WASHINGTON — The Treasury Department has rebuffed requests from the Lousiana Housing Finance Agency and other housing groups to allow them to “monetize” Gulf Opportunity Zone low-income housing tax credits by allowing them to be exchanged for federal cash grants under a program created by the stimulus package.
The LHFA is now vowing to fight Treasury’s position, which they said is “ridiculous” and inconsistent with the intended purpose of the GO Zone credits: to facilitate prompt housing recovery from hurricanes.
“Louisiana’s not going to take this lying down,” said Allison Jones, vice chairwoman of the agency’s board of directors and chair of its legal committee. “We are going to meet with Treasury to see if we can get the initial opinion corrected ... if necessary, I suppose we’ll have to look at litigation.”
According to Michael F. Mundaca, the Treasury’s deputy assistant secretary for international tax affairs, the GO Zone credits do not qualify for monetizing because only credits under section 42 of the tax code, which generally defines low-income housing tax credits, qualify.
The section of the code outlining the additional tax credits granted to GO Zones is section 1400N(c), so they cannot be included in the program, Mundaca said in a two-page letter sent to LHFA president Milton Bailey last Friday.
In a response letter, Bailey said his agency is “perplexed and disappointed” by that reasoning, and requested a meeting with Treasury officials here to discuss the matter. Bailey is scheduled to meet with the department on Monday, the LHFA said.
“This conclusion is not supported by any statutory or regulatory authority,” Bailey said in a separate statement. “If left standing and not overturned, the position now being advanced by Treasury will devastate the recovery of affordable housing in the city of New Orleans, the balance of the GO Zone and certain other disaster areas across the nation.”
Jones added that GO Zone credits should be prime candidates for the monetizing program to, which is intended to alleviate the lack of investors in the tax-credit market due to the credit crisis.
“What [Treasury is] saying here is that non-disaster tax credits are going to be given more value than disaster tax credits when you awarded disaster tax credits because of the incredible need,” she said. “I don’t think that it’s a policy that’s consistent with the administration’s position that they want to encourage the rebuilding of housing in disaster areas.”
However, the Treasury did agree with another request made by the Louisiana agency and others in GO Zones by clarifying that state housing agencies are permitted to recapture unused GO Zone credits and reallocate them to other projects in subsequent years.
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 or meet certain conditions. States can also carry forward unused credits and allocate them one year after they were authorized.
Since disaster credits are designed to be used quickly and cannot be carried forward a year, the Internal Revenue Service questioned whether they can be recaptured and then reallocated the following year, housing officials have said.
Mundaca said state HFAs are free to recover credits allocated in 2008 and redistribute them in 2009, so long as they go toward a project still within the GO Zone.
“We’re pleased with that decision, but we certainly view it as just one piece of the puzzle,” Jones said. “The entire puzzle of putting Louisiana back together is several pieces and ... we need that other piece [monetizing] before we have complete recovery.”
Treasury’s letter to the LHFA came on the same day 12 senators sent a letter to the department advocating for the inclusion of GO Zone credits and other disaster area credits, such as those created for Midwestern flood zones, in the monetizing program.
“As a matter of public policy, we urge you to recognize that Congress desired to stimulate the construction of affordable rental housing and we believe — absent a compelling legal reason that prohibits their inclusion — that these properties should be allowed to participate in the exchange program,” the letter stated.
The letter was signed by: Evan Bayh, D-Ind., Roger Wicker, R-Miss., Herb Kohl, D-Wisc., Kit Bond, R-Mo., Ben Nelson, D-Neb., David Vitter, R-La., Dick Durbin, D-Ill., Dick Lugar, R-Ind., Russ Feingold, D-Wisc., Mike Johanns, R-Neb., Mark Pryor, D-Ark., and Blanche Lincoln, D-Ark.
Treasury officials could not be reached for comment.
