By Kenneth J. Theisen, 8/14/07
While the
response of the Bush regime and the federal government to Hurricane Katrina was
a major disaster for those who were poor in the Gulf States, it has proven to
be a financial windfall for providing large federal tax breaks to luxury condo
investors in Alabama. Several
condominium projects are being erected in Tuscaloosa,
Alabama near the University of Alabama’s
football stadium. Condo units in these projects are going for up to $1 million
each. And U.S. taxpayers are picking up
part of the tab as a result of tax benefits provided by the Gulf Opportunity
Zone Act of 2005 (GO Zone) which was allegedly passed to provide relief to
those most impacted by Hurricane Katrina.
But those occupying these new condos will not be the poor displaced in New Orleans.
Under the GO Zone, tax
breaks were provided to allegedly stimulate construction in Mississippi,
Louisiana and Alabama. The Act provides tax-free bonds to developers for
commercial projects. It further provides
accelerated depreciation to real estate investors such as those who built these
condos in Tuscaloosa which is some 200 miles
inland from the Gulf Coast and suffered relatively light damage from
Katrina as compared to places like New Orleans
or Biloxi.
But Tuscaloosa
had one advantage over the city of New
Orleans. It was where Republican Senator Richard
Shelby came from. Shelby sat on the Senate Appropriations
Committee and he knows how to bring home the bacon. He assured Tuscaloosa would be part of the Go Zone, thus
making it eligible for federal assistance and relief. The tax breaks have resulted in a mini-condo
boom for the home of the Crimson Tide. I
am sure this comes as a comfort to the tens of thousands of Katrina residents
living in unsafe trailers or without any government assistance.
A condo investor could
potentially deduct $155,000 of the cost of a $300,000 condo utilizing the
savings to lower his taxes on other rental investment income under the GO Zone
tax break. Without this benefit the
depreciation benefit would be less than $11,000 from a single year. So the rich investor taking advantage of the
Act could profit to the tune of $144,000 in one year thanks to Senator Shelby.
Incidentally these tax
breaks are not available to someone who buys a home in which they intend to reside.
They only benefit investors and developers.
According to an Associated Press story, one investor bought 30 condo
units in Tuscaloosa
due to the resulting tax breaks. I doubt
if any Katrina victims will occupy any of the condos either. These tax breaks
under the Act will cost the treasury $3.5 billion in a ten-year period
according to the Congressional Budget Office.
Maybe some of the money from those billions may trickle down to those in
New Orleans and other hard hit areas – someday.