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Rebuilding bama MOBILE, Ala. -- Alabama has begun allocating tax-free bonds that Congress designated to kick start development along the hurricane-battered Gulf Coast, but just two of the projects funded thus far are directly tied to disaster recovery, records show. In the nine weeks since Gov. Bob Riley asked for applications, at least 19 new projects have been approved. They include $1.2 million for a "Mexico North" restaurant in Tuscaloosa County, $2.6 million for a motel in Demopolis and $89.3 million for the stalled Spanish Fort Town Center retail development in Baldwin County. Only two approved applications said the money would directly involve Hurricane Katrina recovery -- a total of $110 million to finance home mortgages obtained by the Alabama Housing Finance Authority. About one-third of the available financing has been awarded. Slightly more than half of the projects, worth $394 million, are in Mobile and Baldwin counties. All of the projects appear to meet the requirements of the bond program. The Gulf Opportunity Zone Act passed by Congress in late 2005 gives Riley wide latitude in allocating bonds worth $2.17 billion for new projects and $1.13 billion for refinancing. The bonds must be issued by Jan. 1, 2011. State Finance Director Jim Main said last week that every legitimate application has gotten an award, and there is not enough demand for projects in the hardest hit areas to justify turning down other applicants. "If we don't use it, we lose it," Main said. "This is a little window of opportunity that the federal government has given us to get a little shot in the arm economically to overcome the effects of the hurricanes." But critics say the spirit of the GO Zone act has been violated. "Now we've seen basically that this has become a slush fund for people who are just looking for cheap financing, rather than for people who are trying to rebuild after the hurricane," said Keith Ashdown, vice president of policy for Washington, D.C.-based Taxpayers for Common Sense. The GO Zone act restricts the $2.17 billion in bonds for new development
to 11 counties in the southwest corner of the state. But the $1.13 billion
available for refinancing gives municipalities in any of Alabama's 67
counties a rare second chance to reconfigure existing debt. Thus, towns
more than 350 miles north of the coast, including Huntsville and Muscle
Shoals, are also getting in on the GO Zone bond action. When signing the act in December, President Bush said it would "help the citizens of the Gulf Coast continue to put their lives back together and rebuild their communities." Riley was able to start allocating the money at the same time he's running for re-election against Democratic challenger, Lt. Gov. Lucy Baxley. The governor said that new project applications will be judged on four criteria: --replacing property damaged by the Aug. 29 hurricane; --rebuilding infrastructure destroyed by the storm; --improving the quality of life, and --new economic development projects. The two largest awards to date fit the fourth category. A total of $255 million has been allocated to the Northrop Grumman Corp./EADS North America team that hopes to build Air Force tankers in Mobile plants. The assembly plants, which were already promised $105 million in state incentives, will be built only if the team wins a contract for the work. All the approved GO Zone projects have been certified by local bond authorities and attorneys to be valid and legal, Finance Director Main said. "That cuts a lot of confusion out," he said. "We don't just have city councilmen on their own sending in an application." The Tuscaloosa County Industrial Development Authority, which has been approved for $13.7 million in financing for five projects, sent Riley a letter criticizing the approval criteria. It suggested that two-thirds of the financing be allocated in proportion to population with the remaining third used by Riley to fund "trophy projects," according to the May 2 letter. The GO Zone law allows businesses that normally wouldn't qualify for tax-free bonds to apply for them, according to Mobile attorney and bond expert Preston Bolt. "There'll be projects that will get done that wouldn't have gotten done," he said. "Obviously we prefer that all of it was devoted to this area of the state." Some businesses in the hurricane-damaged areas are scrambling to figure out how to take advantage of the bonds, including those on Katrina-walloped Dauphin Island. The Dauphin Island Chamber of Commerce spent time last week educating its members on provisions in the legislation that might spur development. "I think we have to look into it more to see what direction we want to go," said William Harper, vice president of the chamber. Refinancing statewide The governor's office has said that the refinancing money will be awarded first come, first served. About $421 million has been allocated to 36 applicants as of June 14, or 37 percent of the available total. But the hardest hit areas, where some people are still living in trailers, aren't ready to think about big projects yet, said Philip Mattera, research director of Good Jobs First, a nonprofit research center in Washington, D.C., that focuses on economic development accountability. "Other parts of the state are in a better position to move ahead quickly," he said. "If you leave it on a first-come, first-serve basis, then those areas are going to use up all the money, and the areas that need it the most are going to be left out in the cold." Huntsville has won approval to refinance about $26 million on a bond issue that was used to pay for its new municipal jail, according to Randy Taylor, finance director for the city at the heart of Alabama's northernmost large metropolitan area. The city is still determining whether the interest rates are favorable. If they are, Huntsville could use the GO Zone provision to help pay for a jail expansion. "It provides us an opportunity to do something that we wouldn't have had," Taylor said. "Without borrowing additional money, we can have more money available for public projects." Bayou La Batre, the fishing community heavily damaged in the storm, has applied for $2 million to refinance debt left over from deepening the channel in the early 1990s, according to city clerk, Donna Gainey. The city has not been granted approval from the governor's office. But if allowed to refinance, it could save on interest payments that currently total about $86,000 per year, she said. "It's not money, it's just bonds, but it will save us a lot of money
on interest every year," said Bayou La Batre Mayor Stan Wright. When cities or corporations don't have enough cash on hand to pay for a new project, they often borrow money by selling bonds to the public. In turn, bond-buyers get a way to invest money that is considered safer than the stock market, but more rewarding than a bank savings account. Governments can sell bonds that are "tax exempt," meaning that the buyers don't have to pay taxes on the yield. In return, bond buyers can expect a lower interest rate, and the municipality gets to borrow money on the cheap. Under federal law, municipalities get one chance to refinance debt -- that is, pay bonds off and borrow again if interest rates fall. But Uncle Sam offered municipalities in Alabama, Mississippi and Louisiana a rare second chance to refinance, with a governor's approval, after Katrina. That part of the act will cost the federal treasury $741 million through 2015, according to Congressional Budget Office estimates. "There's not an inherent problem, economically, with that,"
said Rush Rice, managing director of public finance for Blount Parrish
& Co. Inc. in Montgomery. But, "if all the income securities
in the world are tax free, than how is the government going to pay for
government if they aren't receiving any income taxes?" Main, the finance director, said that all areas of Alabama suffered in some way from the storm, and thus should be entitled to cash in on GO Zone provisions if eligible. A similar argument was used to justify government benefits around the country after the Sept. 11, 2001 terrorist attacks, said Ashdown of the Taxpayers for Common Sense. "I've seen it before," he said. "There were liquor stores in Utah getting 9/11 help. The argument was the whole nation suffered from 9/11." Routing the bonds to projects unrelated to storm relief also creates mistrust and cynicism toward aid for the Gulf Coast, he said. "When our neighbors in the Gulf are in harm's way, we've got to open the checkbook and do what we have to, to help them," Ashdown said. But, "when you see this type of misuse of money, it makes people doubt making the same type of investment next time. That's the real damage from this." (Capital bureau reporter Sallie Owen contributed to this report.) © 2006 The Mobile Register |