After Hurricane Katrina ripped through New Orleans in 2005, the city received more than $1 billion in tax-free bonds known as Go Zone incentives. These federal funds were meant to spur reinvestment in the devastated city, but more than four years later most of the money remains on the table.
“As of July 20, approximately $740 million has not been utilized,” Greater New Orleans Inc. senior vice president of business development Andrea St. Paul-Bland says. GNO Inc. is a public-private partnership designed to foster economic development for the 10-parish greater New Orleans region. “Some of the allocation has been set aside for projects, but those projects have been delayed (mostly) due to the financial markets.”
Developers could be running out of time to take advantage of Go Zone funds, since federal law mandates that any project underwritten by this money must be completed by the end of 2010. The amount of unclaimed funds spurred Louisiana senator Mary Landrieu to push for an extended deadline, but that extension is still up in the air.
“I don’t know if they’re going to get extended for the New Orleans area,” St. Paul-Bland says. “We have a priority allotment for certain portions of Louisiana that expires at the end of this year, and I’m not sure whether or not the governor will ask for that allocation to be retained within the most hurricane-distressed regions or whether they’ll be redistributed for reallocation throughout the state of Louisiana.”
In a thriving economy, Go Zone incentives would be a far more popular means of encouraging development within New Orleans. However, today’s tight credit market means that developers may be shy of trying to get projects off the ground.
“The Go Zone bond funding is very attractive in terms of making a project more affordable, but it will not necessarily source capital for a project. You still have to get a bank to finance it,” St. Paul-Bland says. “A lot of (bonds) have been allocated but not necessarily funded, and I think that is a function of the financial-market (turbulence).”
One recent allocation occurred in mid-September, when $300 million was allotted to Sea Point, a proposed port complex that developers say will facilitate shipping activity through the Port of New Orleans.
Meanwhile, another developer incentive exists in the form of historic tax credits, a package of both federal and state funds. “New Orleans has huge sections that are classified as historic districts. It’s one of the cities in the U.S. that has mile after mile of historic housing and commercial real estate; hundreds of (old) buildings are fairly commonplace here and there are extremely generous historic tax credits at the state and federal (levels),” St. Paul-Bland says. “You can get back 51 percent of the renovation cost of a qualified building, so if you bought a building for $1 million and spent $1 million renovating it, you could actually get back $500,000.”
These tax credits are stackable, meaning they can be combined with other funds. “You can add to it new market credits that have a fair market value of about 18 percent, so when you stack all that, you’re up to 68 percent of the renovation cost in tax credits,” St. Paul-Bland says. “It’s really, really attractive, and I think you’ll see a lot of charming, historically significant buildings and housing stock as well being renovated to be put back into commerce at a higher and better use, so I think you’ll be seeing the revitalization of New Orleans occur very rapidly.”