The devastation left in Hurricane Sandy’s wake will be evident for years to come. Moreover, the rebuilding will take longer than we think. Federal dollars will help (a rare benefit of being in an area declared a federal disaster area). And although the economy can hardly support an expenditure of untold billions to restore the devastated areas, the federal government will – and should – dig deep. But there are options in addition to the federal outlay. In fact, an existing program can be modified to provide much-needed help.
Obstacles exist that can make any federal program economically or politically challenging. But the obstacles must be overcome. This is one of those times where partisanship should be put aside for the greater good. Whether President Obama and the 113th Congress act immediately or wait until January 20, 2013 to do right will require a much-needed act of bipartisanship.
For homeowners, the Tax Code contains provisions that waive certain requirements (e.g., first-time homebuyer, purchase price and income limits) for loans funded with proceeds of tax-exempt bonds where the residences are located in certain federally-declared disaster areas. These provisions would enable homeowners in the disaster areas to access lower-cost borrowing, otherwise unavailable. Given the fact that insurance won’t cover all losses, every source of funding for recovery is crucial.
Unfortunately, the authorization for issuing these bonds to fund such mortgage loans has expired. The President and Congress should amend the provisions (in Section 143(k)) to extend the termination dates, giving homeowners an opportunity to clean up the devastation.
A Tax Code provision similarly exists for businesses: A simple legislative action could apply the provision to the Sandy-impacted areas. In 2005, legislation authorized issuance of Gulf Opportunity Zone Bonds (GOZBs) to help rebuild areas affected by Hurricane Katrina. These bonds enabled commercial borrowers to finance commercial projects not otherwise eligible for tax-exempt financing, and homeowners to qualify for mortgage loans without having to meet certain requirements similar to those described above.
In 2008, legislation extended provisions of GOZBs to seven Midwestern states (through issuance of Midwestern Disaster Area Bonds, or MWDBs) to finance most commercial projects in more than 200 counties “designated” as having suffered from natural disasters.
These programs are not permanent solutions. In fact, the authorization for GOZBs lapsed after 2010 and the MWDB program sunsets at the end of 2012. But the MWDB provisions (contained in Section 1400N of the Tax Code) can be expanded to authorize issuance of “Hurricane Sandy Relief Bonds” (or HSRBs) to enable businesses to remediate, repair, rebuild and restore the devastated areas. The legislation already exists. Our leaders (whether current or those in the on-deck circle) should act quickly and decisively.
Hurricane Sandy’s devastation has yet to be quantified. Expansion of existing provisions to create HSRBs will help, and will not require federal outlay of funds. At a time when the national coffers are hardly flush, the indirect subsidy provided by the bond market provides a good alternative.
Can the country afford to act? With the state of the economy and the “fiscal cliff” looming, a valid answer might be “No.” But, in truth, the country must act. Hurricane Sandy affected a significant percentage of the country’s population. And as we learned in the aftermath of Hurricane Katrina, areas devastated by natural disasters need more help, not less.
The MWDB program already exists (though it is scheduled to sunset after 2012). A simple legislative fix could extend the provision to include counties in states impacted by Hurricane Sandy. In fact, because the MWDB program lay mostly dormant for its first two years of existence – new programs often have a ramp-up period before they are fully understood and utilized – there is plenty of allocation still available.
Tax-exempt bonds are not revenue-neutral. But the impact is spread over the life of the bonds, rather than on the day of the federal outlay of funds. Though taking painfully long, the economy will improve. And providing for fewer tax collections in future years (when the economy should be in better shape) seems like a fair compromise.
Let this be a call to arms. I am certain this will not be the only one. Let the President and Congress join forces. Let them take the mortgage provisions and the MWDB provisions contained in the Tax Code and extend them to permit the re-building – through the issuance of HSRBs – for those homeowners and businesses devastated by this monster storm. Let them authorize enough HSRBs to make an impact. And let them give the program enough time to work. (Here in the Midwest, we can use another year for the MWDB program to better achieve its goal). Let them lead the way to recovery. And let them start now. The day after the election would not be too soon.