As Haiti struggles to pull itself together, French finance minister Christine Lagarde is pushing to expedite a cancellation of hundreds of millions of dollars in Haitian government debt. Haitian historian Alex von Tunzelmann said, “For all of the 19th century and most of the 20th century, Haiti was unable to develop normally” because of crushing debt.
Vice President Joe Biden visited New Orleans last week to annouce that the federal government was willing to cancel debts related to disaster damage along the Gulf Coast. Biden said local governments in Louisiana and Mississippi would be eligible for forgiveness of their Special Community Disaster Loans, issued after hurricanes Katrina and Rita. For New Orleans, this will mean writing off $240 million in loans used to rebuild schools, municipal buildings, transit and infrastructure.
Clearing almost a quarter of a billion dollars is helpful, but a large issue that deals more with time limits remains unresolved. Louisiana was given a total of $13.6 billion, half to benefit low- to moderate- income individuals, but was given a limited amount of time to spend it – first through 2007, and then an extension until the end of this year. After that, it goes back to the federal government.
In terms of housing, about $592 million in community development block grants are married to low-income housing tax credits under the Piggyback Program run by the Louisiana Recovery Authority and the Louisiana Housing Finance Agency. If the tax credits were sold to investors, as normal business goes, it would create over $1 billion in equity, which is needed to complete 7,754 housing units, just a fraction of what was lost in the storms. However, business has not been normal, and investors have not been buying the credits, causing the the grant money to sit widowed.
Two major disasters have happened since Congress’ last allocation of disaster money in December 2007: the one-two punch from hurricanes Gustav and Ike, and the recession. These events have slowed recovery, but Congress is acting indifferent at best towards pleas from the state for another extension.
Two bills now before Congress seek a one-year extension. One bill sponsored by Sen. Mary Landrieu (D-La) would extend the date for low-income housing tax credit developments; it was introduced in October and is lingering in committees. That’s the same fate as another bill she co-sponsored in June to make the tax credits eligible for cash exchange through the stimulus act.
More than 6,200 affordable rental units are not completed along the Gulf Coast – some 500 in New Orleans – because of this problem. And while a year is helpful, and maybe all Congress would be willing to offer, it still may not be enough.
Close to $1 billion in housing and development construction money could be lost if an extension is not granted.
As we are seeing with Haiti, some believe loan forgiveness is good policy for long-term recovery and are acting accordingly. However, there’s something to be said about putting the right terms in place to begin with so that recovery can happen with some semblance of normalcy – meaning flexibility with money and time. After all, forgiveness is mostly reactive policy, often offered after an impoverished region has been devastated to the point that repayment is impossible.