WASHINGTON - The Treasury Department should promptly clarify that unused Gulf Opportunity Zone low-income housing tax credits can be recaptured by states and reallocated to other "shovel-ready" projects, and that those tax credits can be exchanged for cash grants, two Louisiana housing finance agencies told federal officials.
Over $35 million of low-income housing tax credits and $200 million of community development block grant funds in projects tied to those credits are at risk if the Treasury does not act soon, Milton J. Bailey, president of the Louisiana Housing Finance Agency, told Treasury Secretary Timothy Geithner in a three-page letter he sent last month that was released this week.
The Rural Rental Housing Association of Louisiana Inc. sent Geithner a similar letter. Bailey said a number of other housing groups have penned their own letters as well.
Furthermore, several federal lawmakers in areas affected by Hurricanes Katrina and Rita also have written the Treasury on this issue, including the entire Louisiana congressional delegation and two high-ranking Alabama Republicans - Sen. Richard Shelby, the ranking minority member on the Senate Banking Committee, and Rep. Spencer Bachus, the ranking minority member on the House Financial Services Committee, Bailey said.
Neither of the lawmakers' offices returned calls for comment.
"We're looking for a policy determination to come from the president or his policy advisers," said Bailey yesterday. "If you think about it, to not allow us to recycle those credits defeats the purpose those credits were given ... To suggest now that they could be given to one developer who could not deliver on his timeline, and not given to another developer who could, is ridiculous."
Normally under the tax law and rules, a state has the option of recapturing allocated housing tax credits and redistributing them to other projects if the original development does not proceed on schedule. States can also carry forward unused credits and allocate them one year after they were authorized.
However, since disaster credits are designed to be used quickly and cannot be carried forward a year, the Internal Revenue Service is questioning whether they can be recaptured and then reallocated the following year, the housing officials and others said.
Bailey said in his letter that an IRS ruling against the practice would have "catastrophic consequences," and that the LHFA routinely recollected GO Zone credits in 2007 and 2008 and reallocated them to other projects.
"Nothing in the GO Zone Act or in the tax credit regulations prohibited the agency from reallocating to projects in the GO Zone," he stated in the letter.
Bailey and the others are also asking the Treasury to clarify that GO Zone and other disaster credits are eligible to participate in a new program authorized under the stimulus law that allows housing credit agencies to exchange credits for cash grants.
The ability to "monetize" tax credits was authorized under the stimulus law, in an attempt to alleviate the lack of investors in the tax-credit market due to the credit crisis, Bailey said in his letter.
The disaster credits should be at the forefront of those eligible for monetization, since they address pressing needs in hard-hit areas, he said yesterday in an interview.
"It's tantamount to you and I going to the emergency room. I have a broken finger, you have a heart attack, and they see me first," he said. "It's just inconsistent public policy."
The Treasury and IRS have not yet weighed in on the matter, but Bailey said they are considering the requests.