	Background

The Gulf Opportunity Zone Act of 2005 includes tax incentives to assist  recovery and economic revitalization for individuals and businesses in  designated areas in Alabama, Florida, Louisiana, Mississippi, and Texas  following Hurricanes Katrina, Rita, and Wilma in 2005. As mandated by law, this report discusses  those tax incentives in the GO Zone Act of 2005 that state and local  governments play a role in allocating and overseeing. States with GO Zones Are Responsible for Allocating Four Federal Tax Incentives under the GO Zone Act of 2005

Under the GO Zone Act of 2005, state and local governments are  responsible for allocating and overseeing the use of four GO Zone tax  incentives. Florida and Texas did not receive allocation  authority for the bond provisions, but each received a onetime increase in  LIHTC authority of $3.5 million for 2006. GO Zone Tax Credit Bonds

The GO Zone Act of 2005 created a new category of tax credit bonds—GO  Zone tax credit bonds—which Alabama, Louisiana, and Mississippi were  authorized to issue to provide debt relief to state and local governments. GO Zone additional advance  refundings cannot be used in these instances. With Some Variation in Their Processes, States with GO Zones Generally Allocated Bond Authority on a First-Come, First- Served Basis; States Relied on Existing Procedures to Allocate LIHTCs

With some variations in their processes, Alabama, Louisiana, and  Mississippi generally allocated the GO Zone bond provisions on a first- come, first-served basis, and all five eligible states used existing processes  to award GO Zone LIHTCs. Officials in  Louisiana and Mississippi acknowledged that the first-come, first-served  approach made it difficult for applicants in some of the most damaged  areas to make use of the bond provision at the beginning of the program. While all eligible states followed existing, prehurricane procedures to  award LIHTCs and will use existing procedures to monitor for federal  compliance, the states exhibited some differences in how they targeted the  GO Zone LIHTC authority to the most damaged areas. Both states rely on the state’s bond counsel opinions to  ensure that the tax credit bonds are issued in accordance with applicable  federal laws. As of those dates, Alabama,  Louisiana, and Mississippi used GO Zone private activity bonds to finance  a broad range of private facilities, including manufacturing facilities,  utilities, housing, retail facilities, hotels, and other facilities. State officials  identified some challenges in making use of all four provisions. Gulf Coast States Have Allocated about 87 Percent of Private Activity Bond Authority for a Wide Range of Private Facilities, but Bonds Have Only Been Issued for about Half of the Awarded Authority

As of mid-June 2008, the three eligible states have allocated 87 percent of  the $14.9 billion in GO Zone private activity bond authority, and bonds  issued amounted to about 44 percent of the total allocation authority (see  fig. 2). Comparing the number of planned and in-service GO Zone LIHTC-funded  units to the number of rental housing units with major or severe damage  shows that about 17 percent of the rental housing units with major or  severe damage in the state of Louisiana, and 45 percent of the similarly  damaged units in the state of Mississippi, will be addressed by GO Zone  LIHTC units. Tax Credits: Opportunities to Improve Oversight of the Low-Income  Housing Program.
Why GAO Did This Study

In 2005, Hurricanes Katrina, Rita, and Wilma devastated the Gulf Coast, destroying wide swaths of housing, key infrastructure, and numerous private businesses. In response, Congress granted the states a wide range of disaster relief, including billions of dollars of grants and tax incentives to revitalize the Gulf Coast. Specifically, the Gulf Opportunity (GO) Zone Act of 2005 (Pub. L. No. 109-135) provided tax incentives to individuals and businesses in certain presidentially declared disaster areas. Congress mandated that GAO review how state and local governments allocated and used federal tax incentives in the act and subsequent legislation. This report (1) identifies tax incentives in the GO Zone Act of 2005 and subsequent legislation for which state and local governments have allocation and oversight responsibilities, (2) describes the procedures state governments use in allocating the tax incentives, including how they plan to monitor compliance with federal laws, and (3) describes how tax incentives have been allocated and for what purposes. To address these objectives, GAO analyzed key documentation from GO Zone states and interviewed state officials, selected local officials, and representatives from private and nonprofit entities.

What GAO Found

States with GO Zones are responsible for allocating and overseeing the use of four tax incentives in the GO Zone Act of 2005. Alabama, Louisiana, and Mississippi received allocation authority for all four provisions. Florida and Texas each received $3.5 million in GO Zone low-income housing tax credit (LIHTC) authority, but did not receive allocations under the other incentives. With some process variations, the three eligible states with GO Zones generally allocated bond authority on a first-come, first-served basis without consistently targeting the allocations to assist recovery in the most damaged areas. Officials in Louisiana and Mississippi acknowledged that the first-come, first-served approach led to allocating bond authority to less-damaged areas at the start of the program. The five eligible state housing finance agencies used existing processes to award GO Zone LIHTCs, but differed in how they targeted these credits. For all three bond provisions, state officials and bond issuers said the borrower's bond counsel is generally responsible for ensuring that the bonds are compliant with applicable laws when issued. State housing finance agencies plan to use existing procedures to monitor compliance once units are placed in service. As of mid-June 2008, eligible states had allocated 87 percent of the GO Zone private activity bond authority, but bonds issued amount to about 50 percent of the total awarded allocation authority. The bonds issued will be used to finance a wide range of facilities, including manufacturing facilities, utilities, housing, retail facilities, and hotels. State housing finance authorities have awarded 95 percent of the GO Zone LIHTCs. Although few housing units are currently in service, state housing finance agency officials said planned units will be in service by the mandated deadline. GO Zone LIHTC-funded units will address about 17 and 45 percent of the rental housing units with major or severe damage in the states of Louisiana and Mississippi, respectively. The three eligible states with GO Zones used the tax credit bonds and additional advance refundings to varying degrees to provide debt relief. State officials said current economic conditions pose challenges for using both GO Zone bond and LIHTC financing.