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Louisiana REALTORS® 2013 Legislative Session Recap The 2013 legislative regular session ended at 6: 00 p. m. on Thursday, June 6 th. This session focused primarily on balancing the state budget. Louisiana REALTORS® was active on your behalf passing, amending and defeating legislation in an effort to improve your ability to represent clients and customers and to protect real estate investors. We would like to thank all REALTOR® members that attended the 2013 REALTOR® Day at the State Capitol in April and those that sent messages or contacted their legislators during the session. The information contained below recaps the session major issues and information on the state budget as well as a listing of important real estate related legislation that was considered and monitored by your association. 2
Louisiana REALTORS® 2013 Legislative Session Recap SALES TAX SWAP During the latter part of 2012, Governor Jindal proposed eliminating the states corporate and personal income taxes along with the states franchise taxes in place of a higher state sales tax. Part of the discussions surrounding the Governor’s plan was also placing sales taxes on certain professional services. The LR met early on with the Governor’s staff to ensure that all real estate and related professionals services were not included in the final legislation. As the session was set to kick off, the Governor came out and called off his attempts to pass the revenue neutral tax swap plan. 3
Louisiana REALTORS® 2013 Legislative Session Recap LEGISLATION SUPPORTED BY LR § HB 76 by Representative Frank Hoffmann (West Monroe) “Appraisal Management Companies” This REALTOR® supported legislation was filed by the Louisiana State Appraisal Board to ensure that Appraisal Management Companies continue to have to register and pay the appropriate annual registration fees to the state appraisal board for at least two more years. § HB 256 by Representative Patrick Williams (Shreveport) & Senator Ronnie Johns (Sulphur) “Redemption Period for Properties” This constitutional amendment allows for an 18 month redemption period for vacant property that has been declared blighted or abandoned by statutory definitions and will be before voters on the November 4 th ballot statewide. 4
Louisiana REALTORS® 2013 Legislative Session Recap The Louisiana REALTORS® worked with the Baton Rouge Re-Development Authority and other groups to find a compromise on this constitutional amendment to protect property rights, but also to speed up the process in placing blighted or abandoned property back into commerce. § HB 580 by Representative Hunter Greene (Baton Rouge) “State Uniform Construction Code” HB 580 exempts certain component systems from the national codes and gives more latitude and time for the Louisiana State Uniform Construction Code to review, evaluate and update the states code with national guidelines. § HCR 141 by Representative Leopold (Belle Chasse) “National Flood Insurance Issue” House Concurrent Resolution asks Congress to amend or repeal the Biggert/Waters Flood Act of 2012. 5
Louisiana REALTORS® 2013 Legislative Session Recap § SB 20 by Senator R. L. "Bret" Allain, II (Franklin) “Notice on Property Tax Measures” Senate Bill 20 would place more requirements of notice for date, time, and place by political subdivisions of any meeting to consider levying, renewing any ad valorem property taxes or sales tax and requires notice in official journals the calling of an election on such matters. § SB 51 by Senator Long (Natchitoches) “Property Liens” Senate Bill 51 will allow civil fines and liens to be assessed on properties that are defined as being blighted, abandoned or properties that are in violation of housing and public health codes and constitute a threat or danger to public safety. SB 51 will also require notice of the administrative hearing on the lien to be sent to the property owner and mortgagee of record. The Louisiana REALTORS® worked with the Louisiana Bankers, and Louisiana 6
Louisiana REALTORS® 2013 Legislative Session Recap Homebuilders to amend this legislation to draw a balance between property rights and blighted and abandoned properties. § SB 171 by Senator Jack Donahue (Mandeville) “Community Water Systems” Senate Bill 171 will allow the formation of a state committee to determine rules for community water systems. SB 171 will also prohibit the Office of Public Health or DHH from requiring modification of an existing community water system in operation before August 1, 2013, unless the system is incapable of attaining compliance with the National Primary Drinking Water Regulations. The passage of SB 171 was critical in keeping new real estate development costs down and saving cities a tremendous amount of dollars. § SB 197 by Senator Neil Riser (Columbia) “Historic Properties” SB 197 extends the individual income tax credit to taxable years ending prior 7
Louisiana REALTORS® 2013 Legislative Session Recap to January 1, 2018 for the amount of eligible costs incurred in the rehabilitation of residential or owner occupied residential or mixed use properties. This legislation also applies to vacant or blighted owner-occupied residential structures located in the state which is at least 50 years old. § HB 630 by Representative Walt Leger (New Orleans) “Tax Credits” HB 630 Provides for the transferability of the income tax credit for the rehabilitation of historic commercial structures. LEGISLATION OPPOSED BY LR § HB 400 by Representative Harold Ritchie (Bogalusa) “Home Service Contracts” HB 400 would have allowed consumers who own home warranties to call out any repairman and then turn the bill into the contract company. This 8
Louisiana REALTORS® 2013 Legislative Session Recap legislation would have caused many home service contract companies to either stop writing policies or raising the premium rates on these policies. The LR worked with the parties involved to have this bill deferred during the session. REAL ESTATE RELATED LEGISLATION § HB 594 by Representative St. Germain (Pierre Part) “Salt Cavern Disclosures” House Bill 494 will require the property disclosure document to include a question as to whether or not a cavity created within a salt stock by dissolution with water lies beneath the property and whether the property is located within 2640 feet of a solution mining injection well. The law also requires the owner or operator of the mined cavern to record the survey of the well location. 9
Louisiana REALTORS® 2013 Legislative Session Recap § MISCELLANEOUS LEGISLATIVE ISSUES § HB 257 by Representative Harold Ritchie (Bogalusa) “Citizens Insurance” HB 257 adds a member to the Citizens Insurance Board, but also states that if Citizens has a rate increase of more than 25% a joint hearing of the House and Senate Insurance Committees can be called and Citizens staff will have to provide testimony to the joint committee on the increase. § HCR 18 by Representative Neil Abramson (New Orleans) “Title Insurance” This House Concurrent Resolution asks pertinent stakeholders to study land title search periods relative to the required search periods of mortgage and conveyance records for the issuance of title policies. The Louisiana REALTORS® will have an appointment to the committee. 10
Louisiana REALTORS® 2013 Legislative Session Recap § SR 128 by Senator Fred Mills (New Iberia) “Home Inspector Board” This Senate Concurrent Resolution requests the Louisiana State Board of Home Inspectors to study applicable Louisiana laws and rules to determine whether amendments are needed to expand the scope of practice for home inspectors to ensure Louisiana homebuyers are adequately protected and informed about the conditions of residential structures. A special thanks to all REALTOR® members that provided their time, energy and financial support to ensure the real estate industry remains viable so all Louisiana real estate investors can enjoy easy access to enter the marketplace. 11
National Flood Insurance Program Challenges and Solutions June 18, 2013 12
The National Flood Insurance Program • The National Flood Insurance Program (NFIP) was created by Congress in 1968 • NFIP enables property owners to purchase insurance from the government against losses from flooding • Flooding is both coastal and riverine • Private industry will not provide this insurance • Close to 6 million homes participate in NFIP, with the majority in Texas and Florida • All 50 states participate in NFIP 13
Key Louisiana Principles Louisiana believes in three key principles about NFIP: NFIP should: 1. Be long-term sustainable 2. Be actuarially responsible going forward 3. Protect home and business owners who have built to required elevation at the time of construction 14
Grandfathering – Not a Subsidy • Grandfathering is not a subsidy. Homeowners who built their home at or above the Base Flood Elevation (BFE) required by FEMA at the time of construction are paying an actuarial rate. They are not getting a subsidy. • The entire reason FEMA produces maps that indicate 100 year BFEs is to guide property owners how high they should build to purchase flood insurance at all. FEMA's position is that if a property owner built at or above the BFE, the property owner has mitigated FEMA’s risk of having to pay a flood claim. 15
Current Challenges There are two major current challenges with NFIP: 1. Phase-Out of Grandfathering 2. Incomplete and Inaccurate Mapping 16
Challenge #1 Phase-Out of Grandfathering The Biggert-Waters Act of 2012, which reauthorized NFIP, phases out “grandfathering. ” That is, properties that were built in accordance with all FEMA requirements and applicable codes may now be considered out of compliance – even if the owner has done nothing wrong, and there has been no flooding. No change, no flooding BASE FLOOD ELEVATION 17 BASE FLOOD ELEVATION
Challenge #2 Incomplete Mapping New FEMA maps, which outline new base flood elevations, do not recognize protection offered by unaccredited levees, or any other mitigation elements (e. g. , pumps). 18
Example #1 – Primary Residence Premium will go from $633 to $28, 554 per year. • • • 14272 Highway 23, Plaquemines Parish, LA $350, 000 current value Built in 1998, fully to code Built 2’ above FEMA required elevation at the time No repetitive loss 19
Example #2 – Primary Residence Premium will go from $388 to $23, 946 per year. • • 113 Dixie Drive, St. Charles Parish, LA $171, 900 current value Built in 1975, fully to code Never flooded 20
Example #2 – Business Premium will go from $5, 698 to $53, 662 per year. • • • Car Dealership St. Tammany, LA Built fully to FEMA requirements at 9’ BFE Never flooded Employs 65 21
Example #2 – Business Premium will go from $1, 522 to $103, 197 per year. • • Microtel Inn and Suites by Wyndham Belle Chasse, LA Built fully to FEMA requirements at +1 BFE Never flooded 22
Potential Impact The potential impact is devastating. Properties become uninsurable Properties become unsellable Property values go to zero Owners lose everything Banks lose mortgage portfolio Real estate market freezes Companies lose workers Local governments lose tax base Economies are destroyed NFIP, itself, goes into “death spiral” as people leave program 23
National Implications This is not just a Louisiana problem – it will affect all of America as new flood maps are produced. Presidential Flood Disaster Declarations Since 1965 24
National Implications This is not just a Louisiana problem – NFIP policies are in force in all 50 states of the USA. 25
National Implications States across the U. S. will be impacted as new maps are produced, with a total of over 4. 2 M properties impacted. 26
Potential Solutions There are two general solutions to the challenges with NFIP: 1. Legislative (Congress) Reinstate Grandfathering 2. Regulatory (FEMA) Develop Holistic and Accurate Maps 27
Solution #1 Reinstate Grandfathering Congress can amend Biggert-Waters: 1. Reinstate Grandfathering 2. Must be for properties, not policy holder 3. Only for properties built to required elevation at the time of construction, with maintained insurance and without repetitive loss 4. Implementation of Biggert-Waters can be delayed to allow time for correction and affordability analysis (However, real estate markets will be impacted until Biggert-Waters is fixed. ) 28
Solution #2 Develop Holistic Maps FEMA can develop maps that include all flood mitigation elements. 1. Should include non-accredited and <100 year levees 2. Should include pumps and other mitigation elements 3. Should include natural and man-made topography (e. g. railroad trestles) 4. Also, accuracy of actuarial rates must be verified 29
A Growing Coalition There is a growing national coalition to address the NFIP challenge. • • • 30 20 Parishes 10 States (+7 in process) Associations: § LA Bankers § LA Realtors § LA Homebuilders § National Waterways Conference § National Levee Issues Alliance
Action Steps To-date A number of Action Steps have been taken: Legislative • U. S. House of Representatives passed an amendment to Homeland Security bill that would delay implementation for one year • Senator Landrieu has introduced the SMART NFIP Act • Senator Vitter has introduced the Responsible Implementation of Flood Insurance Reform Act • Congressman Richmond and Congresswoman Waters, along with rest of LA House delegation, has introduced legislation to delay problematic portions of NFIP changes • Senator Landrieu introduced amendments to both Water Resources legislation and Farm Bill to delay rate hikes for three years. Due to parliamentary procedures, they did not receive a vote but drove awareness Regulatory • NFIP Head David Miller to visit in August • GNO, Inc. + key partners reviewing actuarial tables for accuracy Education and Outreach • GNO, Inc. has reached out to similar organizations across America to educate and collaborate • GNO, Inc. has brought on board LA Bankers, LA Homebuilders, LA Realtors, National Waterways Conference, National Levee Issues Alliance Research • GNO, Inc. is partnering with another local non-profit to determine how these affects key regions across the country by comparing rate structures and topographies 31
Next Steps Key Next Steps include: 1. Work with Louisiana Congressional delegation and Members of Congress from other affected areas to refine / drive legislation 2. Work with FEMA to ensure holistic mapping 3. Determine accuracy of actuarial rate setting 4. Continuing building national coalition 32
For More Information For more information or to be included in future announcements, please email Caitlin Berni - cberni@gnoinc. org 33
Appendix - NFIP Myths & Facts § Myth: Prior non-actuarial and discounted premiums have caused the NFIP to be $24 billion in debt. § Fact : Accumulating FEMA’s published data for the last 35 years, NFIP premium income has exceeded NFIP claims Costs by $6. 2 billion. § Myth: BW-12 will only impact structures that have repetitive flood losses. § Fact: Because BW-12 will do away with “Grandfathered Structures, ” all buildings below the current or future Base Flood Elevations will be impacted. § Myth: BW-12 is being suspended by legislative amendments so I don’t have anything to worry about. § Fact: BW-12 was passed in July 2012 and commercial and nonprimary residence structures are already being impacted. It will take an Act of Congress to change the law. 34
Appendix - NFIP Myths & Facts § Myth: BW-12 will only impact Coastal States. § Fact : BW-12 will impact all 50 states not just coastal communities. § Myth: year. BW-12 only increases flood insurance premiums by 25% a § Fact : BW-12 , as currently adopted, will increase many current premiums by over 4, 000% over a period of years. 35
Federal Emergency Management Agency Flood Insurance Reform Act of 2012 36
Impact of changes to the NFIP § Note: This Fact Sheet deals specifically with Sections 205 and 207 of the Act. § In 2012, the U. S. Congress passed the Flood Insurance Reform Act of 2012 which calls on the Federal Emergency Management Agency (FEMA), and other agencies, to make a number of changes to the way the NFIP is run. As the law is implemented, some of these changes have already occurred, and others will be implemented in the coming months. Key provisions of the legislation will require the NFIP to raise rates to reflect true flood risk, make the program more financially stable, and change how Flood Insurance Rate Map (FIRM) updates impact policyholders. The changes will mean premium rate increases for some – but not all -- policyholders over time. § Background: In 1968, Congress created the National Flood Insurance Program (NFIP). Since most homeowners’ insurance policies did not cover flood, property owners who experienced a flood often found themselves financially devastated and unable to rebuild. 37
Federal Emergency Management Agency § The NFIP was formed to fill that gap. To ensure the program did not take on unnecessary risks, one of the key requirements to participate in the program was that communities had to adopt standards for new construction and development. § Pre-existing homes and businesses, though, could remain as they were. Owners of many of these older properties could obtain insurance at lower, subsidized, rates that did not reflect the property’s real risk. In addition, as the initial flood risk identified by the NFIP has been updated over the years, many homes and businesses in areas where the revised risk was determined to be higher have also received discounted rates. This “Grandfathering” approach prevented rate increases for existing properties when the flood risk in their area increased. § Fast forward 45 years, flood risks continue and the costs and consequences of flooding are increasing dramatically. In 2012, Congress passed legislation to make the National Flood Insurance Program more sustainable and financially sound over the long term. 38
Federal Emergency Management Agency What this means: § The new law eliminates some artificially low rates and discounts which are no longer sustainable. Most flood insurance rates will reflect full risk, and flood insurance rates will rise on some policies. § Actions such as buying or selling a property, or allowing a policy to lapse, can trigger rate changes. You should talk to your insurance agent about how changes may affect your property and flood insurance policy. There are investments you and your community can make to reduce the impact of rate changes. And FEMA can help communities lower flood risk and flood insurance premiums. What is Changing Now? § Most rates for most properties will more accurately reflect risk. Subsidized rates for non-primary/secondary residences are being phased out now. Subsidized rates for other classes of properties will be eliminated over time, beginning in late 2013. 39
Federal Emergency Management Agency § There are several actions which can trigger a rate change, and not everyone will be affected. It’s important to know the distinctions and actions to avoid, or to take, to lessen the impacts. § Not everyone will be affected immediately by the new law – only 20 percent of NFIP policies receive subsidies. Talk to your agent about how rate changes could affect your policy. § Owners of non-primary/secondary residences in a Special Flood Hazard Area (SFHA) will see 25 percent increase annually until rates reflect true risk – began January 1, 2013. § Owners of property which has experienced severe or repeated flooding will see 25 percent rate increase annually until rates reflect true risk – beginning October 1, 2013. § Owners of business properties in a Special Flood Hazard Area will see 25 percent rate increase annually until rates reflect true risk -- beginning October 1, 2013. 40
Federal Emergency Management Agency § Owners of primary residences in SFHAs will be able to keep their subsidized rates unless or until: § You sell your property; § You allow your policy to lapse; § You suffer severe, repeated, flood losses; or § You purchase a new policy. § Grandfathering Changes Expected in 2014 § The Act calls for a phase-out of discounts, including grandfathered rates, and a move to risk-based rates for most properties when the community adopts a new Flood Insurance Rate Map. So if you live in a community that adopts a new, updated Flood Insurance Rate Map (FIRM), discounts – including grandfathered rates -- will be phased out. This will happen gradually, with new rates increasing by 20% per year for five years. Implementation is anticipated in 2014. 41
Federal Emergency Management Agency § What Can Be Done to Lower Costs? § For home owners and business owners: § Talk to your insurance agent about your insurance options. § You’ll probably need an Elevation Certificate to determine your correct rate. § Higher deductibles might lower your premium. § Consider remodeling or rebuilding. § Building or rebuilding higher will lower your risk and could reduce your premium. § Consider adding vents to your foundation or using breakaway walls. § Talk with local officials about community-wide mitigation steps. 42
Federal Emergency Management Agency § For community officials: § Consider joining the Community Rating System (CRS) or increasing your CRS activities to lower premiums for residents. § Talk to your state about grants. FEMA issues grants to states which can distribute the funds to communities to help with mitigation and rebuilding. 43
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