary to create a new position, so elimination of this area is unnecessary. NAR sent a letter to Congressional members with jurisdiction over USDA, asking them to retain the Rural Development Under Secretary, and keep these critical programs fully functioning.
Hearing Held on PHH v. CFPB: On May 24, 2017, the U.S. Court of Appeals for the D.C. Circuit heard oral arguments in the case of PHH Corp. v. CFPB. The court examined whether the Consumer Financial Protection Bureau’s (CFPB) single director structure is unconstitutional and whether the CFPB exceeded their authority when interpreting the Real Estate Settlement Procedures Act (RESPA). The bulk of the oral arguments focused on the constitutionality argument, rather than the RESPA concerns.
Initial reports indicate the court is unlikely to rule the CFPB is unconstitutionally structured (rejecting the previous three-judge panel decision) but will uphold the RESPA interpretation in favor of PHH (and NAR) issued by the three-judge panel in October. Recall, the three-judge panel held that payments for bona fide services provided and made at fair market value do not violate RESPA, reinforcing NAR’s support of marketing service agreements.
The court will likely publish their decision sometime in the fall at the earliest. In the meantime, the CFPB continues to issue enforcement actions on RESPA related concerns, as evidenced by the recent Consent Orders. NAR continues to work with the CFPB on these matters and the impact on the real estate industry.