Harvey recovery could use new ‘GO Zone’
As any individual, community or state hit with a natural disaster can attest, the road to recovery can be long. It may also be shortened, particularly with a wellconsidered mix of federal incentives and private investment. For Texas, Florida and Puerto Rico — all or parts of which were devastated by Hurricanes Harvey, Irma and Maria in August and September— we need only look back a decade for proof that publicprivate programs can spur job growth, commercial and manufacturing activity, and overall economic recovery.
GO Zones: An effective response to the 2005 hurricane season
In an eerie preview of what happened to Texas, Florida and Puerto Rico, a triple-punch of hurricanes (Katrina, Rita and Wilma) slammed into Alabama, Louisiana, Mississippi and Florida in 2005. Responding to the scale of the damage, Congress passed the Gulf Opportunity Zone Act, or “GO Zone” Act, centered around a five-year program designed to encourage private-sector investments and spur recovery in designated areas.
Marquee features of the act included commercial rebuilding and manufacturing incentives, tax credit incentives, special tax-exempt bonding authority, and housing incentives in the areas affected by the hurricanes. Businesses and private investors responded immediately, and the GO Zones experienced significant job creation, increased commercial and manufacturing activity, and decreased need for federal relief dollars.
New disasters require renewed legislation
Following Harvey, Irma and Maria, President Donald Trump declared major disasters in affected states and U.S. territory. Shortly thereafter, some government relief was issued for individuals, businesses and other entities . Rep. Kevin Brady, R-The Woodlands, also introduced the Airport and Airway Extension Act of 2017, which also provided relief to certain entities.
However, an important — and proven — tool in the federal toolkit remains unused: encouraging private investment in areas most affected by the storms, through legislation that mimics the 2005 GO Zone Act.
Four types of GO Zone programs
Some of the most effective programs established by the GO Zone Act of 2005 allowed businesses to claim additional deductions for certain investments and expenses incurred as a result of that year’s hurricanes. Among other options, eligible small businesses located in the GO Zones were allowed to claim an addi-
tional first-year depreciation deduction equal to 50 percent of the adjusted basis of qualified GO Zone property; to expense up to an additional $100,000 of qualifying investments made in qualified section 179 GO Zone property; and to expense up to 50 percent of cleanup and demolition costs. Taxpayers could also deduct certain brownfield expenditures.
Tax-credit programs encouraged commercial recovery and development through, among other options, an expanded and extended employee retention tax credit. An additional $1 billion in new market tax credit allocations among qualified community development entities encouraged them to make lowincome community investments within the GO Zone, and a new category of tax credit bonds was created that could be issued by GO Zone states.
A third category of programs focused on the use of tax-exempt bonds to provide state and local governments with more flexibility to finance new projects or restructure existing debt.
Finally, a fourth category of housing incentives included expanded lowincome housing tax credit allocations and the waiver of first-time homebuyer requirements so that individuals whose homes were destroyed were able to qualify for special low-interest rate mortgages and to use up to $150,000 of such loan proceeds to repair damaged homes.
States must work together to convince legislators
The results of the GO Zone Act of 2005 are undeniable. While the damage caused by that year’s hurricanes was severe, communities in the GO Zone were able to rebound more quickly, create more jobs and generate more economic activity following the influx of private investment dollars and federal tax credits.
Texas, Florida and Puerto Rico needed and continue to need today, similar legislation to help move their recoveries forward. Because the hurricane damage in 2017 (as in 2005) crossed state lines, a federal government response is appropriate. Alone, no U.S. state or territory is likely to have the political force to spur legislative action at the federal level. Working together, however, they can persuade our federal legislators to establish a framework for investing in and rebuilding their communities.