[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]


 
                    KATRINA REDEVELOPMENT TAX ISSUES 

=======================================================================

                                HEARING

                               before the

                       SUBCOMMITTEE ON OVERSIGHT

                                 of the

                      COMMITTEE ON WAYS AND MEANS
                     U.S. HOUSE OF REPRESENTATIVES

                       ONE HUNDRED TENTH CONGRESS

                             FIRST SESSION

                               __________

                             MARCH 13, 2007

                               __________

                           Serial No. 110-21

                               __________

         Printed for the use of the Committee on Ways and Means

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                      COMMITTEE ON WAYS AND MEANS

                 CHARLES B. RANGEL, New York, Chairman

FORTNEY PETE STARK, California       JIM MCCRERY, Louisiana
SANDER M. LEVIN, Michigan            WALLY HERGER, California
JIM MCDERMOTT, Washington            DAVE CAMP, Michigan
JOHN LEWIS, Georgia                  JIM RAMSTAD, Minnesota
RICHARD E. NEAL, Massachusetts       SAM JOHNSON, Texas
MICHAEL R. MCNULTY, New York         PHIL ENGLISH, Pennsylvania
JOHN S. TANNER, Tennessee            JERRY WELLER, Illinois
XAVIER BECERRA, California           KENNY HULSHOF, Missouri
LLOYD DOGGETT, Texas                 RON LEWIS, Kentucky
EARL POMEROY, North Dakota           KEVIN BRADY, Texas
STEPHANIE TUBBS JONES, Ohio          THOMAS M. REYNOLDS, New York
MIKE THOMPSON, California            PAUL RYAN, Wisconsin
JOHN B. LARSON, Connecticut          ERIC CANTOR, Virginia
RAHM EMANUEL, Illinois               JOHN LINDER, Georgia
EARL BLUMENAUER, Oregon              DEVIN NUNES, California
RON KIND, Wisconsin                  PAT TIBERI, Ohio
BILL PASCRELL JR., New Jersey        JON PORTER, Nevada
SHELLEY BERKLEY, Nevada
JOSEPH CROWLEY, New York
CHRIS VAN HOLLEN, Maryland
KENDRICK MEEK, Florida
ALLYSON Y. SCHWARTZ, Pennsylvania
ARTUR DAVIS, Alabama

             Janice Mays, Chief Counsel and Staff Director

                  Brett Loper, Minority Staff Director

                                 ______

                       SUBCOMMITTEE ON OVERSIGHT

                     JOHN LEWIS, Georgia, Chairman

JOHN S. TANNER, Tennessee            JIM RAMSTAD, Minnesota
RICHARD E. NEAL, Massachusetts       ERIC CANTOR, Virginia
XAVIER BECERRA, California           JOHN LINDER, Georgia
STEPHANIE TUBBS JONES, Ohio          DEVIN NUNES, California
RON KIND, Wisconsin                  PAT TIBERI, Ohio
BILL PASCRELL JR., New Jersey
JOSEPH CROWLEY, New York

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hearing records of the Committee on Ways and Means are also published 
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                            C O N T E N T S

                               __________

                                                                   Page

Advisory of March 6, 2007, announcing the hearing................     2

                               WITNESSES

Milton Bailey, President, Louisiana Housing Finance Agency, Baton 
  Rouge, Louisiana...............................................     6
Dianne Bolen, Executive Director, Mississippi Home Corporation, 
  Jackson, Mississippi...........................................    11

                       SUBMISSIONS FOR THE RECORD

Alabama Housing Finance Authority, Montgomery, AL, statement.....    37
Honorable William J. Jefferson, a Representative in Congress from 
  the State of Louisiana, statement..............................    37
Kristina C. Cook, National Affordable Housing Management 
  Association, Alexandria, VA, statement.........................    38
OMB Watch, statement.............................................    39
State of Mississippi, statement..................................    40
The National Association of Home Builders, statement.............    40


                    KATRINA REDEVELOPMENT TAX ISSUES

                              ----------                              


                        TUESDAY, MARCH 13, 2007

             U.S. House of Representatives,
                       Committee on Ways and Means,
                                 Subcommittee on Oversight,
                                                    Washington, DC.

    The Subcommittee met, pursuant to notice, at 10:04 a.m., in 
room 1100, Longworth House Office Building, Hon. John Lewis 
(Chairman of the Subcommittee), presiding.
    [The advisory announcing the hearing follows:]

ADVISORY

FROM THE 
COMMITTEE
 ON WAYS 
AND 
MEANS

                       SUBCOMMITTEE ON OVERSIGHT

                                                CONTACT: (202) 225-5522
FOR IMMEDIATE RELEASE
March 06, 2007
OV-2

                       Lewis Announces Hearing on

                    Katrina Redevelopment Tax Issues

    House Ways and Means Oversight Subcommittee Chairman John Lewis (D-
GA), today announced that the Subcommittee on Oversight will hold a 
hearing on housing tax issues related to the redevelopment of the 
communities affected by the Katrina, Rita, and Wilma hurricanes. The 
hearing will take place on Tuesday, March 13, 2007, in the main 
Committee hearing room, 1100 Longworth House Office Building, beginning 
at 10:00 a.m.
      
    In view of the limited time available to hear witnesses, oral 
testimony at this hearing will be from invited witnesses only. However, 
any individual or organization not scheduled for an oral appearance may 
submit a written statement for consideration by the Committee and for 
inclusion in the printed record of the hearing.
      

FOCUS OF THE HEARING:

      
    In response to the extensive damage caused by a series of 
hurricanes in 2005, the Congress enacted the Gulf Opportunity Zone Act 
(P.L. 109-135). This Act provided additional low-income housing tax 
credits for the states in the Katrina Gulf Opportunity (GO) Zone, the 
Rita GO Zone, and the Wilma GO Zone. The states in these zones are 
authorized to allocate additional dollar amounts for low-income housing 
projects that exceed the amount allowed under the Internal Revenue 
Code. Also, the Act provided special rules for low-income housing tax 
credits and mortgage revenue bonds used in the zones. The Subcommittee 
hearing will examine the obstacles to timely and appropriate 
redevelopment in these areas and discuss possible options for 
facilitating recovery.
      

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noted above.

                                 

    Chairman LEWIS. Good morning. This is a hearing this 
morning of the Oversight Subcommittee of the Committee on Ways 
and Means.
    I want to thank my friend and colleague, the Ranking 
Member, Mr. Ramstad of Minnesota, for being here.
    Today, we will examine housing tax issues related to the 
redevelopment of communities struck by natural disaster. In the 
days and weeks immediately after Hurricane Katrina and Rita, I 
shed many tears along with the rest of America. The Federal 
Government's slow response to the devastation and human 
suffering of the Gulf Coast region was, and still is, a 
national disgrace.
    The world watched as the richest and most powerful nation 
in the world seemed helpless to answer the needs of its own 
citizens. Men, women, children, the elderly, and the sick 
pleaded to be rescued. Hundreds of people died needlessly 
because of the Government's neglect. Many more were made 
homeless. That is not right. That is not fair. That is not 
just.
    Hurricanes Katrina and Rita caused more damage than any 
other natural disaster in the history of the United States. 
Over one million residents, many who thought they were 
protected by the benefits of homeownership in Alabama, 
Louisiana, Mississippi, and Texas were left outdoors to fend 
for themselves.
    Since Federal agencies have been unable to adequately 
support these citizens, Congress is using every possible means 
to step in and give our citizens some help. Adequate and 
affordable housing is a basic human right, especially to the 
American taxpayers who should be able to depend on the Federal 
Government for help in this disaster.
    In 2005, this Government provided $15 billion in tax relief 
to victims of the hurricane and to businesses willing to jump 
start the recovery effort. The Gulf Opportunity Zone Act of 
2005 (P.L. 109-135) and the Katrina Emergency Tax Relief Act 
(P.L. 109-73) that preceded it provided critical tax relief in 
support of this most urgent national effort.
    Two years later, it is clear that we must do more, 
particularly in the area of housing.
    Current law provides tax incentives to build low-income 
rental housing that requires these homes be ``placed in 
service'' by 2008. One more year is not enough time. These 
projects need more room to serve the citizens affected by 
Hurricane Katrina and Rita. The testimony we will hear today 
will make the case for extending this due date, possibly 
through 2010. I wholeheartedly agree.
    The special rules enacted to assist in the rehabilitation 
of severely damaged homes failed to consider the value of using 
mortgage revenue bonds to refinance existing loans--loans on 
homes that were totally destroyed. The testimony we will hear 
today will make the case for allowing mortgage revenue bonds to 
refinance homes that need to be rebuilt from scratch.
    We need to make some tax law adjustments in order to start 
the hammers pounding and get the bricks and mortar laid. That 
is one way that this Committee can help ensure that the 
families affected by Hurricane Katrina can get back home. 
Justice delayed is justice denied. We cannot delay any longer. 
It is our duty. It is our mandate. It is our obligation. It is 
our responsibility as Members of Congress.
    Now I am pleased to recognize the distinguished Ranking 
Member, my dear friend Mr. Ramstad, for his opening statement.
    Mr. RAMSTAD. Thank you, Mr. Chairman. Thank you for holding 
this hearing on Katrina redevelopment tax issues. Also, thank 
you for your leadership, Mr. Chairman, on rebuilding low-income 
housing in the Gulf States.
    As I have said many, many times, there is nobody in this 
Congress with more compassion for people in need than the 
distinguished Chairman of this Subcommittee. We thank you for 
that, Mr. Chairman.
    All of us as Americans, all the world continues to see and 
feel the tragic consequences of Hurricanes Katrina, Wilma and 
Rita, which brought unspeakable carnage and the loss of 
hundreds of lives in the Gulf States. As we know, hundreds of 
thousands of people lost their homes as a result of these 
hurricanes and tens of thousands of affordable rental units 
were destroyed or severely damaged.
    While we all know the Federal Emergency Management Agency 
(FEMA) dropped the ball miserably following the hurricanes, 
Congress acted quickly--that is, quickly for Congress, for the 
legislative branch--and decisively to help the people of the 
Gulf States with the challenge of rebuilding their lives. By 
the end of 2005, Congress had passed nearly $15 billion in tax 
cuts and incentives that were targeted to help the people of 
the hard-hit Gulf States.
    This Committee did what it could within its jurisdiction to 
get as many people into new homes as fast as possible, 
including expanding low-income housing credits for units built 
by 2008 in Louisiana, Mississippi, Alabama, Florida and Texas. 
In fact, affected areas were given almost 10 times their 
general State allocation for these credits. We certainly owe 
our two colleagues, Mr. Jefferson of Louisiana and Mr. McCrery 
of Louisiana, a great deal of credit for--I don't think anybody 
worked harder in a bipartisan, pragmatic way to get this done 
than our colleagues Mr. McCrery and Mr. Jefferson.
    At the time, Congress imposed a 2008 deadline for a good 
reason. We did not want developers to unnecessarily drag their 
feet on rebuilding low-income housing for the hurricane 
victims. The pace of the recovery and the unanticipated 
obstacles now show, as the Chairman pointed out, that much more 
needs to be done. As we all know, many displaced victims of the 
hurricanes are still living in FEMA trailers while others await 
even those modest accommodations. This is simply unacceptable. 
This is simply wrong and must be corrected as fast as possible.
    Today, we will hear from Louisiana and Mississippi housing 
agencies about some of the difficulties in getting the new 
facilities built. I know your testimony will be very, very 
helpful to this Committee. You have seen firsthand the 
devastation wrought by these storms. You have full knowledge of 
the barriers facing new construction.
    I certainly, as does the Chairman, look forward to your 
testimony because we should consider an extension of the 
deadline if there are assurances that doing so will not delay 
the building of any new housing. I think we can all agree that 
we should not approve legislation that would delay the opening 
of one single low-income housing unit.
    Once again, I thank my good friend, our distinguished 
Chairman, for holding this important hearing, for your 
leadership on this compelling issue. It really is, Mr. 
Chairman, a matter of basic justice and fairness to do what we 
can to help those who are still without homes, those who have 
lost so much.
    Thank you, and I yield back.
    Chairman LEWIS. Well, thank you very much, my friend Mr. 
Ramstad. Thank you for your statement.
    Mr. Becerra, you don't have one?
    Mr. BECERRA. I am fine, Mr. Chairman. I wish to welcome the 
witnesses and look forward to their testimony. I yield back.
    Chairman LEWIS. Thank you very much for being here.
    [The opening statement of Mr. Neal follows:]

    Thank you, Mr. Chairman and Mr. Ramstad. I appreciate the 
opportunity to make a few comments today on the important issue of 
housing in the Gulf Zone. The Subcommittee that I chair, Select Revenue 
Measures, will be holding hearings soon on affordable housing 
opportunities, which can be hard to access in any part of the country.
    This problem is surely most acute for the hardest hit regions of 
the Gulf Zone. We are fortunate to have the local housing 
administrators with us today to explain the progress in rebuilding 
after Katrina. We hear time and time again--that the economy in the 
Gulf Zone simply cannot recover without housing. Businessowners tell us 
their workers and their families need housing. And now we are reading 
that a second hurricane called ``Hurricane FEMA'' has swept in to take 
away some of the temporary housing provided to many Gulf Coast 
families.
    It would be easy for us to assume that things are back to normal in 
the Gulf Zone. It would be easy for us to turn our attention to other 
matters and not talk about the problems in the Gulf Zone. But we must 
highlight these continuing problems and keep doing so until we get it 
right. Pope John Paul the Second once said, ``Freedom consists not in 
doing what we like, but in having the right to do what we ought.''
    I want to commend you, Mr. Chairman, for doing what we ought to do, 
what we must do, until these American families can once again know the 
comfort of home.

                                 

    Now we will hear from our witnesses. I ask that each of you 
limit your testimony to 5 minutes. Without objection, your 
entire statement will be included in the record. I will have 
all of the witnesses give their statements and then the Members 
will ask questions of the panel.
    It is now my pleasure to introduce our first witness. Mr. 
Milton Bailey is the president of the Louisiana Housing Finance 
Agency. I believe he is joined by a longtime friend that I have 
not seen in many decades. As we would say in the South, I 
haven't seen you since Buck was a pup, Mr. Wayne Neveu of the 
counsel.
    Mr. Bailey, welcome.

           STATEMENT OF MILTON J. BAILEY, PRESIDENT, 
                LOUISIANA HOUSING FINANCE AGENCY

    Mr. BAILEY. Thank you very much, Mr. Chairman, and Members 
of the Committee on Ways and Means, Subcommittee on Oversight. 
I really appreciate this opportunity to present to you today.
    With me is Mr. Wayne Woods, the Chairman of the Louisiana 
Housing Finance Agency (LHFA), a resident of New Orleans, and a 
victim of the hurricanes. He has a compelling story to tell 
today and he and his family are still digging out of the 
cataclysmic effects of Rita and Katrina.
    Also with me is Brenda Evans, who is our program 
administrator. As the Chairman mentioned, Mr. Wayne Neveu, who 
is counsel to the LHFA.
    I appreciate you allowing me to present testimony today on 
housing tax issues on behalf of the State of Louisiana and 
Governor Kathleen Babineaux Blanco related to the redevelopment 
of the Louisiana communities affected by Hurricanes Katrina and 
Rita.
    As the Chair and the Vice Chair have made clear, Hurricane 
Katrina was by far the single most expensive disaster in 
American history, while Rita ranks third in the all-time 
disaster list. The magnitude of the infrastructure and 
socioeconomic damage has never been experienced by any other 
State. Together, the storms caused an estimated $100 billion in 
damages to homes, properties, businesses and infrastructure in 
Louisiana alone.
    About $40 billion of these losses are covered by private 
hazard and flood insurance. The Governor and the citizens of 
Louisiana sincerely thank the Congress and the American people 
for their generosity and for the estimated 26 billion 
appropriated to the State to help rebuild homes and physical 
infrastructure. This kind of aid was unprecedented, but we are 
still faced with unprecedented challenges and need Congress's 
continued support.
    Even with the $26 billion appropriation, there is a 
remaining gap of unrecovered losses of approximately 34 
billion, which amounts to $20,000 in uncovered losses for every 
household in Louisiana. The funding gap does not just include 
the 127,000 jobs and 4,000 businesses in southeast Louisiana 
that have not come back. Which shrunk Louisiana's economy by 
$11.5 billion in 2006.
    The magnitude of the housing, population and social service 
losses for the hurricanes is evidenced by a few statistics. 
I'll only focus on those relating to housing in the interests 
of time.
    One hundred and twenty-three thousand homes in Louisiana 
were destroyed or suffered major damage. Eighty-two thousand 
rental properties were destroyed or suffered major damage. Of 
the total rental and ownership occupied units that are now 
uninhabitable, a substantial portion was occupied by low and 
modest income households.
    Affordable housing in New Orleans is virtually nonexistent. 
With over 35 percent of the city's rental units either 
destroyed or severely damaged. Over 65 percent of the owner-
occupied units that were damaged or destroyed in New Orleans 
belonged to low and moderate income families. Low to moderate 
income families in New Orleans rented 89 percent of the rental 
units that were damaged or destroyed.
    An estimated total of 119,000 owner occupied and rental 
units in New Orleans serving low to moderate income population 
or 88.7 were damaged or destroyed.
    At this point, I'd like to thank the Committee on Ways and 
Means and its majority and minority counsels for supporting 
amendments to the Internal Revenue Code to extend the placed-
in-service deadlines in connection with developing affordable 
housing in the Gulf Opportunity (GO) Zone and Rita Zone to 
December 31, 2010, and simplifying the scope of bond financed 
qualified rehabilitation in the GO Zone and Rita Zone. These 
were the key provisions Governor Blanco asked the 110th 
Congress to consider during her visit to Washington last month.
    There is one other item that we would like to include for 
the record. The matter deals with a technical amendment 
relating to the combined use of block grant funds and GO Zone 
tax credits. We would like the Committee to consider making it 
clear that emergency block grant funds appropriate to the State 
will be treated as normal or regular block grant funds pursuant 
to the 1989 authorization. This technical amendment will allow 
the Community Development Block Grant (CDBG) funds to be made 
available in the GO Zone and incorporated in tax credit 
transactions as project-based assistance without such funds 
being treated as either below market loans or Federal grants.
    Mr. Chairman, the LHFA and its developer partners are 
diligently working to address significant changes, including 
skyrocketing insurance premiums and rising construction costs. 
Notwithstanding the challenges that we've faced, we have been 
able to provide for the financing of roughly 17,000 units of 
affordable housing in the GO Zone. We have used our $170 
million GO Zone tax credits, combined them with roughly $400 
million of block grant funds, created a demand of $397 million 
and we are only able to forward allocate and fund all of our 
2006, 2007 and 2008 tax credit projects up to a limit of $183 
million.
    Again, demand was at $397 million, our supply at $183 
million. Our efforts will produce 17,000 units of affordable 
housing.
    Tax credit investors and lenders are concerned about 
closing these projects in which--unless the credits that the 30 
percent bump-up in credits are also pushed back from December 
2008 to December 2010. Developers have already invested 
significant amounts of time and money in getting these projects 
to the stage of development.
    As Governor Blanco explained in her recent meetings with 
the congressional leadership, the 30 percent basis and the 
boost the placed-in-service date to 2010 for low-income housing 
tax credits will expedite the closing of those 17,000 units of 
affordable housing that are now ready to be closed.
    Mr. Chairman, this concludes my oral remarks. I stand 
ready, along with my staff, to provide any follow-up questions 
that you may have.
    [The prepared statement of Mr. Bailey follows:]
                 Statement of Milton Bailey, President,
        Louisiana Housing Finance Agency, Baton Rouge, Louisiana
    Honorable Chairman John Lewis and distinguished members of 
Committee on Ways and Means Subcommittee on Oversight, my name is 
Milton J. Bailey, President of the Louisiana Housing Finance Agency. 
Thank you for allowing me to present testimony today on housing tax 
issues on behalf of the State of Louisiana and Governor Kathleen 
Babineaux Blanco related to the redevelopment of the Louisiana 
communities affected by Hurricanes Katrina and Rita.
    First, permit me to share a few brief observations about the 
effects in Louisiana of the first and third most devastating and 
catastrophic disasters our country has ever faced, Katrina and Rita. 
Hurricane Katrina was by far the single most expensive disaster in 
American history while Hurricane Rita ranks third on the all-time list. 
The magnitude of the infrastructure and socio-economic damage has never 
been experienced by any other state. Together, the storms caused an 
estimated $100 billion dollars in damages to homes, property, 
businesses and infrastructure in Louisiana alone. About $40 billion 
dollars of these losses are covered by private hazard and flood 
insurance. The Governor and the citizens of Louisiana are sincerely 
thankful to Congress and the American people for their generosity and 
for the estimated $26 billion appropriated to the State to help rebuild 
homes and physical infrastructure. This kind of aid was unprecedented, 
but we are still facing unprecedented challenges and need Congress's 
continued support. Even with that appropriation, there is a remaining 
gap in un-recovered losses of approximately $34 billion . . . amounting 
to about $20,000 in un-recovered losses for every household in the 
Louisiana. This funding gap does not include the 127,000 jobs and 4,000 
businesses in Southeast Louisiana that haven't come back, which shrunk 
Louisiana's economy by $11.5 billion in 2006.
    The magnitude of the housing, population and social service losses 
caused by the hurricanes is evidenced by a few additional statistics:
HOUSING
      123,000 homes in Louisiana were destroyed or suffered 
major damage.
      82,000 rental properties were destroyed or suffered major 
damage.
      Of the total rental and owner occupied units that are now 
uninhabitable, a substantial portion was occupied by low income 
households.
      Affordable housing in New Orleans is virtually non-
existent with over 35% of the City's rental units either destroyed or 
severely damaged by Katrina. Over 65% of the owner occupied units that 
were damaged or destroyed in the City of New Orleans belonged to low to 
moderate income families. Low to moderate income families in New 
Orleans rented 89% of the rental units that were damaged or destroyed. 
An estimated total of 119,770 owner occupied and rental units in New 
Orleans serving the low to moderate income population, or 88.7%, were 
damaged or destroyed.
POPULATION
      The population of Orleans Parish which was 455,000 in 
June 2005 had fallen to less than 200,000 in September 2006. 
Plaquemines Parish lost an estimated 25% of its population while St. 
Bernard decreased from 65,000 to 19,000 residents. By comparison, St. 
Tammany Parish north of the Lake and out of the direct path of the 
storms, gained 15,000 people and East Baton Rouge Parish had an influx 
of nearly 34,000 people.
      In mid-November 2006, 66,000 FEMA trailers remained 
occupied statewide, and 5,848 individuals remained on the FEMA waiting 
lists for temporary housing. Louisiana citizens were displaced all over 
the state and country. Over 90,000 are in Texas and significant numbers 
in Mississippi, Georgia and Florida. In total, approximately 296,000 
Louisiana residents were living outside of the State as of November 
2006.
      The hurricanes displaced nearly 90,000 persons aged 65 
and older, many of whom lived alone and had at least one disability. 
Displaced aged persons also were poor (an estimated 15%) and one 
quarter lacked vehicles.
      The child poverty rates in the areas most affected by the 
hurricanes were estimated by the Congressional Research Service (CRS) 
to be over 30%.
SOCIAL SERVICES AND HEALTH CARE
    The non-profit sector accounted for 5.6% of the State's total 
workforce and 55% of all nonprofit jobs were in the heath care 
industry. 70% of these jobs were located in the parishes most 
devastated by the hurricanes.
    Second, permit me to share the observations of our State officials 
about how the costs of responding to the catastrophic disasters of 
Katrina and Rita (which have been extraordinary at all levels of 
government) have been shared. Much of the damage experienced in 
Louisiana has been the result of the failure of Federal levees which 
should have held in the face of a Category 3 event like Katrina. In 
addition to disaster costs unrelated to Federal relief programs, the 
State has paid to date approximately $400 million to FEMA to match 
costs associated with FEMA's ``Individual Assistance'' program. For the 
State of Louisiana, the FEMA cost-share alone, even after being 
adjusted up to 90% Federal share for FEMA's Public Assistance program, 
remains over $1.5 billion. Given that Louisiana generates only about $8 
billion in annual state tax revenues and has only 4.5 million 
residents, this match requirement further burdens Louisiana's recovery. 
Governor Blanco and the State of Louisiana requests the Administration 
and Congress support an adjustment of the Federal cost-share to 100% 
for all FEMA programs in the Katrina and Rita disaster areas. In 
addition to providing New York with 100% federal cost share after the 
tragedy of 9/11, there is ample precedence for FEMA approving a 100% 
federal cost share . . . 32 other disasters, including Hurricanes Hugo, 
Andrew and Iniki, received a similar 100% federal cost share. The case 
for moving to 100% cost share is compelling for Louisiana since the 
projected per capita impact of Hurricanes Katrina and Rita exceeds the 
costs of prior disasters by many multiples--$6,700 per capita or more 
than thirteen times that of any other disaster in U.S. history. Let me 
take this opportunity to applaud Senator Landrieu for her continued 
hard work on this issue and express our thanks and appreciation to 
House Majority Whip Clyburn for introducing the Hurricanes Katrina and 
Rita Federal Match Relief Act of 2007, which would grant Louisiana this 
waiver. We are hopeful Congress will move quickly and vote yes on this 
important legislation, thereby unleashing an estimated $775 million for 
local construction projects and enabling us to press the accelerator on 
our recovery.
    Third, let me commend the work of the Ways and Means Committee in 
shaping a range of federal tax incentives in 2005 to facilitate housing 
and population recovery in the aftermath of Hurricanes Katrina and 
Rita. The Katrina Emergency Tax Relief Act of 2005 (``KETRA'') and the 
Gulf Opportunity Zone Act of 2005 (``GOZA'') provided a range of tools 
and resources to finance the first phase of housing recovery in 
Louisiana, for affordable rental housing and for affordable owner 
occupied housing. By designating the GO Zone, Rita Zone and Wilma Zone 
as a difficult development area, the Ways and Means Committee first 
recognized that the cost of developing affordable rental housing in the 
GO Zone and Rita Zone would increase dramatically. By providing 
additional housing credits (``GO Zone Credits'') in an amount equal to 
$18 multiplied by the portion of the State population in the GO Zone as 
determined on the basis of the most recent census estimate of resident 
population released by the Bureau of Census before August 28, 2005, the 
Ways and Means Committee also recognized the magnitude of the 
population dislocation in the GO Zone and the importance of providing a 
stable source of credits to finance affordable and workforce housing in 
the GO Zone. By treating residences financed in the GO Zone and Rita 
Zone with the proceeds of qualified mortgage bonds as targeted area 
residences, the Ways and Means Committee recognized the importance of 
waiving the first-time homebuyer rule and increasing the family income 
limits for households qualified to benefit from low interest mortgages 
as such households purchased new principal residences to replace their 
prior principal residences damaged or destroyed by the hurricanes. By 
increasing the maximum amount of qualified renovation loans in the GO 
Zone or Rita Zones financed with the proceeds of qualified mortgage 
revenue bonds from $15,000 to $150,000, the Ways and Means Committee 
recognized that existing owner occupied housing suffered extensive 
damage and that the $15,000 limit was wholly inadequate.
    Fourth, let me share with you the results achieved by the Louisiana 
Housing Finance Agency with the resources provided by KETRA and GOZA.

      Since the spring of 2006, the Louisiana Housing Finance 
Agency has issued $336 million of qualified mortgage revenue bonds to 
finance owner occupied residences throughout the State, of which $100 
million were GO Zone Bonds for owner occupied residences exclusively in 
the GO Zone. This represents a four hundred eighty percent (480%) 
increase over the historical average of $70 million per year. Over 
2,052 households have benefited from the State's low interest 
financing. Included in the last two issues is a pilot initiative to 
provide relief to low income home buyers from the increase in casualty 
and flood insurance premiums that deposits about $165 per month into 
the borrowers insurance escrow account for a portion of the increased 
insurance premiums.
      As of December 2006, one hundred percent (100%) of the 
2006, 2007 and 2008 GO Zone Credits have been reserved by the Louisiana 
Housing Finance Agency to affordable housing developments in the GO 
Zone and one hundred percent of the State's 2006 credit ceiling has 
been reserved. Out of the 401 applications seeking approximately $397 
million in credits, the Agency reserved over $183 million of credits to 
240 developments that will produce 16,914 affordable housing units. 
These credit reservations went to developments that best meet the 
state's housing priorities as articulated in the Qualified Allocation 
Plans.

    Significantly, the Louisiana Recovery Authority made $667 million 
in Community Development Block Grant funds available to applicants 
awarded tax credits from the LHFA. This ``Piggyback Program'' paired 
CDBG funds with LIHTC tax credits to make feasible mixed income 
development, deeply affordable units, and units for the elderly and 
disabled in permanent supportive housing. Thus far, $440 million in 
CDBG funds have been awarded to applicants under the Piggyback Program 
to assist 33 tax credit developments which will create 5,700 of the 
aforementioned units. In most cases, these mixed income developments 
will contain at least 60% market rate units and at least 20% deeply 
targeted units affordable to households earning less than 40% of the 
Area Median Income. In a few instances, most notably proposals for the 
redevelopment of public housing, a second mixed income model has been 
used in which at least 30% of the units will be market rate and no more 
than 33% will be deeply targeted units.
    The Piggyback Program will also help special-needs populations 
achieve stable housing and successful lives by providing incentives for 
developers to create Permanent Supportive Housing (PSH) units. PSH 
households require rents affordable for households at 30% AMI down to 
zero income. All developments assisted with 2007 and 2008 GO Zone 
Credits must provide at least 5% of their units for Permanent 
Supportive Housing (PSH).
    Fifth, permit me to thank the Ways and Committee and its majority 
and minority counsels for supporting amendments to the Internal Revenue 
Code to (1) extend placed-in-service deadlines in connection with 
developing affordable housing in the GO Zone and the Rita Zone to 
December 31, 2010 and (2) simplify the scope of qualified 
rehabilitation in the GO Zone and Rita Zone. This was one of the key 
priorities Governor Blanco asked the 110th Congress to consider during 
her visit to Washington last month.
    The Louisiana Housing Finance Agency and its developer partners are 
diligently working to address significant challenges, including sky-
rocketing insurance premiums and rising construction costs, which have 
delayed the progress of many developments reserved credits in December 
of 2006. Now, tax credit investors and lenders are concerned about 
closing affordable housing developments in which credits were reserved 
based upon a 30% basis boost that will evaporate if the development is 
not placed in service by the end of December 2008. Developers have 
already invested a significant amount of time and money in getting 
these projects to this stage. As Governor Blanco explained during her 
recent meetings with Congressional leadership, extending the 30% basis 
boost AND the placed in service date to December 2010 for all GO Zone 
LIHTC projects will expedite closings and allow developers the time 
necessary to complete these high priority and urgently needed 
affordable housing units. Without these extensions, our recovery will 
be set back.
    The Louisiana Housing Finance Agency is also pleased that the rules 
for financing qualified rehabilitation in the GO Zone and Rita Zone 
with tax-exempt bonds will be simplified by the provisions of Section 2 
of the proposed bill. Hurricanes Katrina and Rita did not distinguish 
between homes built 20 years or earlier and recently built homes. 
Measuring the percentage of outer and/or inner walls retained in 
connection with a home damaged in an area suffering a cataclysmic 
disaster is bureaucratic overkill and hinders population and economic 
recovery in an area suffering from a major disaster. In the aftermath 
of a major disaster, qualified rehabilitation should only be based upon 
the expenditures for rehabilitation (25% or more of the mortgagor's 
adjusted basis) so that homeowners will be permitted to not only 
finance the required rehabilitation of their homes but also to 
refinance the existing mortgage indebtedness at the time the home was 
either damaged or destroyed by the major disaster.
    Finally, permit me to cite several other provisions of the Internal 
Revenue Code relating to low income housing credits and qualified 
mortgage bonds that the Ways and Means Committee may wish to consider.

      Per Capita Credits: The magnitude of the rental property 
loss in Louisiana coupled with the substantial population shifts to 
areas outside the GO Zone require additional credits to address the 
need that pre-existed the twin disasters as well as the increased need 
post-disaster. For a five year period, the per capita credits in 
Louisiana should be doubled.
      Income Limits: Eliminate language in Section 
1400N(a)(5)(B)(iii) disregarding subparagraph (A) in Section 143(f)(3) 
in connection with the use of GO Zone Bonds to finance owner-occupied 
residences in the Gulf Opportunity Zone. If an area is to be treated as 
a targeted area or area of chronic economic distress (``ACED'') for a 
period of time following a major disaster, State and local authorities 
should have the flexibility of using tax-exempt bond resources to 
finance owner occupied homes that will accelerate population and 
economic recovery. This flexibility will be tempered by the retention 
of the purchase price limitations applicable in such targeted areas.
      Ten Year Rule For Existing Buildings: Waive the 
restriction on allocating credits to the acquisition costs of buildings 
in the GO Zone and Rita Zone for existing buildings until January 1, 
2011. This waiver is particularly required in connection with bond 
financed projects that receive the so-called 4% credit in order to 
generate sufficient credits to complete necessary rehab in a cost 
effective manner.
      Housing Credits for Mixed Income Housing: Concentrating 
low-income households in dense developments should be avoided. In the 
redevelopment of disaster areas where population and economic recovery 
in a short period of time is extremely critical, credits should be used 
to redevelop or build new rental units that promote mixed incomes. 
Incentives for mixed income projects should be provided by increasing 
the numerator in the unit fraction and floor space fraction to include 
a limited number of market units for developments in the GO Zone, Rita 
Zone or Wilma Zone to provide the State flexibility of promoting mixed 
income housing until January 1, 2011.
      Apply Special Rules under Section 42(i) to qualified 
residential rental projects under Section 142(d): The definitions and 
special rules under Section 42(i) for projects receiving low income 
housing credits from a State's credit ceiling should be available to 
projects receiving credits as a result of a bond financing under 
Section 142(d). These special rules under Section 42 that are not 
available under Section 142(d) include (a) permitting units designated 
as transitional housing for homeless to qualify as a low-income unit, 
(b) single-room occupancy units, (c) units occupied by certain students 
receiving assistance under Title IV of the Social Security Act or 
enrolled in a job training program receiving assistance under the Job 
Training Partnership Act or similar Federal, state or local laws and 
(d) units occupied by full time students if such students are single 
parents and such parents and children are not dependents of another 
individual.

    Thank you, Mr. Chairman, for permitting me to provide these 
comments and recommendations.

                                 

    Chairman LEWIS. Thank you very much, Mr. Bailey, for your 
statement.
    Our next witness is from the Mississippi Home Corporation. 
I am pleased to welcome the Executive Director, Dianne Bolen. 
Thank you.

STATEMENT OF DIANNE BOLEN, EXECUTIVE DIRECTOR, MISSISSIPPI HOME 
                          CORPORATION

    Ms. BOLEN. Thank you, Mr. Chairman, Representative Ramstad, 
and distinguished Members of the Subcommittee.
    I want to thank you for the opportunity to appear before 
this Subcommittee to discuss tax issues related to the 
rebuilding of communities in the aftermath of Hurricane 
Katrina. I would ask that you enter my full written testimony 
as part of the record.
    Chairman LEWIS. Without objection, it will be done.
    Ms. BOLEN. Thank you.
    The Mississippi Home Corporation is committed to rebuilding 
single family homes and affordable rental developments. To do 
so, Mississippi needs Congress to extend the housing credit 
relief it provided in the Gulf Opportunity Zone Act of 2005, to 
help us overcome unprecedented housing challenges in our State.
    The corporation is utilizing the additional housing bonds 
and housing credits that Congress provided in the GO Zone Act. 
To date, we have issued 158 million in GO Zone bonds for single 
family homes. We have allocated 55 million in GO Zone credits. 
These 55 million in credits will fund 3,000 affordable rental 
units.
    When the hurricane hit, Mississippi had approximately 8,500 
units that were either destroyed or severely damaged. 
Developers are currently encountering many impediments to the 
affordable housing development. The cost of insurance has risen 
280 percent. Some insurance companies are pulling out of the 
State. Cost of land has risen. Developments must conform to new 
elevations and the International Building Code. Infrastructure 
is an issue in some parts of the State. Local communities still 
have zoning and building code issues to address before 
developers can move forward. Shortage of labor is a big issue. 
This in turn leads to a higher cost of labor. Current 
conditions make it nearly impossible to develop housing credit 
properties in many areas under the two-year credit development 
cycle.
    The Mississippi Home Corporation respectfully asks Congress 
to amend the GO Zone Act to allow all housing credit 
developments in the GO Zone to qualify for a 30 percent basis 
boost if placed in service by December 31, 2010. This 30 
percent basis boost is necessary to offset the increased costs 
associated with rebuilding in a disaster area. Without the GO 
Zone Act's boost, which is set to expire December 31, 2008, 
developers cannot make their projects cash flow due to the high 
costs of rebuilding, combined with rent and income restrictions 
placed on credit developments. An extension of this relief 
through 2010 is crucial.
    In addition, the Mississippi Home Corporation needs 
Congress to extend through December 31, 2010, the placed-in-
service deadline for all credit developments that are allocated 
credits in 2006, 2007 and 2008 in the GO Zone area. This is 
necessary because developers in some areas of our State cannot 
meet the credit program's two calendar year deadline.
    The Mississippi Home Corporation does have procedures in 
place to ensure developers complete housing credit properties 
in a timely manner. Developers will be monitored to ensure 
timely completion of their development and that any delays are 
genuine and unavoidable. It is the goal of Mississippi Home 
Corporation to have developments placed in service as soon as 
possible in order to get workforce that's needed on the Gulf 
Coast so that the rebuilding can continue.
    Again, I would like to thank the Subcommittee for the 
opportunity to appear before you today.
    [The prepared statement of Ms. Bolen follows:]
             Statement of Dianne Bolen, Executive Director,
           Mississippi Home Corporation, Jackson, Mississippi
    Mr. Chairman, Representative Ramstad, and Distinguished Members of 
the Subcommittee:
    My name is Dianne Bolen, and I am the Executive Director of the 
Mississippi Home Corporation (MHC). MHC was created by the State of 
Mississippi as a non-profit housing finance agency to provide the 
opportunity for safe, decent and affordable housing for low and 
moderate income Mississippians. MHC accomplishes this mission through 
federal, state and corporate housing programs.
    Thank you for the opportunity to appear before this subcommittee to 
discuss tax issues related to the redevelopment of communities in the 
aftermath of Hurricane Katrina, which struck our State on August 29, 
2005. The storm wrought significant devastation not only to 
Mississippi's Gulf Coast communities, but also throughout the southern 
half of the State. Many residents find themselves with homes having 
sustained significant damage or completely destroyed. A majority of 
these residents had no flood insurance.
Impediments to Development
    Developers in Mississippi currently encounter many impediments to 
affordable housing development. The cost of insurance on the Gulf Coast 
greatly concerns all residents of Mississippi. Developers must pay 
higher insurance premiums for any development on the Gulf Coast, and 
this cost adversely affects the affordability of all housing. It is 
estimated that the cost of insurance has risen 280% since Hurricane 
Katrina, and some insurance companies plan to leave Mississippi 
altogether. With less competition between insurance companies, costs 
will not go down in the foreseeable future.
    Developers find it difficult to find affordable land outside the 
FEMA proposed flood zones. Due to the short supply of land, the cost 
has increased, thereby increasing total development costs. New 
construction must now conform to new elevation standards and the 
International Building Code, which increases design and building costs. 
These costs particularly impact affordable housing developers, who 
cannot absorb these increases.
    The lack of affordable housing on the Gulf Coast discourages the 
return of a workforce sufficient to complete the rebuilding process. 
This has led to a shortage of contractors and subcontractors in the 
area, which in turn leads to higher labor costs for skilled and 
unskilled labor. The lack of professionals such as city engineers, 
architects, and building inspectors make delays lengthy and often times 
unforeseeable.
    The lack of infrastructure in many areas still limits the location 
of developments funded by GO Zone tax credits. While the larger 
communities on the Coast have largely rebuilt their infrastructure, the 
high land costs in these communities forces developers to search for 
available land in outlying areas that have not rebuilt their 
infrastructure sufficiently to sustain developments of 35 units or 
more. Most coastal communities still lack basic services such as fire/
rescue and local police forces. The smaller medical facilities have not 
returned to their communities, forcing large segments of the population 
to rely on the larger functioning hospitals further away.
    Local communities still have many zoning and building code issues 
to address before developers can move forward on their respective 
projects. When finally resolved, these important measures will govern 
where tax credit developments will be placed. In the meantime, 
developers must wait for the respective zoning boards and city councils 
to come to a consensus.
GO Zone Tax Credits
    The Gulf Opportunity Zone Act provided Mississippi with an 
additional $106.2 million in Low Income Housing Tax Credits with which 
to replenish the State's rental housing stock lost to hurricane 
Katrina. It is estimated that as many as 8,500 affordable rental units 
were destroyed or severely damaged by the storm. These units housed the 
majority of the Mississippi Gulf Coast's workforce, and we cannot 
complete the rebuilding process without these families. To date, the 
Mississippi Home Corporation has allocated approximately $55 million of 
its GO Zone tax credits, approximately $35.4 million in 2006 and 
approximately $19.6 million in 2007. The $55 million tax credits will 
help fund over three thousand affordable housing units for families who 
earn at or below 60% of the area median income.
    Immediately after the hurricane, Gulf Coast communities were not 
prepared to begin rebuilding. Katrina wiped entire communities off the 
map, and the cleanup process and rebuilding of infrastructure has taken 
some time. Only now are some communities ready to begin accepting 
developments.
    As the population begins to return to the Gulf Coast, we must 
provide affordable workforce housing for the communities.
Difficult to Develop Areas
    The GO Zone Act designated the 49 Mississippi counties eligible for 
FEMA individual and public assistance as Difficult to Develop Areas 
(DDA), which allows developers who receive GO Zone tax credits a 30% 
boost in eligible basis. This basis boost offsets the increased cost of 
building in the disaster area, which includes increased costs for 
labor, materials, land, and insurance. Without the boost provided by 
the DDA designation, developers cannot make their projects cash flow 
due to the high cost of rebuilding combined with the rent and income 
restrictions placed on developments funded with Low Income Housing Tax 
Credits. The GO Zone Act provides that the GO Zone shall be treated as 
DDA for properties placed in service by December 31, 2008.
    It typically takes a tax credit developer 18 to 24 months from the 
time an allocation is received to reach placed in service status. MHC 
is authorized to allocate approximately $35.4 million annually in GO 
Zone tax credits for 2006, 2007 and 2008. If the GO Zone DDA 
designation expires on December 31, 2008, due to the current placed in 
service language, and HUD subsequently fails to designate the GO Zone 
counties as DDA, the developer will lose the 30% basis boost and be 
exposed to a risk in development cost. MHC expects this will discourage 
developers from applying for GO Zone tax credits in 2007 and 2008. 
MHC's last application cycle ended on March 9, 2007. The scoring of 
these applications is expected to take up to 120 days, which means 
developers would receive notification of their awards in July of 2007, 
leaving them only eighteen months in which to place their developments 
in service and receive the 30% basis boost provided by the DDA 
designation. This deadline would be difficult, if not impossible, under 
ideal circumstances, let alone in current conditions.
Proposed Extensions
    The Mississippi Home Corporation respectfully asks Congress to 
extend the placed in service deadline for GO Zone tax credits to 
December 31, 2010. In addition, Congress should extend the GO Zone 
Act's Difficult to Develop Area designations from December 31, 2008 to 
December 31, 2010. These extensions will provide developers with 
valuable time to overcome the myriad delays listed above. Without the 
extension, increased costs and delays, both foreseeable and 
unforeseeable, would rob Mississippi of the benefit intended by the GO 
Zone Act's additions tax credit award. I have attached to my testimony 
a copy of a letter from Mississippi Governor Haley Barbour to Chairman 
Rangel and Congressman McCrery in which the Governor expresses his 
support for the extensions mentioned above.
    MHC has measures in place to ensure developers complete tax credit 
properties in a timely manner. Developers will be monitored to ensure 
timely completion of their respective developments and that any delays 
are genuine and unavoidable. MHC continues to strive to provide 
affordable housing as soon as practically possible.
    In summary, I would respectfully ask the subcommittee to remember 
that entire communities were leveled by Katrina. This requires a 
monumental act of rebuilding, taking into account many small pieces to 
an enormous puzzle. Affordable housing remains an integral part of that 
puzzle, without which we cannot rebuild sustainable Gulf Coast 
communities.
    Again, I thank the Subcommittee for the opportunity to appear 
before you today.

                                 ______
                                 

                                                  February 28, 2007

Congressman Charles Rangel
Chairman, House Committee on Ways and Means
Congressman Jim McCrery
Ranking Member, House Committee on Ways and Means

    The Gulf Opportunity Zone Act provides Mississippi with additional 
tax credits for 2006, 2007, and 2008. These additional tax credits will 
provide much needed housing for Gulf Coast residents in the form of 
affordable rental units.
    The GO Zone legislation provides that properties financed by tax 
credits placed in service in the calendar years 2006, 2007, and 2008 
will be treated as Difficult to Develop Areas (DDA), which provides a 
30% boost in eligible basis for the properties. This boost in eligible 
basis provided by the DDA designation helps developers overcome 
increases in costs associated with development in the areas most 
affected by Hurricane Katrina.
    The DDA designation for tax credit properties on Mississippi's Gulf 
Coast helps offset the increased costs of insurance, labor, and 
materials. Many insurance issues still wait to be resolved, and demand 
for labor outpaces the supply, thereby increasing the cost.
    The DDA designation as written in the GO Zone legislation is set to 
expire on December 31, 2008. It generally takes a developer 18 to 24 
months from allocation of tax credits to placed in service status under 
ideal conditions. The Go Zone deadline threatens to repeal the DDA 
status for any project not placed in service by December 31, 2008, 
thereby increasing the overall cost of development and reducing the 
affordability of the individual units. For developments receiving tax 
credits in 2007 and 2008, the fastest development timeline of 18 to 24 
months still places the placed in service date outside the timeframe 
provided by the GO Zone legislation.
    In addition, there is one additional item that I would place as the 
highest priority to be addressed immediately so that the investment in 
affordable housing in Mississippi is not curtailed:
    To alleviate the pressures, I ask you to extend until December 31, 
2010 the deadline for placing Low Income Housing Tax Credit 
developments in service, as well as the deadline for benefits to these 
housing developments available through the and GO Zone LIHTC Basis 
Boost.
    This additional time would allow developers to overcome the 
increases in development cost while providing ample time to work with 
government agencies and local communities to provide affordable housing 
to areas of greatest need.

            Sincerely,

                                                      Haley Barbour

                                 

    Chairman LEWIS. Thank you very much, Ms. Bolen, for your 
statement. Thank you for taking the time to be here, you and 
Mr. Bailey.
    Without objection, I would like to include two recent 
Washington Post articles in the record. One from February 21, 
2007, called Mostly Black Mardi Gras Event Shows a City in 
Pain, and one from March 12, 2007, called We Called it 
Hurricane FEMA.
    [The information follows:]
           Mostly Black Mardi Gras Event Shows A City in Pain
                 `Under the Bridge,' Joy Masks Despair
By Peter Whoriskey
Washington Post Staff Writer
Wednesday, February 21, 2007; A03

NEW ORLEANS, Feb. 20--The Mardi Gras celebration that took place 
``under the bridge'' today wasn't broadcast live on TV. It didn't 
appear on tourist brochures. Indeed, it hardly seemed to exist, to 
judge by the absence of attention.
    But the predominantly African American tradition that goes on in 
the shadows of the Interstate 10 overpass draws more than 10,000 
people, boasts its own proud and bizarre spectacles--Zulu warriors, 
brass bands and Day-Glo feathered Indians among them--and in its own 
separate reality offered a stark contrast to the hopeful hype that 
attended the more official, more publicized part of the city's Fat 
Tuesday.
    Mayor C. Ray Nagin (D) and others touted the ample Mardi Gras 
crowds and packed hotels elsewhere in the city as a sign of New 
Orleans's vitality.
    ``This is what Mardi Gras is about is New Orleans--it's back, 
y'all, it's back!'' he told a largely white Canal Street crowd to kick 
off the festivities.
    But among those celebrating Under the Bridge, many noted the far 
smaller crowds in that area compared with pre-Katrina years, a product 
of the lingering devastation in African American neighborhoods. 
Moreover, people said, among those who have returned, the sense of 
celebration often masked the personal hardships of post-Katrina New 
Orleans.
    ``All that other stuff--all that they're saying on TV about us 
coming back, about us rebuilding--it's just a front,'' said Bennie 
Pete, the tuba player and band leader for the Hot 8 Brass Band, a local 
institution, a few hours before taking the stage beneath the overpass. 
``It's terrible here. People are struggling. Just look around.''
    He pointed to the nearby Lafitte housing complex, which has been 
closed since the storm. Metal shutters cover the windows of hundreds of 
units to prevent residents from returning. Notices posted warn 
passersby that anyone entering could be fined or jailed. Within view, 
many other buildings have been similarly abandoned.
    ``People need places to live,'' he said. ``Now ask yourself: Why 
can't they reopen that?``
    For the day at least, people at Under the Bridge where hugging and 
dancing and watching the peculiar spectacles, intentional or not, that 
abounded.
    Crawfish could be had for $4 a pound, turkey necks or pigs feet for 
$3; other cooks stirred roadside vats of gumbo. Brass bands, a local 
tradition, played. Men sporting bright feathers--a tradition supposedly 
started to honor the American Indians who once aided runaway slaves--
roamed and periodically shimmied to the music. Members of the Zulu 
krewe, whose parade ends nearby, sashayed about, wearing Afro wigs and 
grass skirts.
    Beneath the masks and costumes and smiles, however, lurked tales of 
post-Katrina dislocation and ongoing struggle.
    Jack Humphrey, 58, a construction worker who had just finished 
parading with the Zulu krewe as a ``walking warrior''--he was dressed 
in rabbit and cow skins, a grass skirt and a helmet affixed with 
bullhorns--lost his home. ``It's been really rough,'' he said.
    Blair Conerly, 33, a barber and Mardi Gras Indian, had to commute 
from Dallas, where he now lives.
    Pete, the tuba player, comes in from neighboring Kenner because his 
home in the Ninth Ward was destroyed. Just a few months ago, in the 
midst of one of the city's crimes waves, a member of his band was shot 
and killed while driving with his wife and child.
    Asked whether the hard-hit Ninth Ward would ever come back, Pete 
exhaled forcefully enough to billow his cheeks.
    ``If it ever does, it will be a really, really long time,'' he 
said. ``The answer is, I really don't know.''
    The city is still half-empty, by most estimates, and the toll has 
been heaviest on black residents. The proportion of African Americans 
residing in the city is estimated to have slipped from nearly 70 
percent before Katrina to about 55 percent now.
    The Lower Ninth Ward remains almost desolate, with only a handful 
of trailers to signal any intention of residents returning. On some 
blocks nearest the canal-wall breaches, nearly all of the homes already 
have been torn down.
    In New Orleans East, once a vast area of middle-class African 
Americans, there are just a few more trailers and a lingering wonder 
about whether the community will come back. On one typical block, only 
about four of 24 homes are occupied.
    ``We're pioneers out here,'' said Leroy Thomas III, a cable 
installer fixing up his New Orleans East home. ``We don't really know 
what's going to happen here. But right now, I don't have time for Mardi 
Gras.''
    Even among those who have returned, the struggles in post-Katrina 
New Orleans have cut any appetite for celebration.
    Ernest Penns, 74, a church deacon living in a Federal Emergency 
Management Agency trailer in a nearly deserted street in the Lower 
Ninth Ward, said he couldn't think about Mardi Gras now--at least until 
he could get back into his home or at least get the heater fixed in the 
trailer.
    ``There's no peace of mind for us yet,'' he said.
                     `We Called It Hurricane FEMA'
                    Trailer Park Was Quickly Emptied
By Peter Whoriskey
Washington Post Staff Writer
Monday, March 12, 2007; A01

HAMMOND, La.--Shortly after noon, FEMA agents began rapping on the 
trailer doors, their knocks resounding inside the tinny white homes. 
Everyone in the park, the agents announced without warning, would have 
to pack and leave within 48 hours.
    Where do we go now?
    Why?
    What about school?
    To the residents of the Yorkshire Mobile Home Park, all of them 
families displaced by Hurricane Katrina, the Federal Emergency 
Management Agency crews offered answers that were uncertain and 
sometimes contradictory. As residents spilled out of their homes to 
meet their similarly bewildered neighbors, the adults wondered where 
they would be sent next, and how far they might wind up from their 
jobs. Some began sobbing. Then the children, seeing their parents' 
tears, began crying, too. A woman fainted, and an ambulance came.
    ``It was like shock and awe,'' recalled Ron Harrell, 40, a tenant. 
``We called it Hurricane FEMA.''
    The Yorkshire residents were eventually scattered to other FEMA 
parks. But their sudden evacuation last weekend illustrates the 
upheavals that still accompany life in a government trailer park 18 
months after the hurricane struck the Gulf Coast in August 2005.
    About 12,000 households in Louisiana live in such settlements, 
temporary arrangements that only out of desperation are being stretched 
out indefinitely.
    Almost all of the trailers' occupants were renters before the 
storm; unlike homeowners, they received no direct rebuilding assistance 
from the federal government. Some parks are rife with crime. Others are 
in isolated rural areas, far from schools and bus routes. Some trailers 
are in poor condition.
    Park tenants are keenly aware that they are not particularly 
welcome where they have ended up. Fearing blight, many local 
communities have tried to block FEMA trailer parks, and several are 
trying to enact deadlines for the removal of trailers.
    FEMA itself seems torn between closing the parks and serving the 
poor evacuees squeezed out by the scarcity of housing since the 
hurricane. Several times since Katrina, the agency has threatened to 
close the parks, only to grant an extension. Under the latest 
deadlines, tenants have until August to find other homes, but many seem 
unsure what they will do then.
    ``People say we shouldn't still be living in a FEMA park,'' said 
one former Yorkshire tenant, a Wal-Mart worker who wanted to be 
identified only as ``P.'' ``But take a look at the rents people have to 
pay in New Orleans now-- who can afford that?''
    The evacuation of Yorkshire March 3-4 had its roots in the three-
way political and legal wrangling among the site's owners, local 
officials and FEMA. That tension is mirrored across Louisiana and 
Mississippi, where scores of trailer parks have opened since Katrina.
    Before it was emptied, 58 families lived at the Yorkshire park. 
Their trailers were arranged on either side of a gravel road in a rural 
area about an hour north of New Orleans.
    Under a contract initiated the month after Katrina, owners Frank 
Bonner and Ken Albin were to get $42,700 per month in rent from FEMA.
    The residents began arriving about 6 weeks after the storm.
    Eventually, some found jobs as aides for the elderly or the 
mentally retarded, some as workers at Wal-Mart, and some as 
housekeepers. Some are disabled. Many are single mothers.
    The appearance of such parks in Tangipahoa Parish, as elsewhere, 
was not entirely welcome. For months, Tangipahoa officials sought to 
slow the growth of FEMA trailer camps. At one point, parish President 
Gordon Burgess called on Rep. Bobby Jindal (R-La.) to intervene with 
FEMA.
    Trailers ``were moved in the middle of the night,'' Burgess 
explained. ``People woke up and they'd have a FEMA site next door.''
    At about the same time FEMA and the property owners were fighting 
over the terms of the contract, the owners clashed with the parish over 
approval for their trailer parks.
    A newspaper article appears to have precipitated the mass 
evacuation. Two days before the evacuation, the Daily Star of Hammond 
published a story about the latest power outage at Yorkshire. It was 
the third in recent months, the newspaper reported, and it happened 
because the electric bill had not been paid.
    Owners Bonner and Albin, who are responsible for the bill, which 
ran about $15,000 a month, blamed FEMA for not paying rent on time; 
FEMA officials have said they paid promptly after they were invoiced.
    ``Quite frankly, we received press earlier that week that pointed 
the finger at FEMA for not paying the bills. We were getting beaten 
up,'' said Jim Stark, director of FEMA's Louisiana Transitional 
Recovery Office. ``At this point, we said, `Enough is enough.' ''
    The park would be evacuated, and quickly, FEMA officials decided. 
Officials began telling tenants to pack up even before the agency had 
decided where they would go.
    FEMA told residents and reporters that the people had to be moved 
for their own protection: The agency feared another power outage, 
officials said, and the trailer park's sewage system, which sometimes 
smelled, posed a health hazard.
    But at the time of the evacuation, the power was on, the bill paid. 
State health officials deemed the sewage plant, for which the owners 
are responsible, free of violations, according to Brian Mistich, who 
oversees state inspections in the area. Although some complained of the 
stench from the plant, state officials said some odors from the 
facility are unavoidable--and legal.
    In an interview Friday, Stark said he made the decision to vacate 
the park based largely on the possibility of more power outages. 
Although many residents said they were told they had to leave within 48 
hours, Stark said it was not meant as a deadline.
    ``Could we have done a better job on this? Absolutely,'' he said. 
``We just wanted to be out of there.''
    Nearly all tenants interviewed said there was no reason to have 
moved, or at least no reason to have moved so suddenly.
    Several tenants fought back tears last week as they explained why 
they would rather be back at Yorkshire. Even those who said the park 
did at times stink preferred it to their new location.
    Shametha LaFrance and her five children were moved from Yorkshire 
into another FEMA mobile home, where, on the second day, the toilet 
backed up and the water stopped running.
    Darcelin Turner, 49, was relocated to a trailer in Belle Chasse, 
more than an hour away. She commutes every morning to bring her 
children to their school in Hammond; she does not want to transfer them 
again.
    Several others who moved to a site near the Hammond airport said 
that the new park is crime-ridden and that they would prefer to be back 
at Yorkshire. Out of fear, they said, they venture outside less and 
keep a close watch on their children.
    ``They took us from bad to worse,'' said Lekesha Vernon, 27, a 
mother of two, one of those moved to the site near the airport. ``But 
when you have no other place to go, you have no choice.''
    The tenants said the sense of rootlessness that comes with the 
trailer life is affecting their children.
    ``I'm tired of tossing my kids around like a bouncing ball,'' 
LaFrance said. ``And I hate waking up every day wondering what's going 
to happen next.''
    When she brought her 5-year-old to school last week, he would not 
let go of her and began crying.
    He asked her: ``Mama, are you going to be there when I get home?''

                                 

    Chairman LEWIS. Both show the severe ongoing human 
suffering that still remains in Louisiana and all over the Gulf 
Coast. Neighborhoods in New Orleans remain abandoned aside from 
a few brave pioneers. Communities have not been rebuilt. People 
cannot return home and remain scattered around the southeast. 
Families are being bounced from trailer park to trailer park. 
Children who can't understand why they don't have a stable 
place to live are having emotional problems and are afraid that 
after school, even their temporary homes will have disappeared. 
Their whole world has turned upside down. These people are 
being treated with such a lack of respect for their human 
dignity.
    I would like to ask the two of you, do you believe that 
some of the changes to the tax law that we have discussed will 
solve some of these problems? Do you think that we need to be 
doing more? What else do you need to get people into stable 
homes?
    Mr. Bailey, Ms. Bolen?
    Ms. BOLEN. Okay. Yes, I do.
    One of the things the housing credit does is help in the 
rebuilding and get more affordable housing units on the ground. 
As I said, 8,500 units were either severely damaged or 
destroyed. By making the changes that I requested, this would 
allow us a little more time to get those developments.
    We would not provide the additional time if it was not 
needed.
    Chairman LEWIS. Mr. Bailey.
    Mr. BAILEY. Mr. Chairman, I appreciate that question 
because it gives us an opportunity to take a look at not only 
what the immediate need is, but we also have an opportunity to 
take a look at what the prospective need is. I think that once 
we, as policymakers, decide what the objective of affordable 
housing really is and mixed income communities really is, the 
next phase of development, both in Mississippi as well as 
Louisiana, has got to take into consideration what we are going 
to do down the road.
    Now, with that having been said, allow me to offer these 
observations. When over 200,000 people are dislocated, they are 
dislocated all over the State, all over the United States, and 
they typically move into residences provided by family members, 
friends, and the like. The dislocation of 200,000 folks from 
the GO Zone has caused an in-migration problem for our other 
metropolitan areas throughout the State.
    We have been using our per capita tax credits as well as 
our GO Zone tax credit to provide for the rehabitation of the 
GO Zone areas, but there was a preexisting need prior to 
Katrina that we are not able to fulfill with the resources that 
we currently have. The fact that GO Zone tax credits can only 
be used in the GO Zone, we are not addressing and must continue 
to address in the future how we are going to go about 
stabilizing those communities that have seen an influx in 
housing.
    So we are recommending that the per capita tax credits be 
increased for a period of five years in the State of Louisiana 
to help right the affordable housing imbalance created as a 
result of out-migration from the GO Zone.
    We are also recommending that the income limits, 
particularly as it relates to areas of chronic economic 
distress, that the States be given or provided flexibility in 
using tax-exempt bond resources to finance owner occupied homes 
that will accelerate population and economic recovery. There 
are several amendments to the Code that we would ask the 
Committee to consider.
    There is also the matter of the 10-year rule for existing 
buildings. We are recommending that Congress consider waiving 
the 10-year rule covering existing buildings located in the GO 
Zone and Rita Zone until January 1, 2011. This change will 
permit the acquisition cost of a building to be included in the 
eligible basis in connection with bond financed projects that 
receive the so-called 4 percent credit.
    The other is in the area of mixed income housing. I think 
that we can all agree that conventional wisdom recognizes that 
concentrating low-income households in dense developments 
should be avoided as a public policy matter. In the 
redevelopment of disaster areas where rapid population and 
economic recovery is essential, credit should be used to 
redevelop or build new rental units that promote mixed income 
communities and not provide for the reconcentrations of poverty 
and the reentrenchment of despair.
    Incentives for the GO Zone, Wilma Zone and Rita Zone as it 
relates to mixed income projects should be provided. The 
States, given the flexibility of promoting on a strategic basis 
the development of mixed income communities that include market 
rate units at least until 2011.
    There's one more item, Mr. Chairman, that I would like to 
offer for consideration. That applies to the special rules 
under section 142(i) to qualified residential projects under 
142(d). Now, the definitions and special rules under 142(i) for 
projects receiving low-income housing tax credits from a 
State's credit ceiling should also be available to projects 
receiving credits as a result of bond financing under 142(d).
    There are special rules under the tax credit side of 
section 42 that will permit special needs populations to occupy 
low-income units that are not available under the bond financed 
side of 142(d). The special populations that, under the tax 
credit side, would be eligible for financing include financing 
for homeless persons, single-room occupancy, for certain 
students receiving Federal assistance under the Social Security 
Act or enrolled in job training programs receiving assistance, 
or full-time students with kids.
    Those provisions are not embedded in the provisions of the 
bond financing authority. Those are the elements that we would 
recommend additional consideration be given to going forward, 
Mr. Chairman.
    Chairman LEWIS. Thank you, Mr. Bailey. Thank you, Ms. 
Bolen, for your response.
    Now I turn to the Ranking Member, Mr. Ramstad, for his 
questions.
    Mr. RAMSTAD. Well, thank you, Mr. Chairman. Thank you to 
both the witnesses for your helpful testimony.
    I want to ask you both, and both of you know well, at the 
end of 2005, we increased the per capita low-income housing tax 
credit from $1.90 per person to $18 per person in the GO Zone 
for properties that were built before the end of 2008. You 
alluded to that, Mr. Bailey, in your testimony.
    The primary objective, as I think we all know, was to build 
housing as quickly as possible, to get it up fast for displaced 
residents who wanted to come home to Louisiana and Mississippi. 
The idea was to put a roof over these people's heads, not to 
maximize returns to investors in low-income housing projects.
    The idea was to get housing built so these people had a 
roof over their heads, not to fatten the pockets of investors 
in such projects.
    Now, my question is this to both of you. If the so-called 
placed-in-service deadline were extended so that developers had 
five years instead of three years to build housing, do we run a 
risk of actually encouraging delay in building housing? Can you 
give us any assurances that a two-year extension would not 
discourage the development of housing that otherwise would have 
been finished by the end of 2008? That's my concern.
    Ms. Bolen, start with you, please?
    Ms. BOLEN. We have procedures in place that say the 
development must be completed in two years, and we go out and 
monitor on a regular basis. We look at them when they first 
begin, we look at them at six months, and at 15 months, if 
they're not 50 percent complete in their construction, then we 
go to them and find out why. Of course, we've been talking to 
them all along.
    Now, if it is something that is within their control, then 
we do not grant any type of extension. They still have to meet 
that two-year deadline, but if we come along and they're not 50 
percent complete, we have a stiff monetary policy which gets 
those developers going, because money talks in their world and 
they do not like the penalties. So, they will keep the projects 
moving along and we will keep the procedures in place, because 
our goal is to get the housing done as quickly as possible.
    Mr. RAMSTAD. That sounds to me like a pretty strong 
assurance. I appreciate that response.
    Ms. BOLEN. You're welcome.
    Mr. RAMSTAD. Mr. Bailey, please?
    Mr. BAILEY. Mr. Chairman, I'd like to join my colleague's 
comments. We have embedded within our Quality Assurance Plan 
(QAP) very strict timing requirements. We have our regulatory 
monitoring responsibilities that we take very seriously.
    We have gone so far as to make sure that, to the extent 
that there is any indication that those projects do not meet 
the time line as imposed within the QAP, that we have an 
opportunity to recover those tax credits and cycle them back 
through our projects that did not receive tax credits.
    Mr. RAMSTAD. Well, not surprisingly, those were the 
responses I had hoped for and expected. You are doing your jobs 
well and we appreciate those assurances.
    I also want to ask both witnesses another question. As you 
know, Congress declared the entire GO Zone a difficult to 
develop area as part of the December 2005 tax relief package. 
This, of course, gave a 30 percent bonus credit for low-income 
projects placed in service in the GO Zone. The bonus was 
intended to offset the increased costs of building these low-
income housing units quickly. Again, to get them up, to get a 
roof over people's heads. They included paying premiums for 
materials, labor and insurance.
    I note that you have asked for an extension of time to 
place these units in service, which you mentioned again here 
today. If we are going to extend the placed-in-service deadline 
through 2010, is a 30 percent bonus still needed? Is it still 
needed and would it make sense to only offer the bonus through 
the end of 2008, so we can maximize the number of units going 
up quickly? Or perhaps give less of a bonus the longer it takes 
to place housing in service, thereby creating an incentive to 
get the housing built quicker? How would you respond?
    Ms. BOLEN. I would say the boost is definitely needed, 
especially in those areas that are along the Gulf Coast. One of 
the things that you do on a tax credit application is once--
once they have completed a development, all the costs that that 
developer incurs from that development is certified by an 
independent third party. So, he only gets the boost in basis if 
he has actually incurred those increased costs.
    I would say we definitely need it. We have procedures in 
place to ensure that the developer moves along in a timely 
fashion and completes the development in a two-year timeframe. 
We are just asking for some flexibility for those that might 
run into difficulty that is beyond their control.
    Mr. RAMSTAD. Which I think makes eminently good sense.
    Mr. Bailey.
    Mr. BAILEY. I would agree. I would suggest that we keep it 
in place because the cleanup after a cataclysmic event that we 
are talking about now, just in being able to develop on 
pristine land takes 18 to 24 months. When you are talking about 
developing on land that has been contaminated and heaped with 
debris and you are talking about an absence of a workforce both 
in the construction supply, service, to build those facilities, 
then you are going to be paying a premium.
    The purpose for which that premium was provided by the 
Congress, and we are grateful for that, is in recognition of 
those additional costs, but, as my colleague said, there are 
cost certifications at the end of the day that must be met. To 
the extent that we can recover some of that, yes.
    It is imperative that those bonus points be included as we 
move forward in the extension.
    Mr. RAMSTAD. Let me just conclude by saying you two have 
certainly reassured this Member in a very articulate way that 
flexibility is very much important and is very important and 
much needed. So, thank you again for being here today and for 
your helpful testimony.
    Yield back.
    Chairman LEWIS. Thank you very much, Mr. Ranking Member, 
for your question.
    Now, I turn to Mr. Becerra of California for his questions.
    Mr. BECERRA. Thank you, Mr. Chairman, and thank you for 
holding this hearing.
    I thank the witnesses for being here. I am glad you are 
here. I hope you will continue to leave us additional 
information so you can make the case. I think many of us 
believe that this is 2 years too late and that we should have 
been on the ball from the very beginning. So, once again, to 
all the residents who stayed and who did everything they could 
to try to rebuild, please send along not only our 
congratulations but every measure of support that we can 
provide to make it possible for folks to return.
    I keep hearing these messages that a lot of folks don't 
want to come back and that a lot of folks aren't interested in 
taking up some of the housing stock that might become 
available. I think that if folks knew that they had a chance to 
go back to a job and to a safe environment, they would be going 
back in droves. So we want to make it possible for folks to not 
only get their life back together but to do it the way they had 
it before.
    I have a couple of questions. I think many of us here want 
to be as supportive as possible. You are the folks on the 
ground who know what you need to do, especially with regard to 
housing, but I want to make sure that none of the programs that 
we authorize are abused, because there will be another Katrina 
at some point, and hopefully the government will be more 
prepared to respond in a more direct and efficient way. We want 
to know that we can use these types of programs that we are now 
extending to folks in the affected areas by Katrina so we can 
do it again and do it better.
    So, you, in essence, become the paradigm. If we end up 
finding there is an abuse of some of these tax benefits, then 
it makes it tough in the future to believe that Congress will 
extend them to others.
    So, my question to you is this, if we extend these tax 
benefits a bit more, whether it is under the Low Income Housing 
Tax Credit by extending the date on which the units become 
serviceable, or if we allow there to be some liberalization, 
continued liberalization on the mortgage revenue bonds, tell me 
what is being done to ensure that there is no abuse of the 
system?
    For example, on mortgage revenue bonds, I don't know if 
this can happen or not, but my concern would be some developer, 
not low income, but some developer goes to someone who is low 
income and says, I can help you purchase a property, let us get 
it fixed, get a mortgage revenue bond, and then we will sell it 
and I will give you a cut of whatever we get, so you cause this 
flipping activity to perhaps occur, the speculation to occur in 
the real estate market, which ultimately hurts the folks we 
want to help most, the low-income folks who want to try to 
purchase homes. If all of a sudden, speculation causes prices 
to go up because you've got short-term developers going in 
there to try to make a profit, how can we make sure those types 
of abuses cannot occur?
    Maybe it is already an existing law, or maybe there are 
certain things that are being done just through the oversight, 
but give us some sense of confidence that as we move to extend 
to you some of these tax benefits further, that we won't hear 
in a year or two or three later that the program was abused, 
which makes it tough in the future to extend these types of 
opportunities to other affected communities in the future.
    Ms. BOLEN. On the mortgage revenue bond, a couple of neat 
features about that program is, of course, it waives the first-
time home buyer and it targets a slightly higher income 
individual. Across the board, people lose their house, no 
matter what their income is.
    The rate----
    Mr. BECERRA. Ms. Bolen, do me a favor. Just focus on things 
that either you are doing through oversight or what you know 
exist in law so that we know what will prevent those types of 
abuses from occurring in the system.
    If there aren't certain protections in the law that we need 
to have in place, let us know that as well. Perhaps as we move 
forward trying to extend these provisions, we include 
something.
    I just want--I am not saying that anyone is abusing, taking 
wrong advantage of this. I am just asking, is it possible? If 
so, how can we prevent it?
    Ms. BOLEN. I know when we look at the monthly reports from 
the service and lenders and one of the things you can look for 
is if they paid that loan off within a month or two. We have 
not seen that.
    What remedies there are in the law to prevent someone from 
flipping, that I am unclear on.
    Mr. BECERRA. Mr. Bailey, did you want to?
    Mr. BAILEY. Yes, sir. There is protections under 143 of the 
Code.
    Mr. BECERRA. One forty-three of the Tax Code?
    Mr. BAILEY. Tax Code, as it relates to the use of mortgage 
revenue bonds for single family homeownership, that requires 
that an individual, when they purchase a home and they go to 
sell it, must sell it to another person of the same income 
category.
    If they do not sell it to a person of the same income 
category, which would then allow them to pass on that benefit, 
then there is a recapture provision associated with that sale.
    Mr. BECERRA. That lasts only for a certain amount of time? 
Afterward, the property is available on the open market?
    Mr. BAILEY. That is correct. That would be roughly 5 years.
    Mr. BECERRA. Mr. Chairman, I know my time has expired. So, 
I will conclude with this.
    When we raise the limits, when we allow those who are 
more--I want to say they are better off. Right now, the 
mortgage revenue bonds are typically limited for those who are 
low income and whatever the income level is, but we are going 
to try to raise those caps because we know under these 
circumstances of Katrina, there are a lot of families that were 
affected who could easily fall into very low income because of 
the fact that they have now lost their home, for example.
    Mr. BAILEY. That is correct.
    Mr. BECERRA. So, you have liberalized the standards. So, 
you now allow a higher income, at least on paper, family to be 
able to use these mortgage revenue bonds.
    Mr. BAILEY. That is correct.
    Mr. BECERRA. They then turn them over, let us say they flip 
the property to somebody who has a higher income but qualifies 
under this special circumstances. Then all of a sudden, the 
time expires and now they get to sell. If it is just a flipping 
process that occurs, there may be--there is a chance of abuse.
    So, I will close by saying this, Mr. Chairman. If we could 
just have the witnesses give it some thought, please provide to 
us anything that makes it clear to us that you have thought 
about whether there could be abuse of this program and how you 
either are preventing it, can't prevent it or provide us with 
some suggestions on what we can do in passing any extension to 
you that will have provisions that will prevent it.
    So, I would like to make sure that in 3 years you are not 
coming back here and we are saying, so what happened.
    Mr. BAILEY. I understand. I appreciate that. We can always 
go back to the shop and come up with some innovative ways, but 
I think that, if you take a look at the Tax Code and the 
penalties associated with abuses under that code, and the 
mechanisms that are in place to prevent those abuses, the type 
of monitoring that both her agency and mine are involved in, 
there has got to be a trace amount of instances where the 
abuses have escaped.
    Mr. BECERRA. If we have got the protections in place, 
great. If they are being utilized and administered, great. That 
is what you can say.
    I just want to make sure, you have been forewarned. In 
three or four years----
    Mr. BAILEY. I appreciate that.
    Mr. BECERRA. Just so that way we can feel confident that as 
we extend these provisions to you, it's not because a lot of 
folks who shouldn't have taken advantage did. Thank you very 
much.
    Chairman LEWIS. I thank the gentleman from California for 
his questions and I am sure these distinguished Members of the 
panel would be guided by what you suggested. I think it can be 
most helpful.
    I now recognize the young lady from the State of Ohio, Ms. 
Tubbs Jones.
    Ms. TUBBS JONES. Mr. Chairman, thank you for hosting these 
hearings. It is an important issue for me and many people 
across the country.
    I have had an opportunity to visit Louisiana and 
Mississippi since the terrible storm two or three times, trying 
to raise the awareness and attention of this country on the 
issue.
    Also, Mr. Chairman, I want to thank you for calling me the 
young woman. I love it. I am going to keep talking to you on a 
daily basis.
    When Katrina struck, I introduced legislation expanding the 
low-income housing tax credit in the affected region allowing 
for greater tax credits and benefits to be utilized so that 
more affordable housing could be built. That is why I was 
pleased to see in the Gulf Opportunity Zone Act that the 
Congress passed in '05, additional low-income housing tax 
credit for the affected States were provided.
    Needless to say, as you have already said, our work is cut 
out for us, and we still need additional housing for low income 
folk. Although the additional low-income housing tax credits 
allocated have been effective, I would say that we need to do 
more.
    I recently introduced H.R. 1043, the Community Restoration 
and Rehabilitation Act of 2007, which improves the existing 
historic preservation tax credit, reap credit, for the 
restoration and rehabilitation of underutilized historic 
buildings. Senator Mary Landrieu is a Senate co-sponsor.
    The reap credit has been a great economic development tool 
throughout the country, including Louisiana and Mississippi. In 
New Orleans alone, the National Trust for Historic Preservation 
estimates that Katrina damaged more than 38,000 historic 
structures across the city's 29 districts registered as 
historic. The city's historic district encompassed half of its 
total area, the largest concentration of historic buildings in 
the United States.
    Along Mississippi's 90-mile coastline, approximately 300 
historic properties have been completely lost and another 1,200 
remain that are mostly damaged. This includes historic 
districts like Bay St. Louis and Pass Christian.
    So, there is an abundance of historic buildings in the 
region that can be rehabbed and turned into businesses or 
affordable housing. However, under the--as the tax code is 
written now, if a developer tries to combine both the rehab 
credit with the low-income housing tax credit in one project, 
for example, developing an historic site for affordable housing 
purposes, the tax benefits are decreased.
    My tax legislation prevents this from happening and 
encourages projects to utilize both credits, increasing 
affordable housing.
    Do you think allowing developers to combine both the rehab 
and low-income housing tax credit would assist you in your 
reconstruction efforts, Mr. Bailey, Ms. Bolen?
    Mr. BAILEY. Without a doubt.
    Ms. BOLEN. I definitely agree.
    Ms. TUBBS JONES. Although I understand as the law is 
written now, the same negative effects occur when housing 
projects utilize both low-income housing tax credit and 
community development block grants. That is when you combine 
both Federal programs, you are forced to take a lower tax 
benefit. Which does not make sense, since we should encourage 
the full use of both programs.
    How has this program affected you, if at all, Mr. Bailey, 
Ms. Bolen?
    Ms. BOLEN. It hasn't. Our agency doesn't administer the 
community block grant fund, so I am not as familiar with the 
ins and outs. I do know that I have not seen any tax credit 
applications come through with community block grant funds. I 
know that is one of the reasons, is that it is reduced because 
it is a Federal subsidy.
    I also know that there is a great need for it and if you 
have community block grant funds combined with the 9 percent 
credits, it would allow you to target even lower income 
individuals than you already are.
    Ms. TUBBS JONES. Thank you. Mr. Bailey?
    Mr. BAILEY. Yes, ma'am. You might have recalled from my 
earlier testimony that we have been successful in combining 
with our $183 million in tax credits roughly $450 million or so 
in block grant funds. That has been helpful, a very useful tool 
in terms of developing the 17,000 units of housing that will be 
going into the GO Zone.
    As I also mentioned, there is a technical glitch associated 
with the use of those block grant funds that we would ask 
Congress to consider resolving. That has to do with being able 
to use those block grant funds or treat those block grant funds 
that were provided under the emergency relief effort as normal 
block grant funds under the '89 provisions.
    Ms. TUBBS JONES. You're good, Mr. Bailey. I wouldn't be 
trying to speak over all these buzzers for anything in the 
world. Just a moment.
    Now, okay. Go ahead.
    Mr. BAILEY. Essentially, so that they would not be treated 
as a below market loan or a Federal grant for purposes. I think 
once you eliminate that glitch, then your objectives are 
achieved tremendously.
    Ms. TUBBS JONES. Mr. Chairman, if you would allow me, I was 
in a meeting with Secretary of Housing Jackson and he said that 
you have housing units in New Orleans that people don't want to 
come back and use. Is that--I don't want to go into a war on 
this, but I found it hard to believe that people didn't want to 
come back and take advantage of opportunities.
    Do you have housing units that nobody is using, sir?
    Mr. BAILEY. Madam Chair, that is probably an issue that we 
need to really spend some time thinking about, in terms of 
public policy and housing policy in this country going forward.
    Now, yes, there are units that people want to reoccupy. 
There is no question about it. The Housing Authority of New 
Orleans (HANO) is in the process of making those units 
available.
    We have got to step away from the issue and ask ourselves a 
moral question. That is, do we want to recreate centers of 
poverty or do we expect to build within new communities 
opportunities that will give people hope, that will give people 
examples, living examples to live by and aspire to in their 
lives.
    The reconcentration of poverty in public housing units 
without including the opportunity to develop mixed income 
communities, like we did very much here in Washington, D.C., 
under the HOPE 6 program, where we tore down public housing, 
gave public housing residents an opportunity to come back----
    Chairman LEWIS. Do you have a HOPE 6 program?
    Mr. BAILEY. Sir?
    Ms. TUBBS JONES. Turn your mike on----
    Chairman LEWIS. Do you have a HOPE 6 program?
    Mr. BAILEY. Yes, sir. I was the former director of the 
Housing Finance Agency here in Washington, D.C. We participated 
in the financing of over eight HOPE 6 redevelopments.
    Ms. TUBBS JONES. No, he was asking do you have HOPE 6 in 
New Orleans.
    Mr. BAILEY. Yes, ma'am, we do. I apologize, but using the 
HOPE--my point being this. Using the HOPE 6 model in the 
reconfiguration, redevelopment of affordable housing for 
persons who are coming from public housing circumstances gives 
them an opportunity to repopulate the area within a more 
improved and holistic community, a community that builds within 
struggling communities the same social, economic and 
educational framework that exists in thriving communities.
    So, as we think in terms of public policy, the future of 
public policy as it relates to housing, it is not just putting 
people back in their homes. It is thinking about what is the 
best way to achieve this in a holistic and supportive way.
    Ms. TUBBS JONES. Mr. Chairman, I know my time is up, but if 
I could get a written response from both of you? One of the 
things in my travel to New Orleans, I just saw acres and acres 
and acres of housing that was gone. I wonder what is our 
strategy in terms of there needs to be water lines, sewer 
lines, electrical, the whole nine yards. Is there a strategy in 
place to address that issue as well?
    Without doing that, we might as well--ain't nothing going 
to happen. There is not anything going to happen, excuse me.
    I would be interested in hearing if there is a strategy, 
how we address the infrastructure of those communities that are 
devastated.
    I thank you for your time, Mr. Chairman.
    Chairman LEWIS. Thank you, the young lady from Ohio, Ms. 
Tubbs Jones, for your questions.
    I recognize my friend and colleague, the gentleman from New 
Jersey, Mr. Pascrell.
    Mr. PASCRELL. Thank you very much, Mr. Chairman.
    I'm glad it took us to the end of the hearing to talk about 
HOPE 6. That model is excellent. It has worked, it worked in my 
district. It is interesting that the President has tried to 
almost zero out these moneys. So, you have a lot of folks 
competing for the dollars that are shrinking.
    HOPE 6 is a very important concept that I think would be 
tremendously useful in southeast Texas, Mississippi, Louisiana 
and Alabama. I think we should take a look at that, in terms of 
where do we get the biggest bang for our dollar.
    Now, this hearing is not only about what has happened, but 
it's prospective. You both seem to indicate that the mortgage 
revenue bonds which are tax exempt--I love mortgage revenue 
bonds. I think a lot of good comes out of that for everybody. 
You want to make them available for substantial renovations, 
not just new housing. To refinance existing residential 
mortgages, particularly loans, mortgage loans.
    Would you address that? I think this is an area that we 
need to take a real good look at. Rather than talking about new 
housing, substantial renovation to the housing that is 
existing, which is a better opportunity to keep people where 
they were and where they want to be.
    Ms. BOLEN. I know that currently in Mississippi what we are 
seeing a lot of right now, I know that there is a rehab loan 
where Congress extended the dollar amount of that rehab. One of 
the obstacles was that the house had to be at least 25 years 
old. So, that product didn't really get used a lot.
    We are seeing a lot of individuals that are something in 
and getting temporary financing through the bank. They might be 
using the Federal Housing Administration's (FHA) 203(k), which 
is a rehab loan. Then since it is short-term financing, then 
they are coming to us for a bond loan to take the short-term 
financing out, so they are staying in their existing homes.
    Mr. PASCRELL. I think that should be a priority, shouldn't 
it?
    Ms. BOLEN. Exactly.
    Mr. PASCRELL. Mr. Bailey, do you agree with that?
    Ms. BOLEN. I agree. The majority of people want to stay 
where they are.
    Mr. PASCRELL. So, if that is the case, then we should 
expand legislation that is already on the books to include 
those homes that can be salvaged, but they will need major 
renovations. The tax-exempt bonds, mortgage bonds are an 
important part of doing that. Would you agree to that?
    Ms. BOLEN. I would definitely agree with that.
    Mr. PASCRELL. My next question is, if the placed-in-service 
date, if we extended that date to 2010, because you both spoke 
about that, how many more low-income rental housing units would 
be created? How many families would be provided housing? Have 
you planned this, if we can move to the next step?
    Ms. BOLEN. I know we have done a very preliminary, cursory 
survey of where developers are. I know with the 2006 GO Zone 
credits, there are only one or two developments that seem to 
have some trouble that are on the Gulf Coast. 2007, there is 
one.
    We are in our final cycle. We just took applications for 
about 51 million of '07, '08 GO Zone credits. We will complete 
the analysis of those applications in July, so that will only 
leave them an 18-month window to complete their development and 
in good times, 18 to 24 months is pretty normal, but these are 
not normal circumstances.
    That 51 million would generate probably about 3,000 units 
of affordable rental units.
    Mr. PASCRELL. How does that stand up against what is 
needed?
    Ms. BOLEN. When you compare the 3,000 we funded, and the 
3,000 we will fund in July 2007, you get 6,000 units, and 
totally the State had about 8,500 severely damaged or destroyed 
that we need to replace. So, there is a little gap there.
    Mr. PASCRELL. Seventy-five percent, 80 percent of the way 
there?
    Ms. BOLEN. Exactly.
    Mr. PASCRELL. Mr. Bailey, what about your situation?
    Mr. BAILEY. Our situation is a little bit more intense from 
this perspective, sir. We have forward allocated everything we 
have. All of our 2006, all of our 2007, all of our 2008 GO Zone 
tax credits. That will produce, provided that this Congress 
allows us to extend the placed-in-service date, 17,000 units of 
housing.
    Without any more resources, we still have a need of 123,000 
units of affordable housing.
    Mr. PASCRELL. So, it is very different in Louisiana than it 
is in Mississippi with that regard, anyway. In that regard.
    Mr. BAILEY. That is correct. So, it could be that we are 
going to be asking the Congress to consider, based upon what we 
already know we can deliver and will deliver, extra allocations 
of tax credits and funds to break even with what the existing 
demand is. That 17,000 is only 10 percent of the real need.
    Mr. PASCRELL. Mr. Chairman, it would seem to me, and I am 
not convinced of this and maybe you could convince me, that 
both States that we are talking about here, and thank you for 
your testimony today, are both States, are each of these States 
committed to getting people back to where they want to be and 
where they came from? I don't know if that is the case, 
particularly in Louisiana with the tremendous gap between what 
we are doing and what needs to be done. Mississippi, although 
we are closer to our goal, obviously, you still are going to 
have specific needs.
    Are you committed to getting people back to their original 
domicile?
    Chairman LEWIS. Mr. Bailey and Ms. Bolen, can you convince 
this Member from New Jersey that you are committed, dedicated 
to the proposition that----
    Mr. PASCRELL. I am sure they are committed. I don't know 
about their governors. That is what I am talking about.
    Mr. BAILEY. I can assure you that Governor Blanco is 
absolutely committed, sir. So much so that she has been to 
Congress on several visits and she has made the case very 
clear.
    I think though, sir, that what you have got to look at is 
what we have done, measure our commitment by what we have done. 
We don't have any more tax credits to allocate, sir. All of our 
tax credits----
    Mr. PASCRELL. We hear you.
    Mr. BAILEY. We still have 120,000 units of affordable 
housing to build. Yes, we are abundantly committed to this 
effort and would like the Congress to consider providing us 
with additional resources.
    Mr. PASCRELL. I am not trying to be facetious, but we have 
a long way to go here. We are going to be helpful. You can be 
assured of that.
    Mr. BAILEY. Thank you, sir.
    Mr. PASCRELL. That is our job, that is our responsibility. 
This is not free lunch here, but on the other hand we know what 
our responsibilities are. With the Chairman's sensitivities, we 
are going to get it done.
    Thank you for your testimony this morning.
    Chairman LEWIS. Mr. Bailey, I just want to inform my friend 
from New Jersey, I can hear the ads on the local radio from 
your governor, the road back home. Come home. Come home. There 
are a large number of people from New Orleans that are living 
in Atlanta. They're trying to get them to come home.
    They have to have a place to live and a place--something to 
do, something to work. We must try to help.
    Thank you very much for your question. Thank you very much.
    Now we will hear from the gentleman from Massachusetts, Mr. 
Neal, the former mayor of Springfield. Mr. Pascrell is the 
former mayor of Paterson, right? So they have some knowledge of 
what to do with cities.
    Mr. Neal.
    Mr. NEAL. Thank you very much, Mr. Chairman. Just by way of 
note, my ears perked up when community development block grant 
moneys were being discussed, because it still remains the best 
tool that local officials have. You both nod your heads without 
looking at each other, and that would be universal whether it 
was a Republican mayor sitting there or a Democratic mayor. 
Those initiatives work.
    Mr. BAILEY. Yes, they do.
    Mr. NEAL. I know we have heard in previous testimony that 
the tax incentives that were outlined earlier may be reduced by 
other Federal subsidies. That is an area that my Subcommittee, 
the Subcommittee on Select Revenue Measures, plans to look 
into. We are going to view particularly how these tax 
incentives complement other Department of Housing and Urban 
Development (HUD) programs. So, I hope that we will have an 
opportunity to hear from you at the right moment. I certainly 
thank Mr. Lewis for proceeding in a timely manner on these 
issues.
    Since you have just been through so much in administering 
these tax credits, can you explain what external factors have 
caused you to request an extension of the placed-in-service 
date, such as cleanup delays, and so forth, and the 
complications that have settled in because of it?
    Ms. BOLEN. A lot has to do with permitting, zoning, lack of 
infrastructure in certain areas. Given the elevation 
requirements along the coast, you see more developments moving 
further inland to areas where there is no infrastructure, so 
they are having to place them and put the infrastructure in 
place.
    Of course, the insurance costs. Finding an insurance 
company that is going to insure your development, just to name 
a few.
    Mr. BAILEY. I would have to echo my colleague's 
observations. That is exactly right.
    The only additional thing I would add would be the 
increased cost of labor supply, borne as a result of out-
migration. You need to recapture your workforce in order to 
build the units.
    Mr. NEAL. Much of that is skilled labor?
    Mr. BAILEY. Sir, it is.
    Ms. BOLEN. Unskilled.
    Mr. NEAL. Unskilled labor as well.
    Well, thank you both. I hope we will have a chance to talk 
more.
    Ms. BOLEN. Thank you.
    Mr. BAILEY. Thank you, Mr. Neal.
    Chairman LEWIS. Thank you very much, Mr. Neal.
    Let me just ask you, Mr. Bailey and Ms. Bolen, in New 
Orleans and also along the Gulf Coast of Mississippi, places 
like Biloxi, I guess Waveland, where there existed at one time, 
you have many historic properties, buildings that was on the 
National Register and others.
    Do you think there should be something special, some type 
of special tax credit for historic places and buildings? Is 
there something that we can do to produce something very 
special?
    Mr. BAILEY. Those antebellum homes are national treasures. 
To preserve a part of our legacy, a part of the American 
legacy, I think is tremendously important as well. Not just 
because they're pretty, but because they identify who we are as 
Americans. So, yes.
    Chairman LEWIS. Ms. Bolen.
    Ms. BOLEN. I would definitely agree with my colleague. You 
want to preserve your history, your heritage. Along the 
Mississippi Gulf Coast, a good many of our antebellum homes, 
especially the ones that lined Highway 90, which is right there 
on the beach, were totally wiped out. They had been there 100, 
200 years. Anything that Congress can do to help restore the 
ones that are left would be greatly appreciated.
    Chairman LEWIS. Do you have anything that would stand out, 
a particular home that existed or a particularly historic 
building, say in New Orleans or along the Gulf Coast? I've 
visited that area over the years and I know in New Orleans you 
had--is it a customhouse? What is that old building called?
    Mr. BAILEY. Customhouse----
    Chairman LEWIS. But it was not destroyed, it was not 
damaged?
    Mr. BAILEY. It wasn't, but you have other communities in 
Louisiana that did have damage to the historic landmarks. To 
the extent that this Committee is considering or has influence 
to consider appropriations or allocations for restorations of 
national treasures, that should be considered.
    Chairman LEWIS. I appreciate that.
    Mr. Ramstad, did you have further questions or comments?
    Mr. RAMSTAD. Thank you, Mr. Chairman.
    Just a final question. Mr. Bailey, you cited in passing the 
need for the development of mixed income housing. Last year, 
Mr. Neal, who is a real expert in this subject, and I 
introduced a package of reforms. They were incorporated in H.R. 
4873. That package of reforms would allow the low income 
housing tax credit to be used for mixed income developments as 
you recommended here today.
    Could you just elaborate why this would be a useful tool, a 
useful reform?
    Mr. BAILEY. Thank you, Mr. Chairman. I would.
    I think that while this is a tremendous disaster, it is 
also a tremendous beginning. It is a tremendous beginning 
because it gives us an opportunity to think strategically and 
futuristically about what we want affordable housing to look 
like in America. So while there is a need to redevelop 
affordable housing instantly, it has got to be tempered with 
the need to develop affordable housing based on what the human 
dynamic is going forward.
    HOPE 6 projects are a good example of what the future is. 
They take a modern day example of what works in thriving 
communities and applies it to struggling communities. Mixed 
income housing, the combination of mixed income housing and 
affordable housing tears down the barriers that have restricted 
individual growth, individual aspirations as a result of public 
housing. When you tear down those barriers, another Milton 
Bailey 20 years from now might be sitting in front of you 
providing testimony that would not have been given the 
opportunity but for the ability to integrate economically, 
socially and educationally our communities.
    Mr. RAMSTAD. Well, let me just say I love your response and 
certainly agree with it. With somebody as capable and dynamic 
and knowledgeable as Mr. Neal chairing the Subcommittee on 
Select Revenue Measures, I am hopeful that we are going to move 
this bill. If we have a hearing, you would be the best possible 
witness. So, thank you, Mr. Bailey.
    Mr. BAILEY. Thank you, sir.
    Chairman LEWIS. Thank you, Mr. Ranking Member.
    Mr. Neal, do you have any further comments?
    Thank you very much.
    Let me thank you for being here. I think your testimony has 
been very, very helpful to Members of the Committee and 
everything that you have said will be in the record and other 
Members will have an opportunity to view and hopefully we will 
be able to move some legislation out of this Committee to the 
full Committee and to the Floor of the House.
    So, thank you for taking the time to come to Washington and 
to testify when you have so much work to do back in Louisiana 
and back on the Gulf Coast. So, we really appreciate your 
effort to be here and to testify.
    Is there any other business to come before the 
Subcommittee? If not, there being no further business, this 
hearing is adjourned.
    [Whereupon, at 11:16 a.m., the hearing was adjourned.]
    [Questions submitted by the Members to the Witnesses 
follow:]
         Question from Mr. Becerra to Mr. Bailey and Ms. Bolen
    Question: Please provide suggestions for how to prevent abuse if 
the provisions are expanded (e.g., rebuilding properties and then 
flipping them).

    Response from Ms. Bolen: Mississippi Home Corporation appreciates 
Congress' concern about potential abuse. MHC is committed to using the 
federal resources at its disposal to help Mississippians who would not 
have affordable homeownership or rental options without the Mortgage 
Revenue Bond (MRB) and Low Income Housing Tax Credit programs, and MHC 
takes its stewardship of these resources seriously.
    In the MRB program, eligible home buyers receive below-market rate 
home loans, allowing low- and moderate-income families to save more of 
their income. Congress established in 1988 the MRB recapture provision 
to discourage ``flipping'' and use by borrowers who could soon afford a 
conventional mortgage. Congress created the provision out of concern 
that upwardly mobile professionals were using MRBs to purchase homes 
even though their rising incomes would permit them to soon purchase 
homes conventionally.
    The MRB recapture provision applies to borrowers who sell their 
MRB-financed residence within 9 years of the date the loan is made. The 
recapture amount is based on the number of years the loan is 
outstanding (0-9), the gain on sale, and the borrower's income at the 
time of sale. The recapture amount cannot exceed 6.25 percent of the 
MRB loan or 50 percent of the gain realized on the sale if less. 
Treasury requires MRB borrowers subject to recapture to file IRS Form 
8828.
    For example, assume an MRB loan of $100,000 sold during the second 
year of the loan (40 percent holding period), at a gain of 20 percent 
($20,000), and an increase in borrower income of at least $5,000 over 
the applicable income limit (as adjusted by a 5 percent annual 
inflation factor allowance). The recapture amount cannot exceed the 
lesser of $6,250 (6.25 percent of the tax-exempt financed loan) or 
$10,000 (50 percent of the gain). The recapture amount is then 40 
percent (the holding period percentage) of $6,250 (the federal 
subsidy), which equals $2,500.
    The recapture provision, as detailed above, forces the borrower to 
effectively repay the interest benefit received from using the MRB 
program. The negating of this benefit discourages borrowers from buying 
homes using the MRB program with the intention of selling them within 
the 9 year recapture period, thereby helping ensure that the bond 
proceeds are distributed to families who genuinely need the program.

    Response from Mr. Bailey:

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    

                                 

    [Submissions for the Record follow:]
     Statement of Alabama Housing Finance Authority, Montgomery, AL
    Mr. Chairman, Representative Ramstad, and members of the 
Subcommittee, thank you for the opportunity to comment on issues 
regarding Katrina redevelopment.
    As you know, H.R. 4440, the Gulf Opportunity Zone Act of 2005, 
among other things, allocated additional Low-Income Housing Tax Credits 
to Alabama to aid the 11 counties declared disaster areas in the wake 
of Hurricane Katrina. In addition, the legislation designated the GO 
Zone as a Difficult Development Area. The DDA designation allows a new 
construction development to receive a 30 percent increase in eligible 
basis to offset added costs. The cost savings conferred by the boost is 
passed on to the lower-income residents in the form of lower rents.
    H.R. 4440 provides that DDA developments receiving the increased 
credits must be placed in service by December 31, 2008. This deadline 
should not be a problem for projects funded in 2006, but will prove 
inadequate for projects receiving credit awards in 2007 and 2008. While 
we understand Congress' intent to get units operational as quickly as 
possible, the shortened deadline will make construction in a demanding 
market unfeasible and will remove one of the primary incentives for 
building in this area--ultimately reducing the number of available 
affordable housing units.
    The recommendation of the Alabama Housing Finance Authority is that 
the December 2008 deadline be amended to match existing IRS Code 
Section 42 regulations which state that a developer has two years from 
the time an allocation of Housing Credits is made to place in service. 
Developers awarded GO Zone Credits in 2007 and 2008 would then have 
until 2009 and 2010, respectively, to place their developments in 
service and maintain the 30 percent boost in basis.
    Thank you for your attention.

                                 
 Statement of the Honorable William J. Jefferson, a Representative in 
                  Congress from the State of Louisiana
    I am extremely grateful to Chairman Lewis and the members of the 
Subcommittee on Oversight for the attention they are giving the matter 
of tax policy relating to the recovery of the Gulf Coast Region. 
Today's hearing on housing tax issues related to redevelopment of the 
communities affected by Hurricanes Katrina, Rita and Wilma is very 
important to the rebuilding and renewal of my region and my city, the 
great city of New Orleans and its surrounding communities.
    Developers and homeowners in the Katrina, Rita and Wilma Go Zone 
areas face seemingly insurmountable challenges as they try to bring 
their homes and businesses back to the torn Gulf Coast region. 
Insurance premiums, building material prices and the value of land in 
the region have risen sharply increasing the cost of rental properties 
and homes. The increases have essentially made many of the properties 
in our area unaffordable.
    Few needs are greater in the city and surrounding areas today than 
affordable housing. One New Orleanian, who currently resides in a FEMA 
trailer about an hour north of the city, surmises that many people want 
to move back to the city but after looking at the rent prices is quoted 
in The Washington Post as saying, ``Who could afford that?''
    Post-Katrina, the average rent in New Orleans has risen 70%. A 
standard $1000 per month apartment in August of 2005 would cost $1700 
per month today. Prior to Katrina, New Orleans has a population of 
437,000 residents. However, over one-year later, there are only 235,000 
people living in the city. It is not because residents do not wish to 
return, it is because many cannot afford to return. The lack of 
affordable housing has caused not only a problem for residents wishing 
to return home but is also a problem for developers and investors in 
affordable housing. The lack of quality affordable housing that is 
sustainable discourages the return of a workforce to build and rebuild 
the community.
    The Low Income Housing Tax Credits (LIHTC) is of great assistance 
in helping New Orleanians return home. The credits are given to 
qualified investors who are then put under the constant scrutiny of the 
state to insure quality affordable housing. The safeguards within the 
system provide for thirty years of high housing standards. Furthermore, 
there are provisions in this system that guarantee affordable housing 
for fifteen years. Here if the property does not do continue to meet 
the criteria it specified when receiving the tax credit award, the IRS 
will recapture the tax credits.
    In December 2005, Congress passed the Gulf Opportunity Zone Act 
(the GO Zone Act) and, among other much-needed tax incentives, it 
included a significant increase in Housing Credits for the Gulf states, 
and a 130% ``basis boost'' in which they treated all regions of the GO 
Zone as Difficult to Develop Areas, thus allowing them more funding for 
the rebuilding. New Orleans and the Gulf Coast region face many 
obstacles for redevelopment. However, as legislators we can ease the 
process and strain on those trying to make a difference by extending 
deadlines for the GO Zone Act of 2005. By extending the placed in 
service deadline for both the credits and for the treatment as 
Difficult to Develop Areas, we would effectively give the people in 
these communities a reasonable time to reinvest in their communities. 
The Low Income Housing Tax Credit has a history of success in the Gulf 
Region and throughout the Country. It is imperative that we as 
legislators vote to extend the placed in service deadlines to help with 
the rebuilding efforts and allow the citizens of the Gulf region return 
home.
    A further issue with the additional low income housing tax credit 
authority is that as written they would be treated under Code Section 
42 as federally sourced financing and not covered by Community 
Development Block Grants (CDBG) financing exception. Instead of 
receiving a 9% credit for LIHTC projects, investors would only receive 
4%. In effect, this would cut down the amount of money available for 
project financing and the number of projects for the areas it is 
intended to benefit.
    It is necessary to clarify how Katrina CDBG Funds are treated as 
such under Code Section 42(i)(2)(D), that the funds are not classified 
as below-market federally sourced financing. The Authorizing Acts 
specifically allow waivers and alternative requirements only in such 
provision are not inconsistent with the overall purpose of CDBG 
statutes.
    Finally, Mortgage Revenue Bonds (MRB) have provided over 3.5 
million lower-income American with affordable homeownership and another 
one million with rental housing opportunities. Every year, 100,000 
families buy their first homes with MRB mortgages. These bonds are 
typically for first time home buyers but there is a provision in GO 
Zone legislation that waives this requirement for those who's homes 
were damaged by the hurricanes. This would assist with the rebuilding 
efforts, allowing these bonds to go towards refinancing home loans.
    Homeowners in the region would be allowed to refinance at a lower 
interest rate. There could be two possible results from this. The lower 
interest rate puts more money in the pockets of the homeowner and the 
homeowner could use this money to improve his monthly cash flow. The 
other option would be to refinance the home using the equity in it to 
take care of other expenses or to rebuild the home. Both bring greater 
cash flows to the homeowner that could be used to help spur economic 
development.
    Immediately following the hurricanes, the affected communities were 
not prepared to rebuild. Entire areas were damaged so severely that it 
effectively changed the landscape of the area. Only now are some areas 
ready to begin redevelopment. We need to do everything we can to 
facilitate rebuilding. I respectfully ask the Committee pass 
legislation that would 1) extend the placed-in-service deadlines for 
the GO Zone Housing Tax Credits; 2) extend the placed-in-service 
deadline for the Difficult to Develop Area designation; 3) clarify that 
the use of CDBG funds will not reduce the allowable credit rate from 9% 
to 4%; and 4)   allow the use of MRBs for rehabilitation of property 
suffering more than 25% damage, even if the property has not been in 
existence a minimum of 20 years.

                                 
                     Statement of Kristina C. Cook,
    National Affordable Housing Management Association, Alexandria, 
                                Virginia
    Thank you, Chairman Lewis and Ranking Member Ramstad for this 
opportunity to present the views of National Affordable Housing 
Management Association (NAHMA).
    NAHMA represents individuals involved with the management of 
privately-owned affordable multifamily housing regulated by the U.S. 
Department of Housing and Urban Development (HUD), the U.S. Rural 
Housing Service (RHS), the U.S. Internal Revenue Service (IRS), and 
state housing finance agencies. Our members provide quality affordable 
housing to more than two million Americans with very low and moderate 
incomes. Executives of property management companies, owners of 
affordable rental housing, public agencies and vendors that serve the 
affordable housing industry constitute NAHMA's membership.
    Affordable rental housing is a cornerstone of redevelopment efforts 
in the Gulf Coast region. It is imperative to rebuild affordable 
multifamily housing for evacuees who wish to return home. Likewise, 
affordable rental properties, especially Low Income Housing Tax Credit 
(LIHTC) developments, provide essential workforce housing.
    With these principals in mind, NAHMA respectfully requests 
extensions of two key LIHTC-related deadlines. NAHMA concurs with 
testimony the Subcommittee has received about the necessity of 
extending the placed-in-service date for the GO Zone LIHTC properties 
to December 31, 2010. Even under the best of circumstances, there is no 
``perfect'' development deal. With the many challenges that remain in 
the Gulf Coast, our members are concerned that failure to extend this 
deadline would be detrimental to rebuilding efforts. Another important 
deadline that should be extended is the temporary grace period against 
recapture of LIHTC credits, which was provided in the IRS Rev. Proc. 
95-28 for Section 42 properties in major disaster areas affected by 
Hurricanes Katrina, Rita and Wilma. A number of our members with 
properties in the Gulf Coast have voiced concerns that the 24-month 
temporary relief from recapture and loss of credit provided in Rev. 
Proc. 95-28 section 7.01 may not allow sufficient time to bring low-
income units back online. We respectfully request that this relief be 
extended to 48 months, with an option for the IRS to provide additional 
extensions upon expiration. Although the IRS has the authority to 
extend this deadline, our members believe it is in the public interest 
to include this extension as a component of hurricane relief 
legislation.
    Thank again you for allowing me to share NAHMA's position on these 
important issues. Our members remain committed to providing quality 
affordable housing in the Gulf Coast and across the nation.

                                 
                         Statement of OMB Watch
    OMB Watch, a nonpartisan government watchdog that promotes 
responsible and equitable fiscal policy, has investigated the IRS's 
private debt collection program, and concluded that it is demonstrably 
wasteful, puts taxpayer privacy rights in jeopardy, and has fostered 
illicit activities by private companies. We believe the program should 
be ended.
    The IRS private tax collection program is not fiscally sound. 
Taxpayer money is being used to pay private companies 21 to 24 cents 
for every dollar they collect, while IRS employees could do the same 
job for 3 cents on the dollar. Former IRS Commissioner Charles Rossotti 
told the IRS Oversight Board in 2002 that assigning more revenue agents 
to debt collections could see a return of $30 to every $1 invested. 
Indeed, the wastefulness of the program is not disputed. In testimony 
to Congress, IRS Commissioner Mark Everson has repeatedly admitted that 
IRS employees could perform this work at far less cost than private 
collection agencies.
    Nina Olson, the head of the Office of Taxpayer Advocate, which 
operates independently from the IRS and recommends changes in the tax 
collection system, has made ending the private collection program a top 
priority for the year. She has said in testimony to Congress that the 
tax collection program may become ``vastly more expensive than we ever 
imagined,'' since it requires significant investments in IRS oversight 
and management personnel.
    In point of fact, the IRS administered a pilot private tax 
collection program in 1996 that failed to produce a return on 
investment. Contractors did not bring in nearly as much money as 
projected, and the program amounted to a $17 million net loss for the 
government. As a result, a follow-up tax collection program was 
canceled.
    The IRS private tax collection program also lacks safeguards for 
taxpayer privacy--and will allow the IRS to hand over personal 
information of 2.5 million taxpayers to private companies. The 1996 
experience regarding the tax collection pilot program raised concerns 
over privacy and taxpayer abuse. A 1997 IRS Internal Audit Report found 
that contractors engaged in behavior prohibited by the Fair Debt 
Collection Practices Act, and did not protect the security of sensitive 
taxpayer information. Ms. Olson, the National Taxpayer Advocate, has 
expressed concern that the IRS has not set up sufficient safeguards to 
prevent the same experience from being repeated under the current 
program. According to Ms. Olson, private collectors have opportunity to 
use ``trickery, device, and belated Fair Debt Collection Practices Act 
warnings to take advantage of taxpayers,'' and yet they are not 
obligated to disclose their ``operational plans'' regarding practices, 
letters, or scripts they will use.
    The IRS private tax collection program was enacted under 
circumstances that gave unfair and wasteful advantages to contract 
bidders. The most important terms of the private collection contracts--
commission rates by which contractors are paid for their services--were 
never put up for competition. The IRS set commission rates at 21 to 24 
percent of the revenue collected by contractors, denying bidders an 
opportunity to make offers on terms that would have resulted in the IRS 
getting a greater share of the collected revenue. Consequently, two of 
the companies who lost their bid for the contract filed complaints with 
GAO over the contract competition. GAO has also reported that the IRS 
did not established a mechanism by which it could evaluate the cost-
effectiveness of the program, or a mechanism for incorporating lessons 
learned during the program's first phase.
    Illicit conduct by one of the private collection agencies IRS 
contracted with raises questions about the integrity of the private tax 
collection program. A 2006 New York Times article reported that one of 
the winning bidders--Linebarger Goggan Blair & Sampson--had a former 
partner sent to jail for bribing the San Antonio municipal government 
in exchange for debt collection contracts. In addition, a Linebarger 
competitor is now suing the city of Brownsville, TX, charging that the 
municipal government gave a debt collection contract to Linebarger in 
exchange for campaign contributions to city commissioners. Linebarger 
has reportedly been forced to give up the IRS contract to collect 
federal debts, but for reasons that the IRS has not disclosed.
    For these reasons, we believe that this program should be 
terminated.

                                 
                   Statement of State of Mississippi
    The Gulf Opportunity Zone Act provides Mississippi with additional 
tax credits for 2006, 2007, and 2008. These additional tax credits will 
provide much needed housing for Gulf Coast residents in the form of 
affordable rental units.
    The GO Zone legislation provides that properties financed by tax 
credits placed in service in the calendar years 2006, 2007, and 2008 
will be treated as Difficult to Develop Areas (DDA), which provides a 
30% boost in eligible basis for the properties. This boost in eligible 
basis provided by the DDA designation helps developers overcome 
increases in costs associated with development in the areas most 
affected by Hurricane Katrina.
    The DDA designation for tax credit properties on Mississippi's Gulf 
Coast helps offset the increased costs of insurance, labor, and 
materials. Many insurance issues still wait to be resolved, and demand 
for labor outpaces the supply, thereby increasing the cost.
    The DDA designation as written in the GO Zone legislation is set to 
expire on December 31, 2008. It generally takes a developer 18 to 24 
months from allocation of tax credits to placed in service status under 
ideal conditions. The Go Zone deadline threatens to repeal the DDA 
status for any project not placed in service by December 31, 2008, 
thereby increasing the overall cost of development and reducing the 
affordability of the individual units. For developments receiving tax 
credits in 2007 and 2008, the fastest development timeline of 18 to 24 
months still places the placed in service date outside the timeframe 
provided by the GO Zone legislation.
    In addition, there is one additional item that I would place as the 
highest priority to be addressed immediately so that the investment in 
affordable housing in Mississippi is not curtailed:
    To alleviate the pressures, I ask you to extend until December 31, 
2010 the deadline for placing Low Income Housing Tax Credit 
developments in service, as well as the deadline for benefits to these 
housing developments available through the GO Zone LIHTC Basis Boost.
    This additional time would allow developers to overcome the 
increases in development cost while providing ample time to work with 
government agencies and local communities to provide affordable housing 
to areas of greatest need.

                                 
         Statement of The National Association of Home Builders
    The National Association of Home Builders (NAHB) and its 235,000 
members appreciate the opportunity to comment on ``Katrina 
Redevelopment Tax Issues.'' The tax resources allocated by Congress as 
part of the Gulf Opportunity Zone Act of 2005 (the Act) are crucial to 
redeveloping housing on the gulf coast. The additional Low Income 
Housing Tax Credit (LIHTC) allocations are especially critical for the 
construction of affordable rental housing.
    The Act established a special allocation of LIHTCs for the Gulf 
Opportunity Zone (GO Zone), with each State allocation equal to $18 
multiplied by the state's population residing in the GO Zone. The cap 
applies for years 2006, 2007, and 2008. Further, a credit amount equal 
to $3.5 million for 2006 is available to the states of Texas and 
Florida. Qualified basis for all LIHTCs (including the regular LIHTC 
allocation) in the GO Zone is determined by applying the 30 percent 
basis boost. However, there is no carry forward of unused credits from 
year to year.
    Congress established a December 31, 2008 placed-in-service deadline 
for utilizing the additional GO Zone LIHTC resources to ensure that 
affordable housing is developed as quickly as possible. However, in the 
eighteen months since the hurricanes it has become apparent that the 
development process in the gulf coast region will take much longer than 
under normal circumstances. Indeed, the unprecedented devastation from 
the hurricanes has created significant obstacles for builders and 
greatly extended the time it takes to bring an affordable housing 
property from inception to being occupied. These obstacles are so 
significant that many LIHTC developers are in jeopardy of missing these 
statutory deadlines and losing their tax credits. The cost of this will 
be measured in terms of the loss of affordable housing desperately 
needed in the region.
    In the immediate term following the hurricanes it was unknown as to 
how the breadth and depth of the damage would impact the recovery and 
redevelopment process. Now, with the benefit of on-the-ground 
experience, it is appropriate to consider an extension of the placed-
in-service deadlines for LIHTC-financed properties to accommodate for 
the unusual development environment in the GO Zone. Given the 
challenges associated with reconstruction, it will be extremely 
difficult for developers to meet the current statutory deadlines for 
these tax incentives.
Factors Impacting Development of Housing on the Gulf Coast
    There are many factors that have acted to slow down the development 
process in the GO Zone. The five factors summarized below are not an 
exhaustive list, but are among the most significant.
    Availability of Predevelopment and Engineering Professionals--NAHB 
members report a scarcity of predevelopment and engineering 
professionals in the GO Zone which in turn impacts otherwise reasonable 
development timelines. There is a significant backlog of work for civil 
and soil engineers, surveyors, environmental analysts, etc in the GO 
Zone. This backlog is in part the result of a workforce depleted by the 
departure of residents who lost homes in the hurricanes and have since 
left the region. Builders attempt to work around this issue by 
employing third parties from outside the region, but this comes with 
additional cost, delays in their mobilization and unfamiliarity by 
third-party professionals with the local physical and bureaucratic 
landscapes.
    A second factor contributing to a scarcity of predevelopment 
professionals for housing redevelopment is the sheer amount of 
infrastructure repair needed in Louisiana, which absorbs a limited 
resource of skilled professionals. Federal and state governments 
initiated this repair work very soon after the hurricanes and ahead of 
reconstruction of affordable housing. Many firms are committed for 
weeks or even months at a time and are precluded from being able to 
accept additional work now for housing construction.
    Availability of Construction Labor--The same factors creating 
delays in the availability of predevelopment and engineering 
professionals apply to construction labor. Amplifying this situation is 
the fact that the majority of residents who left southeastern Louisiana 
were employed in the labor and service industries. Further, the labor 
shortage for construction will be compounded even further as 
government-subsidized residential repair and construction projects 
cycle into the actual rehabilitation and building phase. Numerous LIHTC 
projects are entering their construction phase simultaneously and all 
will compete for the same limited number of laborers.
    Availability and Cost of Construction Materials--Again, affordable 
residential construction demand is about to hit a crescendo, which 
means shortages and higher costs for building materials. Costs also are 
exceeding anticipated levels due to astronomical flood and wind 
insurance premiums forcing developers to seek out construction methods 
and materials that are outside their normal practices. There is both a 
learning curve-based delay associated with this shift, and material-
related cost inflation due to establishing economies of scale from 
suppliers. Material costs that are high on a national level--brick and 
fuel, for example--contribute to rising expense as well.
    Insurance--Builders report a dearth of available insurance in the 
GO Zone and a drastic escalation in premiums (by as much as 400 percent 
in some cases) for insurance that can be secured for both flood and 
wind risks. Housing projects cannot move forward without insurance 
coverage and finding a provider slows down the development process. 
Also, the premiums required are most often not what were anticipated at 
the time many properties were originally underwritten. As a result, 
these properties cannot financially sustain the additional cost. In 
order to bring the insurance cost down as well as to meet more 
stringent FEMA requirements, many projects must be redrawn with higher 
elevations and the addition of other mitigation elements such as 
stronger wind-resistant windows or structural components. Drawing up 
new architectural plans sets back every aspect of development that 
follows from engineering evaluations to local permitting.
    Local Regulatory Delays--Many local jurisdictions in the GO Zone 
are significantly understaffed in inspectors, plan reviewers and other 
permitting professionals to meet demand. Inspectors brought in from 
outside the region are helping to meet the shortage, but struggles 
remain. In addition, the high level of redevelopment activity has set 
back the review process so much that it can take months to even secure 
a design review hearing with local planning entities.
Conclusion
    For all of the factors noted above, NAHB would recommend an 
extension in the placed-in-service deadlines for properties in the GO 
Zone financed through LIHTCs. As currently written, these placed-in-
service requirements could result in many of the tax credits going 
unused because properties cannot be completed within the time limits 
set by law.
    Thank you for the opportunity to submit the views of NAHB on these 
important issues. We look forward to working with the committee to 
ensure that resources allocated by the Congress are used most 
efficiently and effectively to aid in the recovery on the gulf coast 
region. While this statement focuses on the Katrina redevelopment tax 
issues, NAHB also looks forward to working with the committee as it 
considers other key matters related to the recovery of the impacted 
region. We stand ready to work with Congress and the federal government 
in delivering safe, decent, affordable housing in the Gulf Coast.

                                 
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