Louisiana’s entire congressional delegation and the Mississippi treasurer are urging the U.S. Treasury Department and the Internal Revenue Service to issue guidance allowing Gulf Opportunity Zone bonds to be issued after the year ends to refund previously issued GO Zone bonds on a tax-exempt basis.
They made their pleas in recent letters sent to Treasury and IRS officials.
“The urgency for this guidance goes to the ability to refund GO Zone bonds on a continuing tax-exempt basis after Dec. 31, 2011,” Sens. Mary Landrieu, D-La., David Vitter, R-La., and the state’s seven House members said in a two-page letter to Treasury Secretary Timothy Geithner.
“A lack of guidance on this issue is causing serious concern that we may not be able to realize the full recovery benefits Congress intended by the Gulf Opportunity Zone Act.”
In another letter, Mississippi Treasurer Tate Reeves told Treasury deputy secretary Neal Wolin, “You can help assist the three GO Zone states to address their continuing needs resulting from Hurricane Katrina by directing the [IRS] to issue guidance allowing GO Zone bonds to be current refunded.”
GO Zone bonds are private-activity bonds that can be issued by Louisiana, Mississippi, and Alabama to finance the construction and rehabilitation of residential and nonresidential property that was devastated by Hurricanes Katrina and Rita in 2005.
Congress created and authorized them in the Gulf Opportunity Zone Act, which was enacted in December 2005.
The act expanded the three states’ private-activity bond authority by $2,500 per disaster-area resident, or about $14.8 billion.
Louisiana was authorized to issue $7.9 billion of the bonds, Mississippi $4.8 billion and Alabama $2.1 billion.
For GO Zone bonds to be tax-exempt, they must be designated by the state as “qualified.”
In addition, 95% or more of the net proceeds must be used for “qualified project costs” in the zone, which encompasses 20 parishes in Louisiana, about 50 counties in Mississippi, and 11 counties in western and southern Alabama.
Originally they had to be issued by the end of 2010, but Congress extended that date through the end of this year.
The Louisiana delegation and Reeves all asked that the Treasury and the IRS allow GO Zone bonds to be issued after the yearend to currently refund outstanding GO Zone bonds that were originally issued before Jan. 1, 2012.
In a current refunding, the refunding bond proceeds are used to redeem the refunded bonds within 90 days.
The lawmakers also asked that the guidance specify the refunding bonds do not have to be re-identified as Gulf Opportunity Zone bonds by a state authority or governor.
The two letters said the legislative history contemplated the use of current refundings.
“Congress made it abundantly clear in its legislative history that current refundings of outstanding GO Zone bonds would not count against the GO Zone states’ private-activity bond volume cap to the extent that the principal amount of the refunding bonds did not exceed the outstanding principal amount of the bonds being refunded, but did not expressly provide that GO bonds could be current refunded after Jan. 1, 2012,” Tate said.
“Clarification that such bonds qualify as tax-exempt would be consistent with the legislative history,” the Louisiana delegation said.
The two letters noted that this same issue arose in connection with the Liberty Bond Zone Program, which allowed tax-exempt Liberty Zone bonds to be used to finance redevelopment in the area of the Sept. 11, 2001, terrorist attacks on the World Trade Center.
The law that authorized those bonds originally required the program to expire at the end of 2004.
In response to concerns about refundings, the IRS issued a notice stating that Liberty Zone bonds could be issued after 2004 to current refund outstanding Liberty Zone bonds originally issued before Jan. 1, 2005.
The two letters come after Louisiana Treasurer John Kennedy made a similar request to the Treasury and the IRS last month.
