COMMITTEE ON WAYS AND MEANS CHARLES B.  RANGEL, New York, Chairman
FORTNEY PETE STARK, California SANDER M.  LEVIN, Michigan JIM MCDERMOTT, Washington JOHN LEWIS, Georgia RICHARD E.  NEAL, Massachusetts MICHAEL R.  MCNULTY, New York JOHN S.  TANNER, Tennessee XAVIER BECERRA, California LLOYD DOGGETT, Texas EARL POMEROY, North Dakota STEPHANIE TUBBS JONES, Ohio MIKE THOMPSON, California JOHN B.  LARSON, Connecticut RAHM EMANUEL, Illinois EARL BLUMENAUER, Oregon RON KIND, Wisconsin BILL PASCRELL JR., New Jersey SHELLEY BERKLEY, Nevada JOSEPH CROWLEY, New York CHRIS VAN HOLLEN, Maryland KENDRICK MEEK, Florida ALLYSON Y.  SCHWARTZ, Pennsylvania ARTUR DAVIS, Alabama	JIM MCCRERY, Louisiana WALLY HERGER, California DAVE CAMP, Michigan JIM RAMSTAD, Minnesota SAM JOHNSON, Texas PHIL ENGLISH, Pennsylvania JERRY WELLER, Illinois KENNY HULSHOF, Missouri RON LEWIS, Kentucky KEVIN BRADY, Texas THOMAS M.  REYNOLDS, New York PAUL RYAN, Wisconsin ERIC CANTOR, Virginia JOHN LINDER, Georgia DEVIN NUNES, California PAT TIBERI, Ohio JON PORTER, Nevada
Janice Mays, Chief Counsel and Staff Director Brett Loper, Minority Staff Director SUBCOMMITTEE ON OVERSIGHT JOHN LEWIS, Georgia, Chairman
JOHN S.  TANNER, Tennessee RICHARD E.  NEAL, Massachusetts XAVIER BECERRA, California STEPHANIE TUBBS JONES, Ohio RON KIND, Wisconsin BILL PASCRELL JR., New Jersey JOSEPH CROWLEY, New York	JIM RAMSTAD, Minnesota ERIC CANTOR, Virginia JOHN LINDER, Georgia DEVIN NUNES, California PAT TIBERI, Ohio
Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public hearing records of the Committee on Ways and Means are also, published in electronic form. The printed hearing record remains the official version. Because electronic submissions are used to prepare both printed and electronic versions of the hearing record, the process of converting between various electronic formats may introduce unintentional errors or omissions. Such occurrences are inherent in the current publication process and should diminish as the process is further refined.

Advisory of March 6, 2007, announcing the hearing

WITNESSES

Milton Bailey, President, Louisiana Housing Finance Agency, Baton Rouge, Louisiana

Dianne Bolen, Executive Director, Mississippi Home Corporation, Jackson, Mississippi

SUBMISSIONS FOR THE RECORD

Alabama Housing Finance Authority, Montgomery, AL, statement

Honorable William J. Jefferson, a Representative in Congress from the State of Louisiana, statement

Kristina C. Cook, National Affordable Housing Management Association, Alexandria, VA, statement

OMB Watch, statement

State of Mississippi, statement

The National Association of Home Builders, statement

Tuesday, March 13, 2007

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

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:]

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 home ownership 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, effected 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. Business owners 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 invest6ed 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 and 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:]

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:]

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 six 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 time frame.  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 to 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 two 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 home ownership, 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?  Afterwards, the property is available on the open market?

Mr. BAILEY.  That is correct.  That would be roughly five 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 three 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 monies.  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 monies 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, et cetera, 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 work force 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 homebuyers 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 nine 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 nine year recapture period, thereby helping ensure that the bond proceeds are distributed to families who genuinely need the program.

Response from Mr. Bailey:

[Submissions for the Record follow:]

Alabama Housing Finance Authority, Montgomery, AL, statement

Honorable William J. Jefferson, a Representative in Congress from the State of Louisiana, statement

Kristina C. Cook, National Affordable Housing Management Association, Alexandria, VA, statement

OMB Watch, statement

State of Mississippi, statement

The National Association of Home Builders, statement