How it will affect you … and where to get financial assistance
Tragic building fires made national headlines throughout 2003.
On February 20, nearly one hundred people died in a fast-moving fire at a Rhode Island concert venue. In September, fourteen elderly patients were killed and many more injured in a blaze at a Nashville nursing home. Closer to home, six Chicagoans perished in an October fire at a high-rise office building.
Additionally, a few days before the Rhode Island disaster, a stampede to escape chemical fumes killed 21 people at a downtown Chicago nightclub. While this resulted from pepper spray, the deadly panic could just as easily have been driven by fire and smoke inhalation.
The setting and circumstances for these tragedies were varied, but the outcomes were the same: significant loss of life, followed by public outcry for stronger precautionary measures to protect building occupants.
In the aftermath of these incidents and others, legislation has been proposed, locally and nationally, that would create new fire protection requirements for building owners and managers. Industry experts agree that these laws, if enacted, would represent the most significant legislation in the more than 100-plus year history of the fire protection industry.
What follows is a summary of proposed laws and regulations, how they could affect Chicago-area building owners, and where to find funding help and incentives for the installation of fire sprinkler systems.
Chicago High Rise Retrofit Legislation
The City of Chicago jumped into the national spotlight this past October. First, a fatal fire occurred on the City’s South Side in a compartmental housing authority building on October 10th. Two persons were killed in the blaze. One week later, on October 17th, a dramatic fire in the non-sprinklered Cook County Administration Building killed six county employees and heightened public awareness about the benefits of fire sprinklers. For nearly two weeks, the office building fire dominated newspaper, radio, and television coverage. The public expressed outrage over the needless loss of life and lack of safety preparedness in a public building.
Debate over two different ordinances will take place when the City of Chicago Building committee meets on January 16th. Several more hearings will occur during February with the matter coming to vote by the City Council in early March.
Mayor Richard Daley has called for a host of life safety changes modeled after the International Building Code (IBC), but his ordinance does not require existing residential buildings to be retrofitted with fire sprinkler systems. Instead, residential high rise owners would be forced to perform life safety evaluations based upon IBC standards that outline different fire safety options for providing a minimum level of safety, including automatic stairwell door locks, smoke detection systems, and carbon monoxide detectors.
The Mayor’s plan does require that all commercial buildings be sprinklered within a twelve-year timeframe. This move is seen as monumental given that every previous time the Mayor called for sprinklers, he subsequently recanted.
Southwest Side Alderman Edward Burke, a longtime champion of the fire sprinkler campaign, will present his own ordinance to place sprinklers in all skyscrapers regardless of whether people work or live there. Alderman Burke has been pushing for this legislation for more than sixteen years in the City of Chicago. Based upon the greatly increased level of support, serious media pressure, and the fact that most other major cities have already enacted retrofit legislation, many Chicago area building owners have accepted the likelihood that this measure will pass in one form or another.
Chicago Nightclub Sprinkler Legislation
On June 4, 2003, an ordinance was introduced by Alderman Edward Burke that requires the retrofit of automatic fire sprinkler systems in all nightclubs, new or existing, with occupancies greater than 50. These systems would have to be fully operational by July 1, 2005, with detailed plans for the installation to be submitted to the Chicago Fire Prevention Bureau by July 1, 2004. It is expected that this legislation will have little opposition once it is up for vote by the City Council. This is based upon the unanimous vote that the measure received by the Building Committee in the Fall of 2003. At least 262 nightclubs within the City of Chicago will be affected by this new legislation.
Support Growing For Single Family Home Sprinkler Systems
More residential deaths result from fire than hurricanes, tornados, floods, earthquakes and other natural disasters combined, according to the United States Fire Administrator R. David Paulison.
Starting with San Clemente, California in the late 1970’s, more than 400 localities nationwide now require fire sprinkler installation in newly constructed single family homes. An important insurance study in Scottsdale, Arizona estimated average property damage at $116,000 following a fire in an unsprinklered home versus $17,000 in residences protected by sprinklers.
With the recent announcement that the Village of Berkeley passed a residential ordinance, there are now 14 municipalities in Northern Illinois that require residential fire sprinkler systems be installed in all newly constructed homes.
As of December 2003, the current list is as follows:
- Barrington/Lake Barrington
- Glen Ellyn
- Long Grove
- Park Ridge
- Round Lake Beach
- Hoffman Estates
- Clarendon Hills
- West Dundee
- La Grange Park
- Mount Prospect
Fire Sprinkler Incentive Act of 2004; a/k/a “Sprinkle America” (HR 1824 / SB 1566)
Congressmen Curt Weldon, a Pennsylvania Republican, and Jim Langevin, a Democrat from Rhode Island, have introduced a bill in the U.S. House of Representatives in response to the 2003 tragedies in buildings lacking fire sprinkler protection. If enacted, this legislation promises to be the single most important piece of legislation in the entire history of the fire protection industry.
Passage of the bill, HR 1824, would result in a significantly faster rate of depreciation for sprinkler systems. Currently, sprinkler systems are depreciated over as many as 39 years. By way of example, a $500,000 sprinkler system depreciated over 39 years results in a deduction of approximately $12,800 annually while HR 1824’s accelerated depreciation would provide a first year deduction of $220,000 with the balance to be taken over the next four years. This accelerated rate of depreciation provides a dramatic financial incentive to install automatic fire sprinkler systems. The benefit of this landmark legislation to the industry, building owners, and the public speaks for itself.
There is a rapidly expanding list of supporters of this legislation, including seven members of the influential House Ways and Means Committee. As of late December 2003, one hundred representatives have signed on as co-sponsors, including twelve of the nineteen representatives from Illinois and five from the State of Tennessee.
In addition to some very influential insurance industry organizations, The Associated General Contractors, Associated Builders and Contractors, National Chamber of Commerce, Americans for Tax Reform, and the Real Estate Roundtable are avid supporters of this important legislation.
Given that most sprinkler systems last 100 years or more, a five-year financial payback to the building owner makes a compelling case for installing fire sprinklers. An additional bonus to the building owner would be significant insurance premium discounts, which would benefit the bottom line.
If interested, you can download a copy of HR 1824, along with an explanatory white paper and executive summary at www.NFSA.org. We encourage you to send a letter of support directly to the House Ways and Means Committee to keep America at the forefront of life safety leadership.
How Do We Pay For All Of This?
Many real estate professionals are unaware that funds are available to invest in properties that will be redeveloped or rehabilitated. For example, the Tuckerman Group, a State Street Global Advisors Company, has funds available from a Taft-Hartley pension fund to invest in properties that will include an upgrade of fire sprinkler systems, either by new installation or retrofitting. Investment capital is available to developers and property owners employing contractors that are signatory to collective bargaining agreements. Investments will take the form of debt, including permanent loans that serve as a forward commitment, construction loans or participants in construction loans, and subordinated ‘mezzanine’ loans collateralized by either a junior loan on the project or an assignment of an equity interest. The National Automatic Sprinkler Industry Pension Fund has engaged State Street to manage a flexible investment program of up to $100 million.
For more detailed information, please go to www.ssga.com/tuckerman and click on retrofit investment. Other available capital programs may be found at www.cisco.org.
Tax Incentives For Business
Many progressive real estate management firms and building owners have chosen to jump-start their investments in life safety infrastructure improvements by taking advantage of the Jobs & Growth Tax Relief Reconciliation Act of 2003. Under Title II, Section 201, The Act provides an additional first year depreciation deduction equal to 50 percent of the adjusted basis of qualified property, effective for taxable years ending after May 5, 2003. In general, in order to qualify for the 50 percent additional depreciation deduction, the property must be acquired after May 5, 2003, and before January 1, 2005. Property does not qualify if it was acquired pursuant to a binding written contract in effect before May 6, 2003.
Additional incentives can be found in Section 202 Increased Expensing for Small Business. This Act increases the section 179 expensing limit to $100,000 for property placed in service in taxable years beginning in 2003, 2004, and 2005. In addition, the phase-out of the limit is modified so that the phase-out starting point is increased to $400,000 for property placed in service in taxable years beginning in 2003, 2004, and 2005. Both the $100,000 limit and the $400,000 starting point are indexed annually for inflation in 2004 and 2005.
Note: Please consult with your tax advisor to discuss your specific application of the above tax matters.
A Time To Act
Inevitably, retrofitting is a lengthy process, requiring careful blueprint preparation and approval, survey work, code research, hydraulic calculations, and many other steps before installation can begin. Every measurement is critical and typically requires customization.
Many building owners are choosing to start their sprinkler installation projects now to avoid the potential for delays if there is a sudden surge in demand. Currently, prices are lower than normal, but that is expected to change if new laws and ordinances are passed and the economy improves, creating a wave of activity for the fire protection industry. Further cost savings for building owners can be realized from negotiating lower insurance premiums after installation.
However, the greatest benefit of a fire protection system is improved safety and security for the people who occupy your buildings. Potential tragedies, like those witnessed in 2003, can be averted.
On that, you cannot place a price.
Thomas Hartel is President of Valley Fire Protection Systems, a Batavia based fire protection contractor. Please feel free to learn more about Valley by visiting www.valleyfire.com or by giving Mr. Hartel a call at 630-761-3168.
Special thanks to Tom Lia of the Northern Illinois Fire Sprinkler Advisory Board.