For decades, the U.S. has pursued a "homeownership at any cost" housing policy. As evidence mounts that we have pushed the homeownership envelope too far, the time has come to adopt a more balanced housing policy that promotes healthy and livable communities by encouraging a variety of housing options.

AMERICA NEEDS APARTMENTS

• Cities ignore apartments at their own peril. The U.S. will need 60 million new housing units by 2030 to accommodate expected population growth.
• If we want to accommodate that growth without giving up our green spaces and without adding pollution and traffic congestion, we need more compact development that includes apartments in the mix. We can also save $100 billion in infrastructure costs if we pursue more compact development.

HOMEOWNERSHIP DOES NOT ALWAYS MAKE FINANCIAL SENSE

• Half of all owners could have saved money by renting comparable housing. It costs on average $692 less per month to rent than own.
• Many policymakers incorrectly assume that homeownership is the best way to help families gain wealth. For the first five years of ownership, up to 90% of a monthly mortgage payment is just interest. Unfortunately, one-third of all homeowners move within five years, before they start building equity.
• Over the long-term, stocks are a better investment than housing. From 1963 to 2007, the stock market has outperformed the housing market.

APARTMENTS ARE A PREFERRED LIFESTYLE CHOICE FOR MANY

• American lifestyles have changed. We are busier and more mobile than ever before. Many households prefer apartments for the conveniences, amenities, shorter commutes and financial freedom they offer. Yet, policymakers want them to buy a house. Why?
• America's tagline may be "a nation of home owners," but one-third of our citizens are

APARTMENTS ARE A "GREEN" SOLUTION

• Apartments are more environmentally sustainable, resource-efficient and energy-efficient than other housing types. They help preserve open space, protect natural resources and reduce air and water pollution. In fact, apartment households generate 30% to 40% fewer vehicle trips than single- family houses.
• Experts now say that more compact development patterns, such as apartments, could do as much to lower greenhouse gas emissions as many of the climate policies being promoted by state and national politicians.

APARTMENTS ARE THE SMART AFFORDABLE HOUSING SOLUTION

• Apartments are a more cost effective solution to America's affordable housing shortage. Did you know that it now costs an average of $692 less per month to rent than to own?
• Despite the cost advantages of renting, less than one-quarter of the nation's $199.5 billion in 2006 federal housing subsidies benefited renters.

APARTMENTS ARE A NATIONAL RESOURCE

• When Hurricane Katrina destroyed nearly 417,000 homes, the apartment industry stepped forward to provide free apartments, short-term leases, lower rents and waived application fees.
• Apartments also offered disaster-relief officials a source of immediate and affordable housing. The average apartment cost less than half the average $1,770 monthly hotel rate FEMA paid.

AMERICA WANTS APARTMENTS

• Changing demographics are driving demand for apartments to new levels. By 2020, only 20% of households will be married couples with children.
• The fastest growing population groups-people in their mid-20s and empty nesters in their 50s-are the ones most likely to rent an apartment in a pedestrian- friendly mixed-use community.

NAA strongly opposes any change to the tax treatment of a real estate partnership carried interest (often known as the "promote"). Current law granting capital gains treatment to the carried interest granted by investing partners to the general partners is the proper tax treatment because it recognizes the risk the general partner takes and the value he or she brings to the venture as well as the long-term nature of real estate investing.

Background
Last year, Congressional leaders attempted to rein in the high-flying hedge fund managers by proposing to eliminate capi-tal gains treatment of carried interest (H.R. 2834 and H.R. 3996) and instead taxing it as regular income. This would amount to a 133 percent tax increase. (A carried interest is a particular type of an interest in the capital gain of the part-nership when it sells its property that is typically granted to the general partner by the limited partners.) The proposed change in the taxation of carried interest would impose the most sweeping and potentially most disruptive new tax on real estate since the Tax Reform Act of 1986, which contained the passive loss limitation rules.

Although the original focus of this tax change was the Wall Street hedge funds, the version of the legislation passed by the House would have affected a number of industries, including real estate. Some estimates indicated that approximate-ly one-third of the legislation's impact would have been on the real estate industry alone.

Current tax law, which treats carried interest as a capital gain, is the proper treatment of this income because carried in-terest represents a return on risk and entrepreneurial activity. Extending ordinary income treatment to this revenue is in-appropriate. Additionally, any fees that a general partner receives that represents payment for operations and manage-ment activities are already properly taxed as ordinary income.

Not only is such a tax law change inappropriate, it also will have numerous unintended consequences, including exacer-bating the nation's affordable housing shortage. If enacted, changes in the taxation of carried interests could affect whether a new development is financially viable. It will be particularly damaging to properties located in under-developed areas and could prevent much of the proposed new affordable housing from being built.

Finally, some in Congress see the tax revenue generated by the carried interest proposal as a way to offset the cost of other tax changes, such as changes in the alternative minimum tax. Enacting a bad tax policy, such as carried interest, merely to gain revenue to make other tax changes, is not an appropriate view of tax policy, which demands that each tax proposal be judged on its individual merits.

Current Status
Led by Ways and Means Chairman Charles Rangel (D-NY), a form of the carried interest tax change was included in the version of the Temporary Tax Relief Act of 2007 (H.R. 3996) that passed the House of Representatives on November 9, 2007. Largely due to opposition by the Administration and Senate Republicans to various tax increases, including carried interest, contained in the House bill, the final version of the bill did not contain the carried interest proposal.

Congressman Sander Levin (D-MI) has introduced a bill (H.R. 2834) proposing changing the taxation of partnership car-ried interests from capital gains to ordinary income.

NAA/NMHC support a comprehensive national energy policy that addresses long-term production, environmental sus-tainability and energy efficiency.

NAA/NMHC support the principles behind green and energy efficient building, but believe that the uncertainties of cost, product availability and technical and operational limitations should be properly addressed before mandatory green re-quirements are implemented.

We support tax incentives to spur the increased development of high performance new construction and energy effi-cient upgrades to the existing building stock and call on Congress to renew and expand existing energy efficiency tax incentives for commercial properties set to expire at the end of 2008.

Background

Congress continues to be focused on several hot-button energy issues including global climate change, the availability of foreign oil and domestic energy production. Congressional efforts to control greenhouse gas (GHG) emissions have led many lawmakers to focus on the GHG contributions made by the built environment with the goal of increasing building energy efficiency in order to reduce the consumption of fossil fuels.

While advances in building science have made it possible to make new buildings highly efficient and reduce energy and water consumption in existing buildings, altering the energy performance in existing buildings requires an understanding of how the specific building structure and systems work together. A one-size-fits-all legislative approach that would require the existing building stock to meet a certain energy performance level is unworkable and will have the direct consequence of exacerbating the shortage of safe, affordable apartment housing.

One way lawmakers seek to achieve their energy efficiency goals is to impose third-party green building standards on new and existing properties. In addition, a growing number of state and local governments are also implementing far-reaching programs that require new buildings to meet certain green building standards. These federal, state and local mandates are problematic for the apartment industry, however, because most of these standards were developed for commercial office properties. This makes it hard for low- and mid-rise apartment properties to comply with them.

The apartment industry is already engaged in sustainable development practices and has developed a variety of green buildings throughout the U.S. In fact, NAA/NMHC have taken a lead role in the development of a new ANSI standard that is the first to directly address apartments. We oppose federal efforts to designate a particular green standard as the ''one'' to be followed, especially because no standard is appropriate for all property types in all climates. Instead, we believe strongly that the existing consensus-based system for developing state and local building codes will spur the construction of high-performance buildings.

Ultimately, however, the fastest way to effect change in the existing building stock is not to impose specific building stan-dard mandates, but to provide tax incentives to enable building owners to afford the investments required to realize great-er energy efficiency. Favorable tax treatment, including an enhanced depreciation schedule for certain building systems, would assist many property owners who do not have the resources to make capital investments to improve the energy performance of their assets. This is even more important as the current financial crisis impacts property values and makes it more difficult for owners to access capital.

NAA/NMHC support estate tax reform that retains "stepped-up basis," increases the size of estates exempt from the tax and lowers the tax rate applied. NAA/NMHC oppose any estate tax repeal measures that also repeal stepped-up basis. Under such plans, heirs of commercial properties would avoid the estate tax only to find themselves owing substantial capital gains and recapture taxes. As a result, estates that contain real property are often worse off under full estate tax repeal than they would be if the estate tax were preserved.

Background

In 2001, Congress enacted legislation (P.L. 107-16) that made significant changes in the federal estate tax (sometimes referred to as the "death tax") over the 2001-2009 period by gradually increasing the size of estates exempt from the tax and gradually reducing the tax rate applied. In 2010, the estate tax is repealed, but only for one year due to quirky Senate procedural rules. In 2011, the law reverts to 2001 law, with low exemption levels and high tax rates.

This convoluted scenario is acceptable to neither estate tax proponents nor opponents. Permanently repealing the estate tax would cost the federal Treasury in excess of $520 billion, making such an action unlikely in light of the current federal deficit. However, a large and bipartisan group of lawmakers find the prospect of allowing the estate tax to revert in 2011 to higher tax rates and lower exemptions unacceptable. Thus, it is expected that some compromise legislation will be en-acted over the next two years. The details of what this compromise legislation will look like remains to be determined.

1. the exemption level;
2. the estate tax rate; and
3. the basis rules. While all three elements are important for all types of estates, estates with significant amounts of depreciable real property are especially concerned with how various types of basis rules may affect them.

Exemption Levels: The estate tax exemption level is, in simplified terms, the amount that a donor may leave to an heir without incurring any federal estate tax liability. Under current law, the exemption is $2 million in 2008 and $3.5 million 2009. All estates are exempt in 2010, and then the exemption level falls to $1 million in 2011 when the temporary repeal expires.

Tax Rates: The estate tax rate is the tax rate that will apply to the amount of an estate that exceeds the exemp-tion level. Under current law, the maximum rate will be 45 percent in 2008 and 2009, zero in 2010, and 55 per-cent (plus an additional 5 percent surtax applicable to some estates) in 2011 and thereafter.

Basis Rules: The basis rules address what the tax basis will be of property inherited by an heir. There are gen-erally two different types of basis rules-stepped-up basis and rollover basis. With a stepped-up basis, the tax basis of inherited property is reset to reflect the fair market value of the property at the time of the inheritance. By contrast, under a rollover basis rule, the tax basis of the inherited properties is the same for heirs as it was for the donor (i.e., the heir "steps into the shoes" of the donor with regard to tax basis). This includes any decreases in tax basis to reflect depreciation allowances claimed by the donor in prior years. Stepped-up basis is the rule for all years except 2010, with a rollover basis generally in place for 2010 only.

The Importance of Stepped-Up Basis

Retaining a stepped-up basis rule is more important for estates that contain significant amounts of depreciated real prop-erty than it might be for estates that contain other types of property.

Under a rollover basis rule, an heir of commercial property "inherits" the donor's tax basis, which can be quite low if the property was purchased long ago and if it has been depreciated over a number of years. This creates two major disad-vantages compared to a stepped-up basis system. First, if the heir sells the property, they will likely face higher capital gains taxes (including recapture taxes). Second the heir will have a lower basis for purposes of determining any future tax depreciation deductions. NAA/NMHC Joint Legislative Program

Repealing stepped-up basis not only harms heirs of commercial property, it can also have the unintended consequence of exacerbating the nation's affordable housing shortage. Consider the not uncommon example of an heir who receives an apartment property that rents to low- and moderate-income households. The property has no basis and sizeable debt. If the heirs want to sell the property, they will face a depreciation recapture tax of 25 percent and a capital gains tax of 15 percent on any remaining gain, which is often more than the likely sales price of the property. Knowing that the property is likely worth less than the tax bill, the heirs will also be discouraged from investing the capital needed for proper upkeep. As a result, the property will remain "frozen" and may deteriorate to the point that it is lost to the affordable housing stock.

Preferred Outcome
Although it may seem somewhat counterintuitive, estates that contain a number of apartment buildings will often fair better under a system that retains an estate tax with a stepped-up basis (as the law will exist in 2009) than the one that elimi-nates the estate tax and replaces stepped-up basis with rollover basis (as the law will exist in 2010).

Current Status
Most of the activity in the estate tax area for early 2008 is expected to take place in the Senate Finance Committee, where Chairman Max Baucus (D-MT) committed last fall that the committee would examine an estate tax reform bill in early 2008. While no date has been discussed for examination of a possible bill, at least two hearings examining estate tax matters are expected to occur this spring.

In response to the recently resurgent, and well funded, efforts of the United Association of Plumbers and Pipefitters Union and sprinkler system manufacturers to persuade state and local government agencies to mandate sprinkler system retrofits in apartment communities, NAA has been active in conducting nation wide research and developing a national strategy to educate government officials of the true economic costs of these projects. In 2007, NAA witnessed the Pipefitters' Union press for a statewide sprinkler retrofit regulation in New Jersey. The Union is also currently supporting sprinkler retrofit legislation that has been introduced in South Carolina and Virginia. As the Union has experienced a decline in jobs due to the economic slowdown caused by the housing market slump, NAA anticipates the Union will continue to push its retrofit agenda wherever and whenever it senses the opportunity to do so, as it knows government mandated sprinkler retrofitting will result in more jobs and clear economic gain for its members.

In South Carolina the latest version of the state's plan to get fire sprinklers in more homes and businesses offers an 80 percent property tax credit for voluntary installation and allows local governments to impose their own regulations. The bill now shifts the incentives from tax credits that would impact state coffers to credits for property taxes, which are paid to local governments. This bill has been passed out of subcommittee and now will be reviewed by the Senate Labor, Commerce and Industry Committee in early March. After consideration of the full committee, the bill would go to the Senate for a vote. Also in the mix is a House-approved plan that gives tax credits worth 80 percent of the cost, up to $50,000, for homes and businesses to purchase and install fire sprinklers. Purchasing the systems also would be free of sales tax. House and Senate members likely will have to negotiate the final legislation. Earlier proposals had called for a statewide mandate on sprinklers in commercial buildings but due to lack of support, the Senate subcommittee decided it was better to allow local governments to impose stricter regulations if they choose.

In Virginia, SB 363 which called for mandatory sprinkler retrofitting was referred to the Senate Committee on General Laws and Technology. The bill originally failed for lack of a motion, but at the last minute was resurrected and carried over to the 2009 session at the request of its sponsor. HB 333 has been tabled in House General Laws at the sponsor's request. Delegate Jennifer McClellan (D- 71), who sponsored the bill, intends to reintroduce an amended version of the bill next year that would apply the retrofit requirements only to senior and assisted living buildings, similar to what was introduced in 2006.

The issue of climate change has taken hold of the American community, leading to many municipalities trying to ''out green'' one another, especially when it comes to new construction. The U.S. Environmental Protection Agency has determined that carbon dioxide is a pollutant and states appear to be taking the authority to regulate this pollutant. Portland, Chicago, Seattle, San Francisco, Austin, Boulder and New York all have either started implementing legislation forcing developers to adhere to stricter environmental building guidelines, have proposed new guidelines or created ''carbon taxes.'' Portland is considering a ''carbon tax'' on new buildings that cannot meet a 45 percent increase in energy efficiency over the current code and that all buildings have an energy efficiency inspection. Boulder taxed electricity in 2006 and called it the first ''carbon tax'' in the nation. New York Mayor Michael Bloomberg has called for a national ''carbon tax.'' Chicago has mandated stricter environmental requirement in all city buildings. San Francisco Mayor Gavin Newsom has introduced legislation that would require all future renovations and new construction of residential and commercial buildings to meet more rigid environmental guidelines developed by the U.S. Green Building Council.

The U.S. Green Building Council and its rating system, Leadership in Energy and Environmental Design (LEED), have captured most of the media attention focused on green building, but the rating system is primarily for commercial buildings. NAA/NMHC has been participating in the development of a National Green Building Standard (NGBS) approved by the American National Standards Institute (ANSI). Unlike LEED, the ANSI NGBS includes provisions specifically addressing green building issues for apartments and will work with existing building codes. This program will be launched in early 2008.

• Seattle proposed that all municipal buildings being renovated or newly constructed must meet the LEED Gold certification.
• San Francisco Mayor Gavin Newsom announced that San Francisco will apply environmentally sustainable development principles to all of the city's new affordable housing developments. With this announcement, San Francisco becomes the first city in the country to adopt green construction standards for housing targeted to low-income residents. Newsom has also introduced legislation to require all government and private future renovations and new construction of residential and commercial buildings to meet more rigid environmental guidelines developed by the U.S. Green Building Council. If passed, the ordinance would be the most far-reaching in the U.S.

As Congress is not likely to address immigration in a meaningful way during this 2008 election year, expect to see more states and localities enact laws in an attempt to address the immigration issues they are facing. NAA first identified this issue in early 2006 when activists in San Bernardino, Calif., attempted to place a question before the voters on whether it should be illegal to rent to undocumented immigrants. Since then, other municipalities have gone on to adopt or consider similar ordinances and the issue has grown even further to include harsh penalties - including revocation of business licenses or heavy fines - for those that employ illegal immigrants. During 2007, state legislatures plunged headfirst into this arena, passing a patchwork of laws to address perceived problems related to immigrants and often creating conflicting situations for business owners operating in multiple states. For example, Arizona passed a law effective Jan. 1 that requires all employers in the state to use the federal E-Verify program, while Illinois passed a law to prohibit employers from enrolling in any employment eligibility verification system created by the federal government, including E-Verify, until the error rate is corrected and the turn-around time is improved. Additionally, California passed legislation to prohibit multifamily property owners/managers from asking residents about their immigration status. While the multi-housing community has cheered this legislation, local officials from around the country wishing to enact legislation to require multifamily property owners/managers to ask for residents' immigration status were disappointed by California's decision. This is likely to be one of the hottest state and local issues addressed in 2008.

As noted, 2008 has been an active year for the immigration issue, with debate raging in legislatures across the country. Arizona is currently working on two different bills, one to create a guest-worker program and another targeted toward day laborers and making it harder for them to solicit work. The guest-worker program would be a pilot program pulling workers only from Mexico and allowing them to travel between Mexico and Arizona. That legislation would need approval from the U.S. Congress, if passed by the state, so a resolution asking Congress to grant Arizona the authority has also been introduced. Rhode Island has introduced legislation modeled after Oklahoma's law, including a provision stating that the definition of harboring includes renting or leasing a dwelling or business unit to an illegal alien, knowingly or in reckless disregard of the person's illegal presence. Utah's legislature has had lively and active debate on the issue, but has been much more open to the concerns of its business community and religious leaders. The Utah Apartment Association was successful in getting harboring language amended to raise the threshold for violating the law. The bill now reads, “It is unlawful for a person to: ... (b) knowingly, with the intent to violate federal immigration law, conceal, harbor or shelter from detection an alien in a place within this state, including a building or means of transportation for commercial advantage or private financial gain...'' The Commonwealth of Virginia has a study commission created by Gov. Tim Kaine (D), examining what actions, if any, the state should take in controlling illegal immigration within its borders.

In county action, Prince William County, Va., has continued to move forward with its law increasing law enforcement directed at illegal immigrants. The county executive and county board of supervisors believe so strongly in moving forward, that it unanimously approved a transfer of $800,000 in reserve funds to pay for the program through the budget year end of June 30. Moving that large sum of money leaves the county with approximately $3,000 in its reserve account through the end of the budget year. The money will be spent to allow county policy officers to check the citizenship status of anyone suspected of breaking the law, without regard to the severity of the crime.

Federal immigration policy must be reformed to strengthen the American economy and enhance national security without placing ineffective and costly obligations on employers. Meaningful reform must discourage illegal immigration by including each of the following components:

1. A federally administered electronic/telephonic employment verification system that accurately and efficiently confirms an individual's legal status to work in the U.S.;
2. A rational approach to documenting the estimated more than 12 million individuals that currently reside in this country without proper documentation;
3. A responsive guest worker program that would allow certain employers to hire qualified foreign individuals when other workers are unavailable;
4. An improved border protection system; and
5. A provision to preempt state and local immigration-related measures by expressly reserving for the federal government the authority to create and implement immigration policy, including measures that deal with residential leases and employment screening.

Background

A coalition of business leaders, labor advocates and other stakeholders interested in the economic and workforce implications of our nation's immigration policies and procedures have advocated meaningful comprehensive reform for a decade. In recent years, the issue has moved to center stage in Congress and has gained a high level of public attention.

In May and June 2007, the Senate debated for several weeks an intricately negotiated compromise bill agreed to by a bipartisan group of 12 senators. The Senate bill faced an uphill battle, as it came under attack from both Republicans and Democrats. That opposition led to the doom of the accord on June 28 when the Senate fell 14 votes short of the 60 needed to end debate on the measure and move to a vote. A comprehensive bill (H.R. 1645) was also introduced in the House of Representatives in March 2007, but it was not considered.

Unable to pass comprehensive reform that addresses the fundamental failures of the overall system, Congress has now turned its attention to several piecemeal bills that focus only on enforcement issues. Of particular concern to the apartment industry and many other industry sectors are the many proposals that would require all employers-regardless of revenue or number of employees-to use the federal government's E-Verify (formerly called Basic Pilot) program. This web-based system was designed to electronically verify the employment eligibility of an individual by checking submitted Social Security numbers, Alien Registration numbers and I-94 numbers against Social Security Administration and U.S. Department of Homeland Security (DHS) databases. Unfortunately, E-Verify has an unacceptably high error rate. In its current form, it also does nothing to ensure the authenticity of the documents employees use to establish their identity.

The vast majority of businesses want to obey the law and support the idea of a federally administered database to electronically verify the legal status of employees. However, employers should not be required to participate in it without first ensuring its accuracy and improving its ability to authenticate supporting documentation.

Even without legislation mandating participation, the Administration has enacted regulations, known as the "No-Match Rules," that would impose criminal and civil sanctions on employers who do not terminate workers with Social Security numbers that do not match government records regardless of an employee's actual legal status. At this time, a federal judge for the U.S. District Court for Northern California has blocked enforcement of the regulation because of his strong concerns over the financial costs the regulations would impose on employers and because the measure would put many employees with proper work authorization at risk for losing their jobs.

Apartment owners are particularly concerned about the failure of Congress to enact comprehensive immigration reform because that inaction has encouraged state and local governments to pass draconian measures that, if enforced, would NMHC/NAA Joint Legislative Program

Immigration and citizenship rules are federal responsibilities with national security and economic implications that should be handled by the federal government. Therefore, legislation must include a provision reserving for the federal government the exclusive authority to create immigration policy, including a preemption of state and local government measures.

Current Status
The most recent piecemeal immigration reform measure was introduced in the House on November 6 by Representative Heath Shuler (D-NC) and in the Senate on November 15 by Senator Mark Pryor (D-AR). Titled the Secure America through Verification and Enforcement (SAVE) Act (H.R. 4088, S. 2368), the measure would, among other things, require employers to use the flawed E-Verify system to retroactively screen employees for their legal status to work in this country. It would also boost border security, including additional personnel, equipment, and infrastructure.

In 2007 the housing market slump impacted general revenue streams in 24 states, prompting 18 state budget offices to announce that they will experience budgetary deficits in 2008. This triples the number of states that had similar concerns last year. When combining this with what have become annual budgetary shortfalls in such vital areas as transportation projects, education and Medicare, NAA is predicting a gloomy financial situation in most states. While lawmakers traditionally do not like to raise taxes – as it is politically unpopular – it is unlikely that this fiscal situation can be resolved without some form of tax increase or restructuring.

As home values climbed during the housing market boom, state and local governments leaned more on property taxes to compensate for other revenue shortcomings. However, as some areas now are experiencing cooling economies, in particular in the real estate market, high property tax bills combined with artificially high property tax assessments have caused voters to pressure legislative leaders to enact tax reform. As a result, in 2007, five states cut their property tax rates and 21 others provided some relief from higher bills, such as ''homestead exemptions." NAA has seen this trend in property tax relief for single-family homes continuing in 2008; however, this lost revenue will need to be replaced through other revenue streams. States and localities may choose to follow the examples of Ohio, Michigan and others who have increased or implemented new sales taxes, in particular on previously untaxed services such as rent. In perhaps the most extreme example of this type of ''tax swapping," a bill has been introduced in the Georgia legislature which would eliminate most property taxes and replace them with a statewide 7 percent sales tax on virtually all services. States considering sales taxes on services are divided as to whether or not the business of renting housing is a service that should be taxed. Homestead exemptions and taxes on the practice of renting homes unfairly shift more of the tax burden to renters, treating them disparately compared to their home-owning counterparts.

In addition to the problems caused by the housing bust, states are also trying to find funding sources for infrastructure and transportation costs. Local governments could be looking for more taxing authority from the state governments to pay for things like rehabilitation of roads and increased numbers of bridge inspections. Additionally, states will continue looking at opportunities for more public-private partnerships to pay for infrastructure, a trend identified by NAA last year.
The Financial Times reports that a ''collapse in confidence in a $330 billion corner of the debt market has left U.S. municipalities and student loan providers facing spiraling interest rate costs." The Times goes on to report that the affected market is for ''auction-rate securities," and the problem is caused by ''worries that bond insurers guaranteeing much of this debt could face credit rating downgrades." This economic crisis is the latest result of the collapse of the subprime mortgage sector last fall and its aftershocks in the market. As previously reported by NAA, the collapse of the subprime mortgage sector and the resulting housing market slump has had a deep impact on the general revenue streams of many state and local governments. This concern has caused bond-rating agencies to start questioning whether the municipal and/or state bond insurers deserved the highest credit rating distinction of AAA. The result, as the Times points out, is that the ''sudden slump" has increased interest rates ''as high as 20 percent for entities from the Port Authority of New York and New Jersey to a hospital." The result is that ''municipal borrowers are scrambling to seek letters of credit from banks and other fresh sources of finance."

NAA will continue to track this important trend as it is another complicating factor for state and local governments seeking revenue to pay for priority programs such as Medicaid and transportation infrastructure. As always, if state and local budget concerns worsen, these governments may turn to increasing current or implementing new taxes to make up for their monetary shortfalls.

In October 2007, the Federal Communications Commission (FCC) retroactively banned contract clauses that grant most cable service providers an exclusive right to provide video services in an apartment community property. The FCC initiated this action in response to claims by several large telecommunications companies, which have begun to offer video services to residents of apartment communities, that exclusive access agreements improperly interfere with market competition and consumer choice. Emboldened by this FCC action NAA believes these telecom companies will begin a new legislative push at the state and local government level to remove what they perceive as additional barriers to market competition.

First on this agenda will be local cable franchising ordinances that often only allow one video service provider to operate within a jurisdiction in exchange for build-out and other concessions from the chosen provider. As a means around such local restrictions telecom companies have sponsored state level legislation, such as in Tennessee and Illinois, that would move cable franchising authority from local governments and replace it with statewide franchising licenses that would allow the service provider to operate anywhere in the state. If successful on the franchising front the next step could be a push for state mandatory access laws. Mandatory access laws, which are in effect in 18 states and Washington, D.C., require an apartment owner to grant a right of entry to a service provider that wants to offer its product to residents.

NAA and NMHC have jointly filed a lawsuit challenging the authority of the FCC in this matter.