Statement of Dianne Bolen, Executive Director, Mississippi Home Corporation, Jackson, Mississippi Testimony Before the Subcommittee on Oversight of the House Committee on Ways and Means March 13, 2007 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 |