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Louis Jacobson
By Louis Jacobson January 9, 2013

For years, "GO Zones" pumped money into storm-damaged areas

The Gulf Coast hurricanes Katrina, Rita and Wilma made landfall long before Barack Obama became president, but for the first part of his term, the Gulf Opportunity Zone Act -- and the "GO Zones" created by the law -- were in force.

When Obama was running for president, he promised to "target tax incentives to lure businesses to the hardest hit areas of the Gulf Coast including downtown New Orleans and St. Bernard Parish."

Because of the timing of the law -- it was passed in 2005 -- Obama can't claim credit for creating GO Zones. But the provisions of the law were extended on Obama's watch, and overall, the program has received plaudits from officials in Alabama, Louisiana, and Mississippi.

The law provides tax-free, low interest bonds to investors and developers to urge them to build businesses and housing in select counties and parishes hard hit by the hurricanes. The idea is that, without the incentives offered by these bonds, businesses would be less willing to invest in the storm-savaged zones, resulting in economic stagnation. The law also provided special tax treatment of environmental remediation costs resulting from the storms, a temporary tax credit for disaster-damaged businesses so they could continue to pay wages to their employees, and a tax break for employer-provided housing.

As we noted in our previous update, GO Zone bonds were originally supposed to expire at the end of 2010. But Congress voted to extend them as part of the Tax Relief, Unemployment Insurance Authorization and Job Creation Act of 2010 -- the bill that extended all the Bush-era tax cuts for another two years.

However, the tax relief bill only renewed GO Zones for one additional year, and subsequent efforts to extend the program for one more year -- to the end of 2012 -- didn't make it through Congress, despite support from Treasury Secretary Timothy Geithner and Housing and Urban Development Secretary Shaun Donovan.

As the program was about to expire in December 2011, the trade publication Bond Buyer quoted several regional officials praising GO Zones.

In Louisiana, Whit Kling, director of the state bond commission, told Bond Buyer that the GO Zone program eased a decision by Nucor Corp. to build a $3.4 billion iron and steel project in St. James Parish. The project is expected to employ 500 temporary construction workers and at least 150 permanent jobs earning an average salary of $75,000 plus benefits, with the possibility of more permanent workers as the complex expands.

And in Alabama, bonds aided ship builders, paper manufacturers, utility companies, downtown redevelopment authorities, metal companies, a port authority, an asphalt company, an aerospace engineering firm, and manufacturers, state deputy finance director Clinton Carter told Bond Buyer. "The demand was immense. We had to turn away projects at the end."

Rating this promise is tricky, because Obama didn't create the program and his administration failed in its effort to extend it for one more year. However, it was operational during Obama's tenure, he did sign a one-year extension for it, and even without the final extension, it lasted for six years, which seems a reasonable amount of time for a program designed to aid victims of a specific disaster. On balance, we rate it a Promise Kept.

Our Sources

By David G. Taylor August 24, 2011

GO Zone renewal pending in Congress

Congress created the Gulf Opportunity Zone tax credit with the aptly named Gulf Opportunity Zone Act of 2005. The resulting program provides tax-free, low interest bonds to investors and developers to urge them to build businesses and housing in select counties and parishes of Louisiana, Mississippi, and Alabama that suffered heavy damage from hurricanes Katrina and Rita. These select areas are the "zones” mentioned in the title of the legislation.

Eligibility for these bonds is dependent upon the bond owner setting up shop in these areas. The idea is that, without the incentives offered by these bonds, businesses would be less willing to invest in these storm-savaged zones, resulting in economic stagnation.

Louisiana received approximately $7.8 billion worth of bonds. The Louisiana State Bond Commission determines what businesses qualify for these bonds. Although, as our last update specifies, there have been problems with the program, Louisiana has nevertheless benefited from its existence. The bonds, for example, played a large part in steel producer Nucor Corp's decision to build a pig iron plant in St. James Parish. The plant is projected to create 1,250 jobs.

The bonds were originally supposed to expire at the end of 2010. Congress, however, voted to extend them as part of the Tax Relief, Unemployment Insurance Authorization and Job Creation Act of 2010, that most notably extended the Bush-era tax cuts for another two years. Yet, this renewal was only for one additional year. Now, Senators and House members from the Gulf Coast are attempting to extend the GO Zone tax credit program for another year before it expires in December 31, 2011. The Obama administration also supports the extension, as indicated by Treasury Secretary Timothy Geithner and Housing Secretary Shaun Donovan in a joint letter.

Sen. Mary L. Landrieu, D-La., and Sen. David Vitter, R-La, contend that the extension is to help finish projects already put in place that have taken unexpectedly long to finish. "Without a two-year extension through 2012, nearly 5,000 Gulf Coast units would be unlikely to be completed and an estimated $1 billion of construction projects and related jobs would be in jeopardy,” according to a press release from Sen. Landrieu's office.

Notably, S.30 a Senate bill described to "amend the Internal Revenue code of 1986 to provide an additional year for the extension of the placed in service date for the low-income housing credit rules applicable to the GO Zone” is awaiting a vote in the Senate Finance Committee. It currently has bipartisan support, with almost all senators from Louisiana, Mississippi and Alabama, co-sponsoring it. In addition to Sen. Landrieu and Sen. Vitter, the list of sponsors includes Sen. Thad Cochran, R-Miss., Sen. Roger Wicker, R-Miss., and Sen. Richard Shelby, R-Ala. It also has support of the committee's chair, Sen. Max Baucus, D-Mont. A similar bill in the House of Representatives, H.R. 559, was introduced and is currently awaiting approval by the Ways and Means Committee.

While the extension enjoys bipartisan support, it remains to be seen whether it will be adopted. Sen. Baucus said late last year on the Senate floor that the Finance Committee will take up the extension as soon as possible. Yet to date the committee has taken no action. In any case, we continue to rate this promise Stalled, pending Congress's extension of the GO Zone bond program.

Our Sources

Sen. Mary Landrieu, D-La., press release, December 15, 2010.

New Orleans City Business, "HUD, Treasury secretaries back GO Zone deadline extension,” April 8, 2011.

The Advocate, "GO Zone deadline pushed back,” January 21, 2011.

The Times-Picayune, "Tax Deal extends Go Zone credits; but one year not enough, critics say,” December 11, 2010.

The Associated Press, "GO Zone bond program nearing its expiration date,” September 16, 2010.

The Times-Picayune, "Bonds approved for Nucor iron plant in St. James Parish,” August 18, 2011.

Robert Farley
By Robert Farley January 11, 2010

Hardest hit areas lose special status

After Hurricanes Katrina and Rita, the federal government set aside $7.8 billion in low-interest, tax-exempt bonds, with $3.5 billion reserved for projects in the 11 Louisiana parishes hardest hit by the storms. The Gulf Opportunity Zone Act of 2005 (GO Zone) provides federal and state tax incentives for business development.

But according to a Jan. 10, 2010, story in the New Orleans Times-Picayune, some of the parishes hardest hit by the hurricanes lost their special pool status at the end of 2009 -- without protest from local governments -- and will now have to compete against less damaged areas for rights to sell bonds. As of the end of 2009, the Times-Picayune found, $1.1 billion of the $3.5 billion set aside for the hardest hit parishes (most in New Orleans) remained unused, and is now available for bidding from lightly damaged parishes.

The GO Zone program has been credited with getting some smaller projects off the ground, including two grocery stores, a Borders bookstore, constructing a new residential facility and opening a new car-rental terminal at Louis Armstrong International Airport.

According to the Times-Picayune report, however, a sizable percentage of the money earmarked for the hardest-hit areas has been unused due to some discomfort about investing in those areas and conditions in the bond market that have made the GO Zone bonds less attractive.

Asked about this promise, Obama administration officials said they have worked to strengthen tax incentives to promote rebuilding. Immediately after hurricanes Katrina and Rita, states affected by the storm were given additional Low-Income Housing Tax Credits (LIHTCs) to rebuild affordable housing. However, the mortgage crisis depressed the market for these credits, threatening permanent housing projects across the gulf.

The Obama-backed economic stimulus package provided $2.25 billion across the country for the Tax Credit Assistance Program, a grant program to provide funds for capital investments in affordable housing projects that have been stalled because of the decline in the market for LIHTCs. Gulf Coast states have tens of thousands of units under development through such LIHTC projects, White House officials said.

While some tax incentives in the economic stimulus package may have helped the New Orleans area, those programs were made available all over the country and were not targeted to areas hardest hit by the hurricanes. And the biggest tax incentive program for those hardest-hit parishes -- initiated under the Bush administration -- has struggled. And we found no evidence that the Obama administration has made changes to the program to turn that around. We rate this promise Stalled.

Our Sources

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