1.
THE AMERICAN RECOVERY AND REINVESTMENT ACT OF 2009:
On February 17, 2009, President Barack
Obama signed the American Recovery and Reinvestment Act
into law. According to an e-mail your editor (and surely
millions of others) received on that date, ARRA is the first
of many historic steps designed to help America climb out
of crisis. According to the president’s e-mail, the
recovery plan will create or save 3.5 million jobs, provide
tax cuts for working and middle-class families, and invest
in health care and clean energy. The following partial summary
of ARRA provisions comes from the Senate Finance Committee
and the House Ways & Means Committee. The full 19-page
summary is available at
http://waysandmeans.house.gov/media/pdf/111/arra.pdf:
“Making Work Pay”
Tax Credit. The bill would cut taxes for more
than 95% of working families in the United States. For
2009 and 2010, the bill would provide a refundable tax
credit of up to $400 for working individuals and $800
for working families. This tax credit would be calculated
at a rate of 6.2% of earned income, and would phase out
for taxpayers with adjusted gross income in excess of
$75,000 ($150,000 for married couples filing jointly).
Estimated cost: $116.199 Billion over 10 years.
Economic Recovery Payment to
Recipients of Social Security, SSI, Railroad Retirement
and Veterans Disability Compensation Benefits.
The bill would provide a one-time payment of $250 to retirees,
disabled individuals and SSI recipients receiving benefits
from the Social Security Administration, Railroad Retirement
beneficiaries and disabled veterans receiving benefits
from the U.S. Department of Veterans Affairs. The one-time
payment is a reduction to any allowable “Making
Work Pay” tax credit. Estimated cost: $14.225 Billion
over 10 years.
Refundable Credit for Certain
Federal and State Pensioners. The bill would
provide a one-time refundable tax credit of $250 in 2009
to certain government retirees who are not eligible for
Social Security benefits. This one-time credit is a reduction
to any allowable “Making Work Pay” tax credit.
Estimated cost: $218 Million over 10 years.
Increase in Earned Income Tax
Credit. The bill would temporarily increase the
earned income tax credit for working families with three
or more children. Estimated cost: $4.663 Billion over
10 years.
Refundable First-time Home Buyer
Credit. Last year, Congress provided taxpayers
with a refundable tax credit that was equivalent to an
interest-free loan equal to 10 percent of the purchase
of a home (up to $7,500) by first-time home buyers. The
provision applies to homes purchased on or after April
9, 2008 and before July 1, 2009. Taxpayers receiving this
tax credit are currently required to repay any amount
received under this provision back to the government over
15 years in equal installments, or, if earlier, when the
home is sold. The credit phases out for taxpayers with
adjusted gross income in excess of $75,000 ($150,000 in
the case of a joint return). The bill eliminates the repayment
obligation for taxpayers who purchase homes after January
1, 2009, increases the maximum value of the credit to
$8,000, removes the prohibition on financing by mortgage
revenue bonds and extends the availability of the credit
for homes purchased before December 1, 2009. Estimated
cost: $6.638 Billion over 10 years.
Sales Tax Deduction for Vehicle Purchases. The bill provides
all taxpayers with a deduction for State and local sales
and excise taxes paid on purchase of new cars, light trucks,
recreational vehicles and motorcycles through 2009. This
deduction is subject to a phase-out for taxpayers with
adjusted gross incomes in excess of $125,000 ($250,000
in the case of a joint return). Estimated cost: $1.684
Billion over 10 years.
Temporary Suspension of Taxation
of Unemployment Benefits. The bill temporarily
suspends federal income tax on the first $2,400 of unemployment
benefits per recipient. The proposal is effective for
taxable year 2009. Estimated cost: $4.740 Billion over
10 years.
Extension of Alternative Minimum
Tax Relief for 2009. The bill would provide more
than 26 million families with tax relief in 2009 by extending
AMT relief for nonrefundable personal credits and increasing
the AMT exemption amount to $70,950 for joint filers and
$46,700 for individuals. Estimated cost: $69.759 Billion
over 10 years.
De Minimis Safe Harbor Exception
for Tax-Exempt Interest Expense for Financial Institutions.
Under current law, financial institutions are not allowed
to take a deduction for the portion of their interest
expense that is allocable to such institution’s
investments in tax-exempt municipal bonds. In determining
the portion of interest expense that is allocable to investments
in tax-exempt municipal bonds, the bill would exclude
investments in tax-exempt municipal bonds issued during
2009 and 2010 to the extent that these investments constitute
less than two percent (2%) of the average adjusted bases
of all the assets of the financial institution. Estimated
cost: (Included in estimated cost of next provision).
Modification of Small Issuer
Exception to Tax-Exempt Interest Expense Allocation Rules
for Financial Institutions. As described above,
financial institutions are not allowed to take a deduction
for the portion of their interest expense that is allocable
to such institution’s investments in tax-exempt
municipal bonds. For purposes of this interest disallowance
rule, bonds that are issued by a “qualified small
issuer” are not taken into account as investments
in tax-exempt municipal bonds. The bill would increase
the dollar threshold to $30,000,000 (from $10,000,000)
when determining whether a tax-exempt obligation issued
in 2009 and 2010 qualifies for this small issuer exemption.
Estimated cost: $3.234 Billion over 10 years.
Eliminate Costs Imposed on State
and Local Governments by the Alternative Minimum Tax.
The AMT can increase costs of issuing tax-exempt private
activity bonds imposed on State and local governments.
Under current law, interest on tax-exempt private activity
bonds is generally subject to the AMT, which limits marketability
of these bonds, and, therefore, forces State and local
governments to issue the bonds at higher interest rates.
Last year, Congress excluded one category of private activity
bonds (tax-exempt housing bonds) from AMT. The bill would
exclude the remaining categories of private activity bonds
from AMT if the bond is issued in 2009 or 2010. Estimated
cost: $555 Million over 10 years.
Delay Application of Withholding
Requirement on Certain Governmental Payments for Goods
and Services. For payments made after December
31, 2010, the Internal Revenue Code requires withholding
at three percent rate on certain payments to persons providing
property or services made by Federal, State, and local
governments. The provision would delay for one year application
of the three percent withholding requirement on government
payments for goods and services in order to provide the
Treasury Department time to study the impact of this provision
on government entities and other taxpayers. Estimated
cost: $291 Million over 10 years.
Qualified School Construction
Bonds. The bill creates a new category of tax
credit bonds for construction, rehabilitation or repair
of public school facilities or for acquisition of land
on which a public school facility will be constructed.
Estimated cost: $9.877 Billion over 10 years.
Extension and Increase in Authorization
for Qualified Zone Academy Bonds. The bill would
allow an additional $1.4 Billion of QZAB issuing authority
to State and local governments in 2009 and 2010, which
can be used to finance renovations, equipment purchases,
developing course material, and training teachers and
personnel at a qualified zone academy. In general, a Qualified
Zone Academy is any public school below college level
that is located in an empowerment zone or enterprise community
and is designed to cooperate with businesses to enhance
academic curriculum and increase graduation and employment
rates. QZABs are a form of tax credit bonds that offer
the holder a Federal tax credit instead of interest. Estimated
cost: $1.045 Billion over 10 years.
Tax Credit Bond Option for State
and Local Governments (“Build America Bonds”).
The Federal government provides significant financial
support to State and local governments through the federal
tax exemption for interest on municipal bonds. Both tax
credit bonds and tax-exempt bonds provide a subsidy to
municipalities by reducing the cash interest payments
that a State or local government must make on its debt.
Tax credit bonds differ from tax-exempt bonds in two principal
ways: (1) interest paid on tax credit bonds is taxable
and (2) a portion of the interest paid on tax credit bonds
takes the form of a Federal tax credit. The Federal tax
credit offsets a portion of the cash interest payment
that the State or local government would otherwise need
to make on the borrowing. For 2009 and 2010, the bill
would provide State and local governments with the option
of issuing a tax credit bond instead of a tax-exempt governmental
obligation bond. Because the market for tax credits is
currently small given current economic conditions, the
bill would allow the State or local government to elect
to receive a direct payment from the Federal government
equal to the subsidy that would have otherwise been delivered
through the Federal tax credit for bonds. (Very clever.)
Estimated cost: $4.348 Billion over 10 years.
Qualified Energy Conservation
Bonds. The bill authorizes an addition $2.4 Billion
of qualified energy conservation bonds to finance State,
municipal and tribal government programs and incentives
designed to reduce greenhouse gas emissions. Estimated
cost: $803 Million over 10 years.
Plug-in Electric Drive Vehicle
Credit. The bill modifies and increases a tax
credit passed into law at the end of the last Congressional
Session for each qualified plug-in electric drive vehicle
placed in service during the taxable year. The base amount
of the credit is $2,500. Estimated cost: $2.002 Billion
over 10 years.
Parity for Transit Benefits.
Current law provides a tax-free fringe benefit employers
can provide to employees for transit and parking. Those
benefits are set at different dollar amounts. The provision
would equalize the tax-free benefit employers can provide
for transit and parking. The proposal sets both the parking
and transit benefits at $230 a month for 2009, indexes
them equally for 2010 and clarifies that certain transit
benefits apply to federal employees. Estimated cost: $192
Million over ten years.
Extension of Emergency Unemployment
Compensation. Through December 31, 2009, the
bill continues the Emergency Unemployment Compensation
program, which provides up to 33 weeks of extended unemployment
benefits to workers exhausting regular benefits. Estimated
cost: $26.96 Billion.
Increase in Unemployment Compensation
Benefits. The bill increases unemployment weekly
benefits by an additional $25 through 2009. Estimated
cost: $8.8 Billion.
Premium Subsidies for COBRA Continuation
Coverage for Unemployed Workers. Recession-related job
losses threaten health coverage for many families.
To help people maintain coverage, the bill provides a
65% subsidy for COBRA continuation premiums for up to
9 months for workers who have been involuntarily terminated
and for their families. The subsidy also applies to health
care continuation coverage if required by states for small
employers. Estimated cost: $24.7 Billion.
Debt Limit Increase.
The bill increases the statutory limit on the public debt
by $789 Billion (obviously), from $11.315 Trillion to
$12.104 Trillion!
We hope (and trust) that the foregoing
Committees’ summary is accurate. For those of you
who wish to watch your money drift away, visit http://www.recovery.gov.
That site also links to a copy of the bill itself.
2.
FLORIDA APPELLATE COURT UPHOLDS FORFEITURE OF HOLLYWOOD
CO-CONSPIRATOR COP’S PENSION:
Former Hollywood Police Officer Kevin Companion
appealed from an administrative decision rendered by the
Board of Trustees of the City of Hollywood Police Officers’
Retirement System forfeiting his retirement benefits. In
Federal Court, Companion had pleaded guilty to the crime
of conspiracy to possess heroin with intent to distribute.
Following its earlier decision in Simcox vs. City of Hollywood
Police Officers’ Retirement System, 988 So. 2d 731
(Fla. 4th DCA 2008) (see
C&C Newsletter Special Supplement for August 27, 2008),
the Florida Fourth District Court of Appeal affirmed. We
are pleased to have served as co-counsel for our regular
client, Board of Trustees of City of Hollywood Police Officers’
Retirement System. Companion v. The City of Hollywood Police
Officers’ Retirement System, Case No. 4DOA-570 (Fla.
4th DCA, February 18, 2009). Because Simcox and Companion
were co-conspirators, in order to provide context, we are
reproducing our earlier piece on the Simcox case:
Former police officer Thomas Simcox appealed
from a final administrative decision rendered by the Board
of Trustees of the City of Hollywood Police Officers’
Retirement System forfeiting his retirement benefits.
In federal court, Simcox had pleaded guilty to the crime
of conspiracy to possess heroin with intent to distribute.
Because competent evidence established that Simcox committed
a “specified offense” under Section 112.3173(2)(e)(6),
Florida Statutes, the Florida Fourth District Court of
Appeal affirmed.
Simcox worked as a City of Hollywood
police officer until he resigned on February 22, 2007,
less than a month after a federal criminal information
had been filed against him. The information charged Simcox
with one count of conspiracy to possess with intent to
distribute a controlled substance, in violation of federal
law. The charges arose from an undercover sting operation
conducted by the Federal Bureau of Investigation targeting
corruption within the Hollywood Police Department.
Simcox pleaded guilty as charged. During
the plea colloquy, Simcox admitted that he had provided
escort services for a truck driver who was portrayed as
carrying multiple kilograms of heroin. Simcox's role was
to make sure that the truck driver encountered no problems
with his delivery. Simcox conceded that he, his co-conspirators
and the undercover officers discussed the operation in
detail, including the counter-surveillance techniques
they would employ and the methods they would use to ensure
that the heroin delivery was successful. Simcox acknowledged
that after escorting the truck, he returned to a hotel
room in Miami Beach where he received payments for these
activities. While in that hotel room, he and the co-conspirators
discussed how the operation had gone, including some of
the surveillance techniques and methods they had used.
The federal court adjudicated Simcox guilty and sentenced
him to 135 months incarceration.
After the conviction, the Board held
a preliminary hearing and decided to conduct a formal
hearing on whether Simcox had forfeited his retirement
benefits pursuant to Section 112.3173, Florida Statutes.
At the formal hearing, the Board found
that Simcox had committed a "specified offense"
forfeiting his retirement benefits under Section 112.3173(2)(e)(4),
Florida Statutes, because the acts underlying the federal
crime of which Simcox was convicted would support a Florida
conviction for a Chapter 838 felony under both Section
838.016, unlawful compensation for official behavior,
and Section 838.022, official misconduct. Alternatively,
the Board found that the federal conviction fell within
the catch-all provision, Section 112.3173(2)(e)(6), Florida
Statutes.
Review of the Board's forfeiture order
is governed by Section 120.68, Florida Statutes. The Board's
final action may be set aside only upon a finding that
it is not supported by substantial competent evidence
in the record or that there are material errors in procedure,
incorrect interpretations of law or an abuse of discretion.
Section 112.3173(3), Florida Statutes,
implements the portion of the Florida Constitution that
provides the framework for forfeiture of public retirement
benefits:
Any public officer or employee who
is convicted of a specified offense committed prior
to retirement, or whose office or employment is terminated
by reason of his or her admitted commission, aid, or
abetment of a specified offense, shall forfeit all rights
and benefits under any public retirement system of which
he or she is a member, except for the return of his
or her accumulated contributions as of the date of termination.
Two statutory definitions of "specified
offense" pertain to this case. First, Section 112.3173(2)(e)(4),
Florida Statutes, provides the meaning: "any felony
specified in chapter 838, except ss. 838.15 and 838.16."
Second, the "catch-all" provision section of
112.3173(2)(e)(6), Florida Statutes, defines "specified
offense” as,
[t]he committing of any felony by a
public officer or employee who, willfully and with intent
to defraud the public or the public agency for which
the public officer or employee acts or in which he or
she is employed of the right to receive the faithful
performance of his or her duty as a public officer or
employee, realizes or obtains, or attempts to realize
or obtain, a profit, gain, or advantage for himself
or herself or for some other person through the use
or attempted use of the power, rights, privileges, duties,
or position of his or her public office or employment
position.
The term "felony" means any
criminal offense that is punishable under the laws of
Florida or that would be punishable if committed in Florida,
by death or imprisonment in a state penitentiary.
On appeal, Simcox argued that the acts
constituting his federal conviction were not punishable
as a "specified offense" in Florida under Section
112.3173 , Florida Statutes. He maintained that his actions
in furtherance of the drug trafficking scheme were unrelated
to his position as a police officer; that he did not use
his power, rights, privileges, duties or position as a
police officer when participating in the scheme; and that
his role in the scheme was merely that of an unlawful
citizen.
A public officer or employee may have
his pension benefits forfeited if the acts underlying
the federal crime of which he was convicted or admitted
to during his guilty plea would support a Florida conviction
for a Chapter 838 felony or other felony described in
Section 112.3173(2)(e)(6) , Florida Statutes.
Contrary to Simcox's arguments, the record
contained substantial competent evidence sufficient to
support forfeiture under Section 112.3173(2)(e)(6) , Florida
Statutes. In finding that the crime was related to Simcox's
position as a police officer, the Board relied upon the
admissions during his plea colloquy. In that plea colloquy,
Simcox admitted that he participated in a drug trafficking
scheme to transport over one kilogram of heroin; his role
was to make sure the truck driver encountered no problem
with his delivery; he utilized counter-surveillance and
other methods to ensure that the delivery was successful;
and he received payment for his corrupt services. These
concessions supported the Board's conclusion that Simcox
used the expertise he gained as a law enforcement officer
to facilitate the scheme.
By accepting $8,000 in exchange for protecting
and escorting the drug deliveryman, Simcox obtained an
advantage for himself. He knowingly intended to violate
the duties he owed to the public and the public agency
for which he acted and was employed by committing those
acts. Given these facts, the record supported the finding
that Simcox obtained his monetary advantage through use
or attempted use of his privileges, experience and duties,
which were all a part of his position as a police officer.
"Faithful performance" of a "duty"
as a police officer under Section 112.3173(2)(e)(6), Florida
Statutes, does not allow an officer to traffic in drugs
when off duty.
At this point, the court turned to an
issue of first impression in the State of Florida: whether
or not forfeiture is appropriate when the subject acts
were committed while the officer was participating in
a Deferred Retirement Option Plan. Simcox contended that,
even if the court found that he had used his powers, rights,
privileges, duties or position as a police officer, that
Section 112.3173, Florida Statutes, is inapplicable because
he participated in the DROP and was therefore "retired"
prior to his involvement in the drug trafficking scheme.
(As our readers know, DROP is a program that allows employees
to retire without terminating employment, while retirement
benefits accumulate in an account.) However, DROP does
not change an employee's conditions of employment. When
an employee's DROP period ends, he must still terminate
employment. A DROP "retirement" is not a true
retirement, since the employee continues to work in his
job. Rather, a DROP "retirement" is an employment
status that triggers entitlement to certain benefits.
The court concluded that "retirement"
for purpose of DROP is different and separate from "retirement"
as used in Section 112.3173, Florida Statutes. Section
185.02(6), Florida Statutes, defines DROP retirement solely
for "purposes of the plan." On the other hand,
Section 112.3173, Florida Statutes, employs the common
meaning of "retirement." That definition is
usually associated with an employee's voluntary termination
of his own employment or career. Here, Simcox remained
employed as a police officer until he officially resigned,
months after he had committed the federal felony. He therefore
was not retired for purposes of section 112.3173, Florida
Statutes. The court thus agreed with the Board and found
that the evidence was sufficient to meet the statutory
criteria for forfeiture, as there was a connection or
"nexus" between the federal crime committed
by Simcox and his duties as a police officer. As the Board
noted, Simcox and his fellow police officers were chosen
as drug escorts because of their heightened knowledge
of law enforcement techniques, their police training and
because they "knew the enemy" (that is, federal,
state and local law enforcement agents).
Because Simcox's federal conviction equated
to violation of Section 112.3173(2)(e)(6), Florida Statutes,
the “catch-all” provision, and his retirement
benefits were forfeited pursuant to that section, the
court did not address whether his conviction also equated
to a violation under Section 112.3173(2)(e)(4), Florida
Statutes.
3.
DRAMATIC DROP IN INTEREST RATES FORECASTS LOWER DB PLAN
FUNDING STATUS:
An earlier Watson Wyatt analysis of pension
funding in 450 Fortune 1000 firms projected an 8% decline
in their defined benefit pension funding status, under an
assumption that the market conditions of October 15, 2008
would persist through year-end. (Funding status equals plan
assets divided by projected benefit obligations.) But interest
rates have fallen by more than 200 basis points since then,
and Watson Wyatt is now projecting a much larger 29% drop
in funding status. The eight-percentage-point drop (from
96% to 88%) in the earlier analysis reflected the effect
of higher interest rates, which mitigated the decline in
asset values. While market returns on assets have not realized
much net change since the earlier analysis, the interest
rates used in measuring plan liabilities have decreased
substantially over the past few months. This dramatic decline
in interest rates will result in a substantial decrease
in plan funding at the end of 2008 -- an average drop of
29 percentage points. Egad.
4.
TENANTS ACQUITTED IN FIREFIGHTER DEATHS:
A jury acquitted two tenants of a Bronx
apartment building in the deaths of two firefighters who
jumped out a window to escape an out-of-control blaze. According
to New York Times, prosecutors accused the tenants of contributing
to the deaths by illegally erecting partition walls in their
apartments, which disoriented the firefighters. They were
charged with manslaughter, criminally negligent homicide
and reckless endangerment. On a 17-degree Sunday morning,
January 23, 2005, the firefighters were called to a blaze
sparked by a faulty extension cord in the building. The
fire started in a third-floor apartment and spread up to
a fourth-floor unit. Lt. Curtis Meyran, 46, and firefighter
John G. Bellew, 37, died when they jumped fifty feet from
the burning building. Four other firefighters jumped as
well, but survived. The jury apparently was not bothered
by the partitions; the defendants were acquitted on all
counts. The union president said that “New York City
firefighters are disgusted that our safety has been so easily
disregarded in this case.” He said the two apartments
had been subdivided with walls to create windowless rooms,
which tenants rented out for $75 a week, creating a “death
trap” that blocked firefighters’ visibility.
In a statement, the Fire Commissioner also criticized use
of partitions in apartments. Was it really worth 75 bucks
a week?
5.
40 YEARS’ WORTH OF THANKS:
In 1968, a white firefighter saved a black
baby girl, touching the heart of a divided city. The two
did not meet again ... until earlier this month. Boston.com
reports that four decades ago firefighter William Carroll
crawled on his stomach through the pitch-black apartment,
the smoke so thick he could not see his hand in front of
his face. Somewhere inside was a baby, and he had to find
her. A window broke, light filled the room, and he saw her
lying in her crib, dressed only in a diaper, unconscious.
Soot covered her tiny nose. She was not breathing and had
no pulse. Carroll grabbed her and breathed life into her
as he ran from the apartment. A newspaper photographer captured
their image -- a white firefighter from South Boston with
his lips pressed to the mouth of a black baby from the Roxbury
public housing project -- at a time when riots sparked by
racial tensions were burning down American cities. Despite
this most intimate of introductions, the two remained strangers.
Carroll won a commendation for the rescue, stayed on the
job for another 34 years and retired. Evangeline Harper
Anderson grew up, lost her family to drugs and illness,
had six children of her own and became a nursing/teaching
assistant. And through it all, someone would often tell
the story about the day she almost died and the man who
would not let it happen. She always wanted to meet him and
say thank you. On February 11, 2009, more than 40 years
after the fire, she finally did. In the neighborhood where
they first met, Carroll a slim 71-year-old dressed in a
borrowed navy blue uniform, strode up to the 40-year-old
woman, and beamed. “You’ve grown a lot since
the last time I saw you. Thank you so much for remembering
me. “ He then pulled her into a tight embrace, and
they held onto each other as they stood just a few yards
from where he had carried her limp body decades ago. “Thank
you so much,” she said softly. The Boston Globe arranged
the meeting after Evangeline introduced herself to a reporter
at a community meeting and asked for help tracking down
Carroll. If you have three minutes to be touched, go to
http://www.boston.com/news/local/massachusetts/articles/2009/02/12/40_years_worth_of_thanks/?s_campaign=yahoo.
God bless William Carroll.
6.
PRICELESS OBSERVATIONS:
Only Irish coffee provides in a single
glass all four essential food groups: alcohol, caffeine,
sugar and fat. Alex Levine
7.
QUOTE OF THE WEEK:
“If I had eight hours to chop down
a tree, I'd spend six hours sharpening my ax.” Abraham
Lincoln |
