The many billions of dollars needed to repair the devastation caused by Hurricane Sandy in the New York metropolitan area will come from many sources.
Among those will likely be new tax-exempt private-activity bonds authorized by the federal government. Such bonds provide low-cost financing because the interest they pay is exempt from federal, state and local income taxes.
Already, the Council of Development Finance Agencies has issued a call for the creation of Hurricane Sandy Recovery Bonds.
Such an initiative would, as CDFA acknowledges, be patterned on the Gulf Opportunity Zone Bonds enacted by Congress in 2005 to help the economies of Louisiana, Mississippi and Alabama recover from Hurricane Katrina. The three states were given a total of $14.9 billion in GO Zone bond allocations.
So how did GO Zone bonds work out for the Gulf states?
Not very well. Soon after the GO Zone process began, Good Jobs First published a report commissioned by Interfaith Worker Justice that warned of pitfalls in the way the program was structured. We pointed out that because Congress qualified large swaths of the three states for the financing, areas that were not hit hard by the storm would get a disproportionate share of the assistance. We also predicted that big portions of the funding would be gobbled up by large corporations.
Unfortunately, our concerns turned out to be valid. According to data we’ve just obtained from the Louisiana Bond Commission, Orleans Parish (i.e. New Orleans) used only 3.3 percent of the state’s GO Zone bond allocation, while most of the money went to parishes that are dominated economically by the petrochemical industry, both those in “Cancer Alley” between New Orleans and Baton Rouge and those in the southwestern part of the state.
The Bond Commission data also make it clear that some giant corporations did, in fact, get outsized allocations. For example:
- Marathon Oil got $1 billion for a refinery project in St. John the Baptist Parish;
- Nucor got $600 million for its steel operation in St. James Parish;
- Exxon Mobil got a total of $522 million for three projects in East Baton Rouge Parish; and
- Valero Energy got $300 million for a hydrocracker at its refinery in St. Charles Parish.
Some big companies went to the GO Zone trough multiple times. International-Matex Tank Terminals, which operates bulk liquid storage facilities, received a total of $490 million for eight different projects. Westlake Chemical Corporation, whose products include polyvinyl chloride and plastic food wrap, received a total of $439 million for six different projects.
We predict now that, absent targeting safeguards, Hurricane Sandy Recovery Bonds would follow the same pattern. They might very well go to some of the same giant petrochemical corporations that do business in Louisiana for their New Jersey facilities or to megabanks in Manhattan that may not have suffered serious storm damage—and in any case can afford to pay for their own recovery.
This can be avoided by intentionally targeting the assistance to the hardest-hit areas and to small businesses which need the most help accessing low-cost credit.
We will be monitoring these developments through our Good Jobs First affiliate Good Jobs New York, which has been the leading watchdog on the reconstruction funds that flowed into New York City in the wake of the 9/11 attacks. These funds had many of the same injustices as GO Zone bonds. Of the $8 billion in triple tax-exempt private activity bonds specially enacted by Congress for Lower Manhattan, more than 20 percent, or $1.65 billion, went to Goldman Sachs alone for its new headquarters building.
GJNY is urging that Sandy aid programs be structured intentionally so that small businesses get priority over giant ones and that accountability and sustainability principles be applied. Let’s take lessons from Katrina and 9/11 so that Sandy reconstruction money does not repeat those troubled histories.