The April Report
April 9, 2020
HOT TOPIC – COVID-19
We are certainly in unprecedented times both from a health standpoint and an economic one. The commercial real estate industry has aggressively stepped up to do what it can to mitigate the spread of COVID-19, and to support the efforts to bring this health emergency to an end. The industry will continue to be a partner on the health front.
It is obvious to all the efforts to address the health emergency are having serious economic impacts. This is very different than the economic downturn of the recent recession and the Great Depression. This time economic activity has been deliberately stopped, like a medically induced coma, to address the virus. This is not an economically driven recession. So, we also have to focus on how to preserve the economy’s capacity to come back once the health restrictions are lifted. It is essential to keep businesses afloat for as long as it takes to end the pandemic. It is those businesses that will be supplying the jobs needed and to create the economic recovery that will be vital to getting the country economically healthy again.
The entire situation is still very fluid with things changing on a daily basis at the Federal, State and local levels. This also means there are more questions than answers. One nice thing is you do not have to file your Federal or State 2019 tax returns until July 15, 2020. Here are some other highlights:
>> Federal Efforts
There are two important parts of the Coronavirus Aid, Relief, and Economic Security (CARES) Act:
- There were a couple small business assistance programs included in the CARES Act – The Paycheck Protection Program (PPP) and Economic Injury Disaster Loans. These are being overseen by the Small Business Administration (SBA) and all of the information regarding the programs can be found at www.sba.gov. Additionally, there is information on the NAIOP SoCal website under the Legislative Alert on the home page www.naiopsocal.org.
- Qualified Improvement Property (QIP) Fix – As you will recall, there was a drafting error in the 2017 tax bill that caused the depreciation for QIP to be 39 years. The CARES Act corrects that error and the depreciation is back to 15 years. Additionally, you can file amended tax returns for the 2018 and 2019 tax year and get a refund.
>> State Actions and Issues
1. Status of Legislation – The Legislature is in recess until at least May 4, and there is some discussion it may be June before they reconvene. So, there has been no legislative action taken, although lots of ideas are floating around. Once the Legislature does reconvene, it is expected their focus will be on the COVID-19 situation, and some members have already indicated they will be dropping bills they had previously submitted. Additionally, by law, the Legislature has to pass a State budget by June 15. Most of the revenue projections that went
into the budget released in January will be redone since the severe economic downturn has dramatically changed the amount of tax revenue the State will receive. Your Legislative Affairs staff is working with CBPA to review the bills that have been filed and are discussing what the future of legislative activity looks like. There will be more to report in May.
- Property Taxes – The next payment of property taxes is due April 10. There has been a lot of effort to get property tax relief, especially to get a waiver without having to apply for relief if you pay your property tax by July 15. The Counties have indicated they will not do so claiming it would put local government into “insolvency”. An effort was made to get statewide relief, but the Governor refused to do so saying he is leaving all this up to the counties. So, the only option is to apply to the county for relief.
- Executive Orders – There has been a lot coming out of Sacramento through the many Executive Orders from the Governor. Currently the Emergency declaration and orders last until May 31, 2020. We are all aware of the stay at home, social distancing requirement of 6 feet and that “non-essential services” are closed. One area of concern surrounds construction as an “essential service”. Under the Governor’s Order commercial and residential construction are “essential”, but this is under assault at the local level. It must be remembered the Governor’s Executive Order is merely a recommendation, and again, local governments are free to come up with their own definition. In the 6 County Bay Area, and Stanislaus and Sonoma County, there are bans except for “essential” buildings, like health care. In the City of Los Angeles, they are requiring construction sites to create an “exposure control plan” that focuses on social distancing and hygiene, as well as other issues. The order says the city will halt inspections or even SHUT DOWN a construction site that does not comply with any such plan, even though Governor Newsom indicated he is satisfied with all the “strict workforce” protections that are already in place.
- Eviction Moratoriums – Executive Order N-28-20, issued March 16, 2020, is the one that gave local jurisdictions the authority to enact limitations on residential and commercial evictions. The Order specifically says it “shall only apply to the imposition of limitations on evictions…” based on non-payment of rent or a foreclosure due to decreased income or substantial medical expenses caused by the COVID-19 pandemic. Unfortunately, some jurisdictions are trying to go beyond the scope of authority that is granted by the Executive Order. On March 27, 2020 Executive Order N-37-20 was issued that dealt solely with residential evictions. It is clearly a rent deferral program that only applies to tenants who need to delay all OR part of the rent due to COVID-19, and the tenant is to retain documentation to support an inability to pay.
- Various Deadline Waivers – Executive Order N-40-20 delays a variety of timelines under the Revenue and Taxation Code, regarding Tax Appeals, various annual fee payments, various reporting requirements and other matters. You may want to have your attorney or appropriate staff person review the Executive order which you can access by clicking on the link above.
Stay Up To Date On California COVID-19 Actions – https://covid19.ca.gov/
>> Local Jurisdiction Efforts
- Eviction Moratoriums – There are 124 local jurisdictions in Los Angeles and Orange County, and in the over two and a half weeks since March 16 at least 29 local jurisdictions have enacted eviction moratoriums that cover both residential and commercial tenants, often by calling emergency meetings with only a 24-hour notice. The Los Angeles City Council meeting went from 11:00 a.m. to 10:00 p.m. on Friday, March 27. Needless to say, it has been a real challenge to try and keep track of all these actions. Fortunately, many are similar to the Governor’s Executive Order approach, although many are putting rent repayment rules in their ordinances allowing the tenant to repay in 3 or 6 months, one up to a year. Unfortunately, some cities like Huntington Beach attempted to create unacceptable eviction ordinances that had the City Manager approving all rent deferments. NAIOP SoCal joined with allied business organizations to oppose the proposal and it was defeated. Page three of this report has a list of local jurisdictions with links in Los Angeles and Orange Counties that have adopted emergency eviction and rent deferment ordinances as of April 6, 2020. Cities are going to continue to adopt ordinances, so this is not a final list. We will keep working to keep you up to date as best as possible.
- Right of Recall and Worker Retention Ordinances – Unfortunately some jurisdictions are using the COVID-19 emergency to try to push through items that are not limited to the pandemic, are not actions that need immediate action, and would be permanent, not temporary, measures. Both the City and County of Los Angeles are trying to pass Right of Recall and Worker Retention Ordinances. NAIOP SoCal, along with a broad coalition of the business community, have opposed both of these measures. We were successful in getting the City of Los Angeles to table the measures, but they may come back. The County of Los Angeles will be evaluating these measures on April 14, and we are preparing for that hearing.
The Right of Recall measure would require an employer to offer any employee laid off after March 4, 2020 for any “non-disciplinary reason” ANY position that the laid off worker is qualified for or can be trained to be qualified, not just their old job. The measure includes a right for the worker to sue the employer if he feels the recall rules were not followed and they can recover punitive damages. The employer has the burden of proof that the layoff was for a non-disciplinary reason.
The Worker Retention measure would require that upon any transfer of a business, the new employer would be required to hire the employees of the prior business owner for at least 90 days. At the end of the 90 days the employer would have to do an employee review and if the review is “satisfactory”, the employer shall consider offering the employee continued employment. The employee has the right to sue the employer if they are not kept on and request to be reinstated and get all backpay and benefits, as well as attorney’s fees. At least this one does not have punitive damages.
- Virtual City Council/Board of Supervisors Meetings – Due to all the social distancing and stay at home orders, the meetings are no longer held in person. Members are webcast in and the public is not present. Some use Zoom like programs to allow the public to speak, but sometimes it does not work well. The LA City Council meeting was a disaster. The County of LA is not allowing any speakers. You have to send in any comments by email or mail by 5:00 p.m. the day before the meeting. Furthermore, elected officials and staff are no longer in their offices. They are at home and you cannot meet with them. This makes it very difficult to try and work on any issue even if there is sufficient time to do so. This severely limits the right of the public to have any worthwhile engagement or influence in what the government is doing.
This pandemic will end, but, unfortunately, we cannot say when. The Governor’s Executive Orders have an expiration date of May 31, 2020, although it can be extended. The local emergency rules have varying timelines, and some have no date and just say they end when the local jurisdiction lifts their emergency declaration. Obviously our NAIOP SoCal members are properly focused on working out how to keep their businesses afloat, and help out their employees and tenants. Yet, NAIOP SoCal is working with CBPA, and others to also look at what businesses will need to fully recover once the pandemic does end. A couple of thoughts to consider and maybe we can begin to discuss this at the May Board meeting.
- What state laws or regulations will most effect your ability to expedite hiring
and economic recovery?
- What guidelines or procedures should the state and/or local governments
enact to help bring businesses back to full capacity?
Split Roll Update
As you will recall, although a split roll initiative is already on the November, 2020 ballot, the proponents decided to circulate a second one. They have now submitted 1.7 million signatures to put the second measure on the ballot. That is far more signatures than was needed, so it will likely qualify for the ballot. It is expected that once the signatures are verified, the split roll proponents will pull the first measure and have the second one on the ballot.
Los Angeles and Orange County Jurisdictions Adopting Emergency Eviction Ordinances
As of April 6, 2020
Click on the name of the city to get more specifics on the actual scope of the moratorium in that city.
We expect additional jurisdictions to approve eviction moratoriums, so this will be an ongoing effort.
Los Angeles County and Orange County Jurisdictions