[StBernard] Katrina Aid Goes Toward Football Condos
westley at da-parish.com
Mon Aug 13 20:49:21 EDT 2007
TUSCALOOSA, Ala. (AP) -- With large swaths of the Gulf Coast still in ruins
from Hurricane Katrina, rich federal tax breaks designed to spur rebuilding
are flowing hundreds of miles inland to investors who are buying up luxury
condos near the University of Alabama's football stadium.
About 10 condominium projects are going up in and around Tuscaloosa, and
builders are asking up to $1 million for units with granite countertops,
king-size bathtubs and 'Bama decor, including crimson couches and Bear
Bryant wall art.
While many of the buyers are Crimson Tide alumni or ardent football fans not
entitled to any special Katrina-related tax breaks, many others are real
estate investors who are purchasing the condos with plans to rent them out.
And they intend to take full advantage of the generous tax benefits
available to investors under the Gulf Opportunity Zone Act of 2005, or GO
Zone, according to Associated Press interviews with buyers and real estate
The GO Zone contains a variety of tax breaks designed to stimulate
construction in Mississippi, Louisiana and Alabama. It offers tax-free bonds
to developers to finance big commercial projects like shopping centers or
hotels. It also allows real estate investors who buy condos or other
properties in the GO Zone to take accelerated depreciation on their
purchases when they file their taxes.
The GO Zone was drawn to include the Tuscaloosa area even though it is about
200 miles from the coast and got only heavy rain and scattered wind damage
The condo deals are perfectly legal, and the tax breaks do not take money
away from Katrina victims closer to the coast because the depreciation is
wide open, with no limits per state.
But the tax breaks are galling to some community leaders, especially when
red tape and disorganization have stymied the rebuilding in some of the
devastated coastal areas.
"The GO Zone extends so damn far, but the people who need it the most can't
take advantage of it," said John Harral, a lawyer in hard-hit Gulfport,
"It is a joke," said Tuscaloosa developer Stan Pate, who has nevertheless
used GO Zone tax breaks on projects that include a new hotel and a
restaurant. "It was supposed to be about getting people ... to put housing
in New Orleans, Louisiana, or Biloxi, Mississippi. It was not about condos
Locals say Tuscaloosa was included in the GO Zone through the efforts of
Republican Sen. Richard Shelby, who is from Tuscaloosa, graduated from
Alabama and sits on the powerful Appropriations Committee. But Shelby aides
said Tuscaloosa made the cut because it was classified as a disaster area by
the government after Katrina, not because of the senator's influence.
Defenders of the GO Zone said the Tuscaloosa area needed the aid because of
the hundreds of evacuees who remained here for weeks after the hurricane.
"The senator believes that the GO Zone program, and others enacted since
then to assist with the rebuilding efforts following the devastating 2005
hurricane season, have been extremely successful in accomplishing their
goal," said Shelby spokeswoman Laura Henderson.
The GO Zone investor tax breaks are credited with contributing to the condo
boom in Tuscaloosa.
Dave Toombs, a real estate investor from Irvine, Calif., with no connection
to Alabama, bought two new, upscale townhouses at The Traditions, just
minutes from campus, as investment properties. He said he hopes to use GO
Zone tax benefits when he files his taxes.
"If we qualify for the GO Zone it will be icing on the cake," said Toombs,
who is consulting with an accountant because the rules are complicated.
"It's another plus check to put in the column."
An investor could write off more than $155,000 of the cost of a $300,000
condo in the first year and use the savings to lower his taxes on other
rental income, according to Kelly Hayes, a tax attorney who advises
investors in Southfield, Mich. Without the GO Zone tax break, the
depreciation benefit from a single year on such a property would typically
be just $10,909.
(The tax break is not available to people who buy a home for their own use.)
Andy Turner, a real estate agent who specializes in condominium sales in
Tuscaloosa, estimates the GO Zone depreciation benefit has helped spur 10
percent of all recent condo sales in the city.
Tuscaloosa real estate broker Richard Ellis said an investor from Birmingham
contacted him about GO Zone property and wound up buying 30 condo units for
about $180,000 each.
The Congressional Budget Office estimated that the GO Zone bonds and
accelerated depreciation would cost the government $3.5 billion in revenue
from 2006 to 2015.
President Bush signed the GO Zone bill less than four months after Katrina
struck. It was sponsored by GOP Sen. Trent Lott, who lost his beachfront
home in Pascagoula, Miss., and was modeled after the legislation passed to
stimulate the recovery of lower Manhattan after the Sept. 11 attacks.
The GO Zone covers 49 counties in Mississippi, 31 parishes in Louisiana and
11 counties in western Alabama.
Originally set to expire next year, key benefits under the bill were
extended to 2010 in the hardest-hit areas of Mississippi and Louisiana as
the recovery lagged. Many of the benefits expire next year in Alabama, and
that prospect has helped spur the construction surge.
The White House and state officials say the economic package has been vital
to helping with the cleanup and rebuilding after Katrina and Hurricane Rita.
Tens of millions in tax-free bonds have gone for affordable housing for
hurricane victims, officials say.
In hard-hit Slidell, La., not far from New Orleans, officials said a
shopping center is being built using $8 million in tax-free GO Zone bonds.
"The GO Zone has helped. If someone is looking to come to this area, it's a
good tool for them to use," said Brenda Reine, executive director of the St.
Tammany Economic Development Foundation.
Yet state reports reviewed by the AP and interviews show that the most
ballyhooed part of the GO Zone bill - $15 billion in tax-exempt bonds - has
had relatively little effect so far.
The three states have approved nearly $10 billion in bond sales to spur
investment, the AP found. But only a fraction of that - $2.8 billion - has
actually been issued in bonds, meaning most projects are still on the
drawing board nearly two years after the storm.
Mayor Chipper McDermott of Pass Christian, Miss., yearns for a GO Zone boost
in his hard-hit Gulf Coast town.
"Everybody here is fighting every day just to get the life back in their
towns," he said. "We're not looking at the rosebuds. We're in the thorns."
On the storm-raked shores of Lake Pontchartrain in Slidell, Chad Mayo, a
pawn shop operator whose business was flooded by Katrina, asked: "The GO
Zone? What's that? We're in the dead zone."
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