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2013 MARYLAND END OF SESSION REPORT
The 2013 legislative session in Maryland is now over. BOMA's Legislative Committee reviewed literally scores of individual bills and discussed them in weekly conference calls during the Session to determine their impact on BOMA members, and to decide the public position that BOMA should take in advocating for or against these bills. Below is a summary of major issues that we addressed during the Session:
Indemnity Deeds of Trust (HB 1209 / SB 436)
Whenever a building owner is seeking to refinance a building or obtain additional financing for, e.g., necessary improvements, the owner may use a financial instrument known as an indemnity deed of trust (IDOT). This is simply a method for owners to secure financing, using a third party guarantee, that does not require a borrower to incur the expense of the recordation tax imposed when recording a mortgage. Recordation taxes are an expensive component of real estate transactions, and legislation last year imposed a recordation tax on this essential method of financing for commercial property owners.
In the fiscal note accompanying the legislation last year, the additional revenues projected from the taxation of IDOTs were in the $30 million range. A study conducted after the 2012 legislative session by the State Department of Assessments and Taxation indicated that the actual revenue collected will be much higher – perhaps several times higher than the official estimate. The vast majority of this revenue will come directly from commercial building owners. In addition, the new tax applies on any IDOT in excess of $1 million – meaning that the tax would apply on virtually all IDOTS, whether used to refinance an existing mortgage or even for a relatively modest construction loan. For these reasons, we felt it was necessary to seek corrective legislation this year.
BOMA joined other commercial real estate groups, including NAIOP and AOBA, in supporting legislation this year to limit the impact of taxing IDOTs. We testified on cross-filed bills (SB 436 / HB 1209) to support this goal. Along with the Maryland Bankers Association, we focused in particular on increasing the current exemption in the law from a loan of $1 million to a loan of $5 million. There are other provisions in the legislation that would narrow the application of IDOTs as well.
Predictably, the Counties in Maryland – who collect and benefit from taxing IDOTs – were vehemently opposed to our legislation. They dispute the findings in the report that the current law will impose a much greater burden on commercial properties. We are pleased to report that our industry negotiated a compromise with the Counties under which the taxation of IDOTs is limited to "new money" only, and the current exemption in the law of $1 million was increased to $3 million. We will continue to monitor the fiscal impact of IDOT taxation on BOMA members in future years.
Offshore Wind (HB 226 / SB 275)
This is a battle we have fought for BOMA members for several years.
A brief history is in order. For several years, Governor O'Malley has sought authority in the General Assembly to move ahead with construction of an offshore wind project – a "windmill farm" off the Atlantic coast that would use wind energy to transmit electricity into Maryland. There are many technical problems with this concept, and the only working models of wind energy are currently found in Europe, where they are heavily subsidized by government.
BOMA has historically opposed this legislation in Maryland, because the financial burden would fall upon ratepayers. Since roughly one-third of a commercial building's operating expense may consist of electricity costs, this is a very important issue for BOMA members. The Governor has modified his legislation over years to attempt to mitigate the ratepayer burden; however, BOMA and other commercial interests remain unconvinced that it would be reasonable.
As passed, the legislation contains limits on ratepayer impact for wind subsidies: no more than $1.50 per month for consumers, or 1.5% annually for commercial ratepayers. Given the very substantial costs projected for such a project, BOMA and other commercial property owners were deeply concerned about the potential financial impact on our members.
We have been successful in including in the legislation very strong language requiring a feasibility study with a cost/benefit component that must be completed before any wind project may be undertaken. It is the view of the experts we have consulted that such a study will conclude that the costs, which all parties concede will be substantial, will exceed any benefit from the project.
With the assistance of legislative leadership, the Governor was successful in obtaining passage of this legislation. We will continue to monitor the issue on behalf of BOMA members, and to advocate your interests in the regulatory process should that become necessary.
Stormwater Management (HB 508)
BOMA members will recall the passage of legislation in 2012 that will permit local jurisdictions in Maryland to impose fees on real property for the purpose of meeting State stormwater management requirements. A last minute addition to that legislation was an exemption for property owned by the State. BOMA supported legislation this year to remove the State property exemption.
Stormwater management fees will be a significant financial burden for all property owners, and especially commercial property owners. The removal of a large segment of real property – some estimates are that 15% of the real property in Baltimore City may benefit from the exemption – simply adds to the burden for other property owners. BOMA and commercial property owners supported this legislation.
While the bill was passed by the House of Delegates with the removal of the exemption, it became embroiled in a debate among local jurisdictions in the Senate. Ultimately, the Senate passed a version of the bill that would have delayed all such fees for a period of two years. That version failed to gain approval in the House, so we are left with the State exemption intact.
As a further complication, the ten local jurisdictions affected by this law (including Baltimore City) are in the process of enacting stormwater fees individually. BOMA is participating in that process at the local level. As an example, on April 17th, BOMA requested a veto of the legislation passed that week in Anne Arundel County, because we felt it placed commercial property owners at a severe disadvantage relative to other jurisdictions that are undertaking the same process. BOMA's general position on this issue is both simple and clear: a system of stormwater fees should be applied equitably across all property owners, in the same general manner as the costs for other utility services such as water and electricity are apportioned. Just as we object to the exemption of State property in State law, we also object to the application of unjustified credits or exemptions by local governments responding to special interest groups. BOMA strongly believes that stormwater management fees are a burden that must be shared fairly among all property owners.
Additional Legislation of Interest
The following legislation which did not pass, was also addressed by the BOMA legislative Committee.
• Sick & Safe Leave – this legislation would have created an employer mandate to provide sick leave to employees, and also to provide "safe" leave, for personal safety reasons.
• Liability – two bills were introduced that would have affected the law of negligence in Maryland. Neither passed, so we are awaiting the result of a case pending before the Maryland Court of Appeals on this issue.
• Legislation was introduced in response to another Court of Appeals decision that created strict liability for dog bite injuries from pit bulls. That legislation did not pass, and the court case also imposed liability on landlords for this injury. BOMA will be working with other commercial and residential real estate interests to address this issue in the 2014 legislative session.
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