N.O. gains little from GO zone
BR got more from storm-recovery program than many destroyed areas
Nearly seven years after Hurricane Katrina destroyed his neighborhood in New Orleans East, Austin Badon still drives to another parish when he needs a gallon of milk or a new pair of socks.
Homeowners like Badon, who is a state legislator, returned and rebuilt after the area was inundated when the levees failed. But the buildings where they shopped, saw movies and sought medical care are either leveled or deserted.
An empty lot marks the spot where the shopping mall once stood. The vacant movie theater is a place to dump trash. Law enforcement officers are stationed in front of the still shuttered Methodist Hospital to deter trespassers. Part of the hospital complex is visible from Interstate 10.
“Three prime buildings are just sitting here vacant, and that’s how we’re judged, by what people see on the I-10,” lamented Badon, D-New Orleans.
The Gulf Opportunity Zone, or GO Zone, program was supposed to put areas like New Orleans East on the road to recovery after hurricanes Katrina and Rita through $7.8 billion in tax-free, low-interest borrowing.
Instead, parishes with relatively little damage tended to benefit the most from the program, while devastated parishes, with the exception of Calcasieu, reaped far smaller rewards.
State officials blame a credit market crunch combined with bankers’ reluctance to invest in heavily damaged areas. The officials say they did not receive a flood of applications from New Orleans and most other storm-ravaged areas.
“I think everybody wishes that we could have spent more of the money in more severely impacted areas, but government could do nothing about it. It was up to the private sector,” said State Treasurer John Kennedy.
The GO Zone program was part of the Bush administration’s approach to rebuilding a shattered New Orleans after Katrina left most of the city underwater.
The program also applied to areas hit by Hurricane Rita a few weeks after Katrina.
The program was designed to spur rebuilding by offering developers a cheap way to borrow money. Developers lined up to apply through the state for the bonds, which amounted to low-interest loans with banks putting up the cash. State officials decided who received the bond capacity. Addressing the nation from a deserted Jackson Square two weeks after Katrina made landfall near Buras, then-President George W. Bush described the GO Zone program as an initiative that would help the city build higher and better.
“It is entrepreneurship that creates jobs and opportunity. It is entrepreneurship that helps break the cycle of poverty, and we will take the side of entrepreneurs as they lead the economic revival of the Gulf region,” Bush said.
New Orleans ended up getting a little more than 3 percent of Louisiana’s $7.8 billion allocation.
The bigger winners were Calcasieu, East Baton Rouge, St. James, St. John the Baptist and Ascension parishes.
Calcasieu, which was battered by Hurricane Rita about a month after Katrina, received 20.9 percent of the borrowing. East Baton Rouge Parish, which compared to other areas sustained little damage from the storms, came in second, receiving 15.7 percent of the bonds.
Huge oil companies benefitted, as did major corporations in parishes minimally impacted by the 2005 storms.
Developers in East Baton Rouge Parish received a total of $1.2 billion in bonds to construct office buildings, a pipe mill, a film studio, homes, automotive dealerships and hotels. ExxonMobil snapped up $500 million in capacity to expand its existing Baton Rouge refinery. Metro Airport took out $6 million in bonds to build an aircraft hangar to be leased by Dow Chemical, touting that the project would create eight new permanent jobs.
The $257 million borrowed by New Orleans developers tended to go to modest projects, with the exception of $97 million to increase the number of rental cars available at Louis Armstrong International Airport.
The two largest projects were in St. John the Baptist and Calcasieu parishes. The Ohio-based Marathon Oil Corp. used $1 billion in GO Zone bonds to help finance an expansion in daily oil refining capacity in Garyville. New York-based Leucadia National Corp. used more than $1 billion in bonds to build a Lake Charles gasification plant.
Requests for GO Zone bonds were handled by the state Bond Commission, which oversees state borrowing. The state Department of Economic Development, whose head is appointed by the governor, also had input.
Former state legislator Jim Tucker, who was House speaker when some of the GO Zone decisions were made, said New Orleans did not rebound as quickly as expected, leading to a lag in bond requests for that parish.
“It wasn’t because Orleans projects got turned down ... We just didn’t have a lot of requests,” said Tucker, who is from Terrytown in Jefferson Parish.
Bond counsel Meredith Hathorne, who often handles borrowing issues for the city of New Orleans, cited several reasons why the city didn’t get a larger share of the GO Zone bonds.
“There were a variety of factors that affected the use by borrowers in New Orleans of the GO Zone capacity, including the credit markets downturn that started in 2008, the lack of manufacturing projects in New Orleans, and the fact that GO Zone did not convey creditworthiness to borrowers, but merely offered a lower tax-exempt interest rate,” Hathorne said.
Hathorne said the manufacturing projects in other parts of the state were for huge, capital-intensive projects such as the Nucor steel and iron plant in St. James Parish and the Marathon refinery.
The GO Zone program spanned the administrations of two governors — Kathleen Blanco and Bobby Jindal.
The bonds proved to be wildly popular. In 2007, with demand outpacing supply, a dispute arose over whether the commission or Blanco should decide who received a share of the dwindling bond capacity. Another concern was that the parishes hardest hit by the hurricanes were not benefitting enough from the program.
The bickering ended with an agreement that half of the dwindling pool of incentives would go to Calcasieu, Cameron, Iberia, Jefferson, Lafourche, Orleans, Plaquemines, St. Bernard, St. Tammany, Tangipahoa, Terrebonne, Vermilion and Washington parishes.
However, there still were complaints when the program wrapped up last year that big corporations benefitted too much.
With the Jindal administration’s backing, steel giant Nucor Corp. received a $600 million allocation to build its facility . Also participating in the program were Coca-Cola, International-Matex Tank Terminals and NuStar Energy.
“If you had to do it over, would you do it differently? I would,” Tucker said.
Kennedy said he and other state officials tried to serve a bigger slice of the pie to New Orleans and other hard-hit areas. At one point, Kennedy said, he and Jindal invited bankers to the Governor’s Mansion to try to break the logjam in the flow of money between financial institutions and developers in devastated areas. He said only a little progress was made.
Finally, with six months left in the program, state officials opened the gate on access to the pool of bonds originally set aside just for the hardest-hit parishes. State Department of Economic Development Secretary Stephen Moret said a large portion of the reserved allocation otherwise would have gone unused.
“I cannot recall a single proposed project that met federal eligibility criteria in the most heavily impacted parishes that was not approved for a GO Zone bond allocation; unfortunately, the issue was that there were simply more projects proposed in the less impacted areas,” he said by e-mail.
The program ended with an unused borrowing balance of $180.
State Senate President John Alario, R-Westwego, said Louisiana officials held onto the pool of bonds reserved for the most-damaged parishes for a long time before relenting.
“They just didn’t come with the projects,” Alario said. “It wasn’t giveaway money. You had to pay it back.”
In New Orleans East, nearly seven years after the storm, there are some bright spots.
“You want to see a success story?” Badon asks before turning his SUV in the direction of a park with a newly refurbished swimming pool and walking path.
At the back of Joe Brown Park, work is nearing completion on a football field dubbed Victory Field.
GO Zone borrowing did not create this field of dreams.
Instead, it was the work of the city of New Orleans, Nike and a famous football player.
“This is a real success story,” Badon said proudly. “This is part of the Drew Brees Foundation.”