Community Development: Limited Information on the Use and Effectiveness of Tax Expenditures Could Be Mitigated through Congressional Attention
Released: 2012-03-30T00:00:00


Highlights: section_title: Why GAO Did This Study
paragraphs: Tax expenditures—exclusions, credits, deductions, deferrals, and preferential tax rates—are one tool the government uses to promote community development. Multiple tax expenditures contribute to community development. GAO (1) identified community development tax expenditures and potential overlap and interactions among them; (2) assessed the data and performance measures available and used to assess their performance; and (3) determined what previous studies have found about selected tax expenditures’ performance. GAO identified community development activities using criteria based on various federal sources and compared them with authorized uses of tax expenditures. GAO reviewed agency documents and interviewed officials from the Internal Revenue Service (IRS) and five other agencies. GAO also reviewed empirical studies for selected tax expenditures, including the New Markets Tax Credit and Empowerment Zone program which expired in 2011.

section_title: What GAO Found
paragraphs: GAO identified 23 community development tax expenditures available in fiscal year 2010. For example, five ($1.5 billion) targeted economically distressed areas, and nine ($8.7 billion) supported specific activities such as rehabilitating structures for business use. The design of each community development tax expenditure appears to overlap with that of at least one other tax expenditure in terms of the areas or activities funded. Federal tax laws and regulations permit use of multiple tax expenditures or tax expenditures with other federal spending programs, but often with limits. For instance, employers cannot claim more than one employment tax credit for the same wages paid to an individual. Besides IRS, administering many community development tax expenditures involves other federal agencies as well as state and local governments. For example, the National Park Service oversees preservation standards for the 20 percent historic rehabilitation tax credit. Fragmented administration and program overlap can result in administrative burden, such as applications to multiple federal agencies to fund the needs of a distressed area or finance a specific.

Limited data and measures are available to assess community development tax expenditures’ performance. IRS only collects information needed to administer the tax code or otherwise required by law, and IRS data often do not identify the specific communities assisted. Other federal agencies helping administer community development tax expenditures also collect limited information on projects and associated outcomes. GAO has long recommended that the Executive Branch improve its ability to assess tax expenditures, but little progress has been made in developing an evaluation framework. Generally, neither these agencies, nor the Department of the Treasury or the Office of Management and Budget (OMB) have assessed or plan to assess community development tax expenditures individually or as part of a crosscutting review. The Government Performance and Results Act Modernization Act of 2010 (GPRAMA) calls for a more coordinated approach to focusing on results and improving performance. OMB is to select a limited number of long-term, outcome-oriented crosscutting priority goals and assess whether the relevant federal agencies and activities—including tax expenditures—are contributing to these goals. These assessments could help identify data needed to assess tax expenditures and generate evaluations of tax expenditures’ effect on community development. Through related GPRAMA consultations agencies are to have with Congress, Congress has a continuing opportunity to say whether it believes community development should be among the limited number of governmentwide goals. While community development was not on the interim priority list, Congress also can urge more evaluation and focus attention on community development performance issues through oversight activities.

In part due to data and methodological limitations, previous studies have not produced definitive results about the effectiveness of the New Markets Tax Credit, Empowerment Zone tax incentives, historic rehabilitation tax credits, and tax aid for certain disaster areas. A key methodological challenge is\ demonstrating a causal relationship between community development efforts and economic growth in a specific community. As a result, policymakers have limited information about the tax expenditures reviewed, including those that expired after 2011, and ways to increase effectiveness.

section_title: What GAO Recommends
paragraphs: Congress may wish to provide OMB guidance on whether community development should be among OMB’s long-term crosscutting priority goals, stress the need for evaluations, and focus attention on addressing community development tax expenditure performance issues through its oversight activities. Two agencies questioned the matters for congressional consideration or findings. GAO believes its analysis and matters remain valid as discussed in the report.

section_title: Letter
paragraphs: Community development programs, if designed and administered  efficiently and effectively, can contribute to citizens’ well-being at the least  cost to taxpayers. Community development encompasses a wide range  of activities, including certain economic development activities such as  strategies for reducing unemployment as well as constructing roads and  sewer systems to attract industry. Community development programs  may also fund construction and rehabilitation of commercial structures. In  addition to tens of billions of dollars annually in grants, loans, and loan  guarantees, the federal government provides community development  funding channeled through the tax code. As we reported in March 2011,  tax expenditures—exclusions, credits, deductions, deferrals, and  preferential tax rates—and the wide range of other policy tools used can  contribute to mission fragmentation and program overlap.

GAO, Efficiency and Effectiveness of Fragmented Economic Development Programs  Are Unclear, GAO-11-477R (Washington, D.C.: May 19, 2011). Economic development  activities include, but are not limited to, planning and developing strategies for job creation  and retention, developing new markets for existing products, building infrastructure by  constructing roads and sewer systems to attract industry to undeveloped areas, and  establishing business incubators to provide facilities for new businesses’ operations. For a  fuller description of economic development activities, see GAO, Rural Economic  Development: More Assurance Is Needed That Grant Funding Information Is Accurately  Reported, GAO-06-294 (Washington, D.C.: Feb. 24, 2006). of these programs appeared to overlap with that of at least one other  program in terms of the economic development activities that they are  authorized to fund. Our May 2011 work did not include tax expenditures  aimed at economic development.

Given your interest in community development and the effectiveness of  federal tax expenditures, we (1) identified tax expenditures that promote  community development and areas of potential overlap and interactions  among them, (2) assessed data and performance measures available  and used to assess performance for community development tax  expenditures, and (3) determined what previous studies have found about  the effectiveness of selected tax expenditures in promoting community  development.

To identify community development tax expenditures, we developed a list  of community development activities based on various federal sources  and compared these activities to the authorized uses of tax expenditures.  We identified community development activities from the federal budget  definition of community and regional development, the Catalog of Federal  Domestic Assistance’s descriptions of spending programs under the  community and regional development budget function, and descriptions of  allowable uses under the Community Development Block Grant program.  Finally, we identified certain tax expenditures that banks can use to meet  their community development investment tests under the Community  Reinvestment Act (CRA). We compiled the tax expenditures for fiscal  year 2010 reported by the Department of the Treasury (Treasury) and the  Joint Committee on Taxation (JCT) under the community and regional  development budget function, and we included other tax expenditures  listed by Treasury that appeared to be at least partially intended to  support activities we had identified as community development activities.  We discussed our preliminary universe and selection rationale with  officials from Treasury, the Internal Revenue Service (IRS), and the Office  of Management and Budget (OMB) and other federal agencies  knowledgeable about these tax expenditures, and we refined the universe  as needed. For fiscal year 2010, we identified 23 community  development tax expenditures, including six legislative packages that  supported disaster relief and recovery.IRS documents to identify specific tax provisions available for certain  disaster areas.

Additionally, we used JCT and  To identify areas of potential overlap among the community development  tax expenditures, we used the definitions from our March 2011 report on  duplication in government programs:

Overlap occurs when multiple agencies or programs have similar  goals, similar activities or strategies to achieve them, or similar target  beneficiaries;

Fragmentation refers to circumstances where multiple agencies or  offices are involved in serving the same broad area of national need;  and

Duplication occurs when two or more agencies or programs are  engaged in the same activities or provide the same services to the  same beneficiaries. The presence of overlap and fragmentation can  suggest the need to look closer at the potential for unnecessary  duplication.

We compiled publicly available information about each tax expenditure’s  design and implementation, including descriptions, target geographies or  beneficiaries, volume caps and other allocation limits, and roles of  agencies involved in administration. We reviewed the Internal Revenue  Code and IRS regulations to identify allowable interactions or limits on  using community development tax expenditures together; where specified  in tax law and regulations, we also identified limits on using tax  expenditures with other federal spending programs.information we collected and the clarifications that the agencies provided,  we determined that the tax expenditure descriptive data were sufficiently  reliable for identifying potential overlap, duplication, and fragmentation.

To determine what data and performance measures are available for  community development tax expenditures, we identified the data  elements and types of information that IRS and federal agencies collect.  We also reviewed tax forms, instructions, and other guidance and  interviewed IRS officials. For certain community development tax  expenditures where other federal agencies help with administration, we  also reviewed our prior work and interviewed and collected information  from the Community Development Financial Institutions Fund (CDFI  Fund) within Treasury; HUD; and National Park Service (NPS). We  interviewed officials and reviewed documentation from OMB, Treasury,  IRS, HUD, and NPS about efforts to assess performance for community  development tax expenditures and any crosscutting reviews of related tax  and spending programs.

To determine what is known about effectiveness for selected tax  expenditures, we selected the Empowerment Zone/Renewal Community  (EZ/RC) tax programs, the New Markets Tax Credit (NMTC), and tax  expenditures temporarily available for certain disaster areas. We selected  these because they accounted for most of the 2010 revenue loss for tax  expenditures that primarily promote community development. Some  expired as of December 31, 2011.credits because they can be used in combination with other community  development tax expenditures. We reviewed studies with original data  analysis or empirical or peer-reviewed research that attempted to  measure impact, such as changes in poverty and unemployment. We  also summarized our prior findings about the selected tax expenditures.

We also selected the rehabilitation tax  Findings from the studies and our prior reports are not generalizable to  the universe of community development tax expenditures. Appendix I  contains more details about our scope and methodology.

We conducted this performance audit from January 2011 through  February 2012 in accordance with generally accepted government  auditing standards. Those standards require that we plan and perform the  audit to obtain sufficient, appropriate evidence to provide a reasonable  basis for our findings and conclusions based on our audit objectives. We  believe that the evidence obtained provides a reasonable basis for our  findings and conclusions based on our audit objectives.
subsections: section_title: Background
paragraphs: Tax expenditures are preferential provisions in the tax code, such as  exemptions and exclusions from taxation, deductions, credits, deferral of  tax liability, and preferential tax rates that result in forgone revenue for the  federal government. The revenue that the government forgoes is viewed  by many analysts as spending channeled through the tax system.  However, tax expenditures and their relative contributions toward  achieving federal missions and goals are often less visible than spending  programs, which are subject to more systematic review. Many tax  expenditures—similar to mandatory spending programs—are governed  by eligibility rules and formulas that provide benefits to all those who are  eligible and wish to participate. Tax expenditures do not compete overtly  with other priorities in the annual budget, and spending embedded in the  tax code is effectively funded before discretionary spending is considered.  Tax expenditures generally are not subject to congressional  reauthorization and, therefore, lack the opportunity for regular review of  their effectiveness.

Some  We have long recommended greater scrutiny of tax expenditures.tax expenditures may be ineffective at achieving their social or economic  purposes, and information about their performance as well as periodic  evaluations can help policymakers make more informed decisions about  resource allocation and the most effective or least costly methods to  deliver federal support. Performance measurement is the ongoing  monitoring and reporting that focuses on whether programs have  achieved objectives in terms of the types and levels of activities or  outcomes of those activities. Program evaluations typically examine a  broader range of information on program performance and its context  than is feasible to monitor on an ongoing basis. A “program” may be any  activity, project, function, or policy that has an identifiable purpose or set  of objectives, including tax expenditures. In the context of community  development programs, impact evaluations can be a useful tool to assess  the net effect of a program by comparing program outcomes with an  estimate of what would have happened in the absence of the program.  This form of evaluation is employed when external factors are known to  influence the program’s outcomes, in order to isolate the program’s  contribution to achievement of its objectives. Importantly, challenges in  performance measurement and evaluation are not unique to tax  expenditures as agencies have encountered difficulties in measuring the  performance of spending programs as well.

Pub. L. No. 111-352, 124 Stat. 3866 (2011). GPRAMA amends the Government  Performance and Results Act of 1993, Pub. L. No. 103-62, 107 Stat. 285 (1993). choices in setting priorities as government policymakers address the  rapidly building fiscal pressures facing our national government.

section_title: Overlap Exists in the Design of Community Development Tax Expenditures
subsections: section_title: Multiple Tax Expenditures Fund Community Development Activities
paragraphs: For fiscal year 2010, we identified 23 tax expenditures that fund  community development activities. Appendix II lists each tax  expenditure with information on its estimated cost, type, and taxpayer  group, as well as enactment and expiration dates. Five tax expenditures  primarily promote community development in economically distressed  areas, including Indian reservations; these programs cost the federal  government approximately $1.5 billion in fiscal year 2010. Nine tax  expenditures both support community development and address other  federal mission areas, such as rehabilitating historic or environmentally  contaminated properties for business use as well as constructing a range  of transportation facilities, such as airports and docks, and water and  hazardous waste systems. These multipurpose tax expenditures cost the  federal government approximately $8.7 billion in fiscal year 2010. Two  large state and local bond tax expenditures also may support community  development, although community development activities account for only  a portion of the total costs of those tax expenditures. Finally, the federal  government has periodically offered temporary tax relief following certain  disasters, including six packages of tax provisions focused on specific  areas as well as one provision available for any presidentially declared  disaster area. Figure 1 illustrates the mix of various tax expenditures that  support community development.

The federal government has five tax expenditures primarily to promote  community development in economically distressed areas, such as low- income communities and Indian reservations. As noted below, all but  one of these programs have expired.

The Empowerment Zones and Renewal Communities (EZ/RC)  programs ($730 million in revenue losses in fiscal year 2010) were  established to reduce unemployment and generate growth in  economically distressed communities that were designated through a  competitive process. Initially, the EZ program offered a mix of grants  and tax incentives for community and economic development, but  later EZ rounds and the RC program offered primarily tax incentives  for business development. While eligibility varied slightly by program  and round, the 40 EZ- and 40 RC-designated communities were  selected largely on the basis of poverty and unemployment rates,  population, and other area statistics based on Decennial Census  data.tax provisions expired at the end of 2011.

The RC tax provisions expired at the end of 2009, and the EZ

The New Markets Tax Credit (NMTC) ($720 million in revenue losses  in fiscal year 2010) encourages investment in impoverished, low- income communities that traditionally lack access to capital. Whereas  the EZ/RC programs target designated communities, the NMTC  targets Census tracts where the poverty rate is at least 20 percent or  where median family incomes do not exceed 80 percent of such  incomes within a state or a metropolitan area. In January 2010, we  reported that 39 percent of the Census tracts qualified for the NMTC  program and 36 percent of the U.S. population lived in these Census  tracts. The NMTC expired at the end of 2011.

Two tax expenditures—Tribal Economic Development Bonds and  Indian employment credit—target Indian tribal reservations. Indian  tribes are among the most economically distressed groups in the  United States, and tribal reservations often lack basic infrastructure  commonly found in other American communities, such as water and  sewer systems as well as telecommunications lines. Created under  the American Recovery and Reinvestment Act of 2009 (the Recovery  Act), the temporary bond authority ($10 million in revenue losses in  fiscal year 2010) provided tribal governments with greater flexibility to  use tax-exempt bonds to finance economic development projects.  The $2 billion bond authority was to be allocated by February 2010,  but Treasury and IRS have extended deadlines to reallocate unused  bond authority. The Indian employment credit expired at the end of  2011.

The Recovery Act also created temporary Recovery Zone bonds— including Recovery Zone Economic Development Bonds and  Recovery Zone Facility Bonds allocated among the states and  counties and large municipalities within the states based on  unemployment losses in 2008. These bond authorities ($60 million in  outlays in fiscal year 2010) expired at the end of 2010.

Four of the five community development tax expenditures targeted to  economically distressed areas have a statutory limit, such as a specified  number of community designations, volume cap, or allocation amount, as  shown in table 1. Although the allocation processes varied, these tax  expenditures resemble grants in that an agency—either a federal agency  or a state or local government—selects the qualifying communities,  community development entities (CDE), or projects to receive the limited  allocation available.

For the EZ/RC program, communities nominated by their state and  local governments had to submit a strategic plan showing how they  would meet key EZ program principles or a written “course of action”  with commitments to carry out specific legislatively mandated RC  activities. In selecting the designated communities, HUD and USDA  were required to rank EZ nominees based on the effectiveness of  their plans, but HUD was required to designate RCs based in part on  poverty, unemployment, and, in urban areas, income statistics.  For  designated EZs and RCs, state and local governments were  responsible for allocating certain tax provisions with specified limits,  including the RC Commercial Revitalization Deduction and EZ Facility  bonds.

For the NMTC program, the annual tax credit allocation limit was $3.5  billion for fiscal years 2010 and 2011. The CDFI Fund awards tax  credit allocations to winning CDE applicants based on application  scoring by peer review panels. The CDEs, in turn, invest in qualified  low-income community investments. As of November 1, 2011, the  CDFI Fund had allocated $29.5 billion in NMTC authority available  from 2001 to 2010 and announced $3.6 billion in 2011 tax credit  allocations on February 23, 2012.

For more on the selection process, see GAO, Community Development: Federal  Revitalization Programs Are Being Implemented, but Data on the Use of Tax Benefits Are  Limited, GAO-04-306 (Washington, D.C.: Mar. 5, 2004).

For the Recovery Zone bond programs, the national volume cap was  $10 billion for Recovery Zone Economic Development Bonds and $15  billion for Recovery Zone Facility Bonds. State and local governments  were responsible for allocating bond issuance authority to specific  projects. Tribal Economic Development Bonds had a national volume  cap of $2 billion. Tribal governments applied for allocations to issue  bonds for specific projects.

Other tax expenditures available in economically distressed communities  are comparable to entitlement programs for which spending is determined  by statutory rules for eligibility, benefit formulas, and other parameters  rather than by Congress appropriating specific dollar amounts each  year.taxes) available to all qualified claimants, regardless of how many  taxpayers claim the tax expenditures, how much they claim collectively, or  how much federal revenue is reduced by these claims. For example,  businesses may claim Indian employment tax credits for employing Indian  tribal members and their spouses without limit on the numbers or total   Such tax expenditures typically make funds (through reduced  amounts of claims. Similarly, businesses located in EZs and RCs may  claim the EZ/RC Employment Credit and the Work Opportunity Tax Credit  for employing eligible residents within an EZ or RC area without an  aggregate limit on such tax credits.

The term "brownfield site" means real property, the expansion, redevelopment, or reuse  of which may be complicated by the presence or potential presence of a hazardous  substance, pollutant, or contaminant.

Both tax credits cannot be claimed for a single rehabilitation project. Eligible  expenditures include costs incurred for rehabilitation and reconstruction of certain older  buildings. Rehabilitation includes renovation, restoration, and reconstruction and does not  include expansion or new construction. end of 2009, and the expensing of environmental remediation costs  expired at the end of 2011.

Two tax expenditures fund production of affordable rental housing for  low-income households—the Low-Income Housing Tax Credit  (LIHTC) and tax-exempt rental housing bonds. Under the LIHTC, a 9  percent tax credit is available for new construction or substantial  rehabilitation projects not otherwise subsidized by the federal  government, and a 4 percent tax credit is available for the projects  receiving other federal subsidies including rental bond financing.  Affordable housing projects must satisfy one of two income-targeting  requirements: 40 percent or more of the units must be occupied by  households whose incomes are 60 percent or less of the area median  gross income, or 20 percent or more of the units are occupied by  households whose incomes are 50 percent or less of the area median  gross income. For fiscal year 2010, two grant programs also helped  provide gap financing for LIHTC housing development following  disruption of the tax credit market in 2008.

Federally tax-exempt and tax credit bonds issued by state and local  governments also contribute to community development and other federal  mission areas by financing infrastructure improvements and other  projects. For example, state and local governments may issue private  activity bonds to finance airports, docks, and other transportation  infrastructure; large business projects tied to the employment of residents  in Empowerment Zones; and water or wastewater facilities that enable  communities to meet community facilities needs and support  development. Qualified Zone Academy Bonds (QZAB)—the authority for  which expired at the end of 2011—may be used for renovating school  facilities, purchasing equipment, developing course materials, or training  personnel at qualified public schools in economically distressed areas  including designated EZs or RCs. Whereas private activity bonds are  used to support specific private activities and facilities often intended to  generate economic development, state and local governments may also  issue tax-exempt public-purpose state and local bonds and Build America  Bonds (BAB) to help finance public infrastructure and facilities. In 2008,  we reported that a majority of state and local bonds issued in 2006 were  allocated for education or general purposes; for the latter category, it was  not clear what activities or facilities were funded by the bonds.that community development activities comprise only a portion of  governmental bonds, we did not sum the revenue losses for the two   Given  general bond provisions to avoid overstating federal support for  community development.

As shown in table 2, all of the multipurpose community development tax  expenditures involve other entities in addition to IRS in administering the  tax benefits. Five multipurpose tax expenditures resemble grants in that  state and local governments oversee the allocation process to select  qualifying projects to receive the limited allocation available. For the  LIHTC for example, state housing finance agencies (HFA) award 9  percent credits to developers for low-income housing projects based on  each state’s qualified allocation plan, which generally establishes a  state’s funding priorities and selection criteria. Although the federal  government does not set specific limits for general-purpose state and  local bonds and BABs, private activity bond financing—including for rental  housing and water systems—is generally subject to an annual volume  cap for each state, and QZABs and bond financing for certain  transportation facilities also have statutory allocation limits.

The rehabilitation and brownfields tax expenditures resemble entitlement  programs in that these tax incentives have no allocation limits and are  available to all eligible claimants. In addition to IRS’s role in administering  tax law, other federal and state agencies play a role in certifying that the  properties are eligible for tax benefits. For the 20 percent rehabilitation tax  credit for certified historic structures, the NPS, with the assistance of  State Historic Preservation Offices, certifies historic structures, approves  rehabilitation applications, and confirms that completed rehabilitation  projects meet the Secretary of Interior’s Standards of Rehabilitation. For  the brownfields tax expenditures, state environmental agencies certify  eligible properties.

The federal government has offered various mixes of temporary tax  incentives and special rules to stimulate business recovery and provide  relief to individuals after certain major disasters. See appendix VI for a  detailed list of 45 tax benefits made available for specific disaster areas.  Business recovery is a key element of a community’s recovery after a  major disaster. To assist New York in recovering from the September 11,  2001, terrorist attacks, Congress passed a 2002 package with seven tax  benefits targeted to the Liberty Zone in lower Manhattan. In the  aftermath of the 2005 Gulf Coast hurricanes, Congress enacted the Gulf  Opportunity Zone Act of 2005 (GO Zone Act) offering 33 tax benefits in  part to promote business recovery and provide debt relief for states. A  2007 Kansas disaster relief package provided 13 tax benefits for 24  counties in Kansas affected by storms and tornadoes that began on May  4, 2007. A 2008 midwest disaster relief package targeted 26 tax  benefits for selected counties in 10 states affected by tornadoes, severe  storms, and flooding from May 20 through July 31, 2008. Also in 2008,  Congress enacted a package offering eight tax benefits available to any  individual or business located in any presidentially declared disaster area  during calendar years 2008 and 2009.

The preponderance of the disaster tax incentives offered in the six  legislative packages we examined were modifications of existing tax  expenditures, including increased allocations for the NMTC, LIHTC,  rehabilitation tax credits, and tax-exempt bond financing. Several tax  packages have offered accelerated first-year depreciation allowing  businesses to more quickly deduct costs of qualified property, as well as  partial expensing for qualified disaster cleanup and environmental  remediation costs. Other tax incentives available for individuals in disaster  areas included increased tax credits for higher education expenses and  relief from the additional 10 percent tax on early withdrawals of retirement  funds. An eligible disaster area may encompass communities that were  economically distressed before the disaster as well as other communities,  and taxpayers in the qualified area may be eligible for some tax  incentives even if they did not necessarily sustain losses in the disaster.  For those disaster tax incentives available to individuals and businesses  as long as they meet specified federal requirements, the full cost to the  federal government depends on how many taxpayers claim the provisions  on their tax returns.

section_title: Community Development Tax Expenditures Overlap in Design with Some Limits on Combining Multiple Tax and Spending Programs
paragraphs: For community development, tax expenditures are not necessarily an  either/or alternative, and they may be combined to support certain  community development activities. The design of each community  development tax expenditure we reviewed appears to overlap with that of  at least one other tax expenditure, as the following examples illustrate.

Five tax expenditures targeted similar geography—economically  distressed areas including tribal areas—although the specific areas  served varied. Within the EZ- and RC-designated communities, a  variety of tax incentives were available to help reduce unemployment  and stimulate business activity.

Seven bond tax expenditures share a common goal to finance  infrastructure development.necessarily duplicative in that they allow flexibility in tax-exempt bond  financing for similar projects with different ownership characteristics.  For example, water and sewer facilities can be financed through  public-purpose governmental bonds if a governmental entity is the  owner and operator or through private activity bonds if the owner and  operator is a private business.

The various bond authorities are not

Multiple tax expenditures—including the NMTC, several EZ/RC  incentives, as well as the rehabilitation and brownfields tax  expenditures—can be used to fund commercial buildings. Within this  broad area of overlap, the tax expenditures are not necessarily  duplicative in that some target certain types of buildings. The various  tax expenditures that can be used to fund commercial buildings have  geographic or other targets that sometimes coincide and sometimes  do not. Therefore, for example, the 20 percent rehabilitation tax credit  targets certified historic structures and the 10 percent rehabilitation  credit is available for other older structures, but these eligible  structures may or may not fall within the low-income communities   eligible for NMTC assistance.

Various tax benefits made available for certain disaster areas were  largely modifications of existing tax expenditures.

The community development tax expenditures we reviewed also may  potentially overlap with federal spending programs. As discussed above,  our May 2011 report identified overlap among 80 economic development  spending programs administered by four agencies—Commerce, HUD,  SBA, and USDA.economic development spending programs that are similar to the areas of  community development tax expenditure overlap discussed above.

Appendix VII discusses areas of overlap among the  Disaster tax aid may also potentially overlap with federal financial  assistance offered through disaster assistance grants and loans.

Areas of overlap with multiple tax expenditures funding the same  community development project may not represent unnecessary  duplication, in part, because some tax expenditures are designed to be  used in combination. As an example, the 4 percent LIHTC is designed to  be used in combination with rental housing bonds. In another example,  the 20 percent historic preservation tax credit may be used in combination  with other community development tax expenditures, including the NMTC  and LIHTC. Under the Housing and Economic Recovery Act of 2008,  state HFAs are allowed to consider historic preservation as a selection  factor in their qualified allocation plans to promote redeveloping historic  structures as affordable housing.

As shown in table 3, federal tax laws and regulations impose limits on  how community development tax expenditures can be combined with  each other and spending programs to fund the same individual or project.  For example, employers cannot double dip by claiming two employment  tax credits for the same wages paid to an individual. Whereas business  investors may claim accelerated depreciation for LIHTC and NMTC  projects, businesses generally may not claim accelerated depreciation for   For the rehabilitation  private facilities financed with tax-preferred bonds.tax credits and brownfield tax incentives, taxpayers may not claim costs  funded by federal or state grants. Also, rehabilitation costs claimed for the  20 percent credit cannot be counted towards the adjusted basis of a  property for the purposes of calculating the amount of other federal tax  credits claimed for the same project; as a result, the effective tax savings  on using the 20 percent credit with other federal tax credits are less than  the sum of tax savings provided by each of the credits and deductions if  they could be used together without this restriction. The information on  tax law and regulatory limits listed in table 3 is not exhaustive; additional  limits may apply in other federal laws and regulations.

An area of potential overlap also exists among the tax expenditures  subsidizing community development activities and CRA regulatory  requirements for depository institutions in helping to meet the credit  needs of the communities in which they operate. Banks earn positive  consideration toward their CRA regulatory ratings by investing in projects  also receiving certain tax benefits. In 2007, we reported that investors  used NMTC and LIHTC to meet their CRA requirements. At that time,  over 40 percent of NMTC investors reported that they used the tax credit  to remain compliant with CRA. NMTC investors using the tax credit to  meet CRA requirements also viewed it as very or somewhat important in  their decision to make the investment. Nearly half of NMTC investors we  surveyed in 2007 reported that they made other investments eligible for  LIHTC, and nearly three-quarters of those investors using both tax credits  were also required to comply with the CRA.

Federal community development financing is fragmented with multiple  federal agencies administering related spending programs as well as with  multiple federal, state, and local agencies helping administer certain tax  expenditures. As we have previously reported, mission fragmentation  and program overlap may sometimes be necessary when the resources  and expertise of more than one agency are required to address a   For example, IRS, NPS, and state historic  complex public need.preservation offices are involved in administering the 20 percent historic  preservation tax credit for rehabilitating historic structures. NPS oversees  compliance with technical standards for historic preservation, and IRS  oversees financial aspects of the tax credit. NPS and IRS have partnered  with IRS providing guidance including frequently asked questions about  the tax credit on the NPS website. At the same time, fragmentation can  sometimes result in administrative burdens, duplication of efforts, and  inefficient use of resources. Applicants may need to apply for tax  expenditures and spending programs at multiple agencies to address the  needs of a distressed area or finance a specific project. For example,  owners and developers seeking to restore an historic structure for use as  affordable rental housing would need to apply separately to NPS for the  20 percent historic rehabilitation credit as well as to the state HFA for a  LIHTC allocation.

section_title: Limited Information and Measures Are Available to Assess the Performance of Community Development Tax Expenditures
paragraphs: Achieving results for the nation increasingly requires that federal agencies  work together to identify ways to deliver results more efficiently and in a  way that is consistent with limited budgetary resources. Agencies and  programs working collaboratively can often achieve more public value  than when they work in isolation. To address the potential for overlap and  fragmentation among federal programs, we have previously identified  collaborative practices agencies should consider implementing in order to  maximize the performance and results of federal programs that share  common outcomes. These practices include defining common  outcomes; agreeing on roles and responsibilities for collaborative efforts;  establishing compatible policies and procedures; and developing  mechanisms to monitor, assess, and report on performance results.

GAO-11-318SP. the extent possible, data sharing is a way to reduce collection costs and  paperwork burdens imposed on the public.
subsections: section_title: IRS Does Not Collect Basic Information for Some Community Development Tax Expenditures and Has Some Information for Tax Credits and Bonds
paragraphs: In general, IRS only collects information necessary for tax administration  or for other purposes required by law. As a result, IRS does not collect  basic information about the numbers of taxpayers using some community  development tax expenditures. We have consistently reported that IRS  does not have data on the use of various expensing and special  depreciation incentives available to encourage investment in EZ/RC  communities, tribal reservations, and disaster areas. For tax credits, IRS  has data on the numbers of taxpayers and aggregate amounts claimed,  but data often do not tie use of the tax credits to specific communities.  Location information is critical to identifying the community where an  incentive is used and determining the effect of the tax benefit on local  economic development. For bonds, IRS collects data on the amount of  bonds issued and broad purpose categories for governmental bonds and  allowable uses for qualified private activity bonds. As we reported in  2008, while the information collected is useful for presenting summary  information, it provides only a broad picture of the facilities and activities  for which the bonds are used.sufficient for IRS to administer the tax code, it provides little information  for use in measuring performance. As a result, information often has not  been available to help Congress determine the effectiveness of some tax  expenditures or even identify the numbers of taxpayers using some  provisions. Table 4 summarizes the types of information, including  limitations and potential gaps, IRS collects for different types of  community development tax expenditures.

section_title: Previous Studies Provide Limited Information on the Effectiveness of Select Tax Expenditures in Promoting Community Development
subsections: section_title: Scarcity of Literature for Select Tax Expenditures’ Effectiveness
paragraphs: Our systematic review of literature for select community development tax  expenditures generally found few studies that attempted to assess the  effectiveness of programs in promoting certain measures of community  development, such as reducing poverty or unemployment rates. We  reviewed government studies and academic literature on the following  community development tax expenditures: the NMTC, EZ tax program,  disaster relief tax provisions, and the rehabilitation tax credits. In  reviewing this literature, we focused on studies that attempted to analyze  the impact of the tax expenditures on community development through  empirical methods. We also summarized our prior observations and  recommendations on options to improve tax expenditure design and  considerations in authorizing similar community development tax  programs. For the NMTC, we did not identify any empirical studies issued  since our last report in January 2010. For the EZ program, we identified  several studies published since our most recent report in March 2010  that attempted to measure the effect of the program on some measure of  community development, as described below. We identified one study on  the rehabilitation tax credits that attempted to measure one aspect of  community development. We did not identify any empirical studies on  disaster tax relief provisions. The scarcity of literature on some tax  expenditures may be due to the fact that establishing that a community  development tax expenditure or spending program has causal impact on  economic growth in a specific community can be challenging. Table 6  below summarizes key methodological issues in attempting to measure  effectiveness of the tax expenditures we selected.

As we reported in 2010, making definitive assessments about the extent  to which benefits flow to targeted communities as a direct result of NMTC  investments presented challenges. For example, the small size of the  NMTC projects relative to the total economic activity within an area made  it difficult to detect the separate effect of a particular project. Many of the  eligible communities may already have significant business activities that  could mask NMTC impacts. Limitations associated with available data  also made it difficult to determine whether benefits generated in a low- income community outside the scope of a particular project are the direct  result of the NMTC program. As discussed above, CDFI Fund is  collecting additional data on the use of the NMTC that may provide further  insights into its use and impact on communities. For example, CDFI Fund  is now collecting data on the amount of equity that CDEs estimate will be  left in the businesses at the end of the 7-year period in which tax credits  can be claimed. Collecting this information may provide CDFI Fund with  additional information on the credit’s cost-effectiveness.

Our 2007 NMTC report used statistical methods to attempt to measure  the credit’s effectiveness, but determined that further analysis is needed  to determine whether the economic costs of shifting investment are  justified. Our analysis did find that the credit may be increasing  investment in low-income communities, although this finding was not, in  and of itself, sufficient to determine that the credit was effective.  Increased investment in low-income communities can occur when NMTC  investors increase their total funds available for investment or when they  shift funds from other uses. A complete evaluation of the program’s  effectiveness would require determining the costs of the program,  including any behavioral changes by taxpayers that may be introduced by  shifted investment funds. Neither our statistical analysis nor the results of  a survey we administered allowed us to determine definitively whether  shifted investment funds came from higher-income communities or from  other low-income community investments.

The related entities test requires that the CDE have no more than a 50 percent  ownership stake in a qualified low-income community business. program which expired at the end of 2011.should require Treasury’s CDFI Fund to gather data to assess whether  and to what extent the grant program increases the amount of federal  subsidy provided to low-income community businesses compared to the  NMTC; how costs for administering the program incurred by the CDFI  Fund; CDEs, and investors would change; and whether the grant program  otherwise affects the success of efforts to assist low-income communities.

If it does so, Congress  We did not identify any empirical studies on the effectiveness of the  NMTC since our last report, but CDFI Fund has contracted with the Urban  Institute for an evaluation of the NMTC that may lead to additional  insights into the program’s effectiveness. In 2010, the Urban Institute  published a literature review to inform a forthcoming evaluation, including  challenges inherent in evaluating economic and community development   CDFI Fund reports that the Urban Institute is  programs in general. primarily relying on surveys to CDEs and businesses to conduct the  evaluation. The Urban Institute conducted a preliminary briefing on the  study's results with CDFI Fund in January 2012. After submitting a draft  report to CDFI Fund, the Urban Institute will issue a final report in the  spring 2012.

Martin D. Abravanel, Nancy M. Pindus, Brett Theodus, Evaluating Community and  Economic Development Programs: A Literature Review to Inform Evaluation of the New  Markets Tax Credit Program, The Urban Institute, September 2010.

section_title: While Some Studies Have Found Improvements in EZ Communities, Establishing Clear Program Results Is Difficult
paragraphs: Our prior work has found improvements in certain measures of  community development in EZ communities, but data and methodological  challenges make it difficult to establish causal links. Our 2006 report  found that Round 1 EZs that received a combination of grant and tax  benefits did show improvements in poverty and unemployment, but we  did not find a definitive connection between these changes and the EZ  program. Our 2010 report on the EZ/RC program reviewed seven  academic studies of Round 1 projects and found that the evaluations  used different methods and reported varying results with regard to  poverty and unemployment. For example, one study concluded that the  program reduces poverty and unemployment, while another study found  that the program did not improve those measures of community  development. As with the NMTC, our prior EZ/RC work has demonstrated  challenges in measuring the effects of the program. For example, data  limitations make it difficult to thoroughly evaluate the program’s  effectiveness in that use of the EZ/RC Employment Credit cannot be tied  to specific communities. Demonstrating what would have happened in the  absence of the credit is difficult. External factors, such as national and  local economic trends, can make it difficult to isolate the effects of the  EZ/RC tax incentives.

Since our 2010 EZ/RC report, we noted that more recent studies  comparing employment, housing values, and poverty rates in EZ  communities with similarly economically distressed areas have yielded  mixed results. Two studies have found lower unemployment in the  designated areas where the provisions have been used relative to similar  non-EZ areas. Specifically, one study reviewed federal and state  enterprise zones and found positive impacts on local labor markets in  terms of the unemployment rate and poverty rate. In addition, the researchers found positive, but statistically insignificant, spillover effects  to neighboring Census tracts. The second study focused on Round 1 of  the EZ program and found that the EZ designation substantially increased  employment in zone neighborhoods, particularly for zone residents.  Importantly, the researchers examined Round 1 of the program that relied  on a mix of tax benefits and grant funding. In addition, another study  found that EZ program results seem to vary among different types of  businesses within the designated zones. For example, researchers  found that EZ tax incentives increase the share of retail and service  sector establishments but decreases the share of transportation, finance,  and real estate industries. They noted that the effectiveness of the EZ  wage credit may be affected by the types of industries that are located in  the designated area. However, while these studies have found that  certain economic outcomes are associated with an area being eligible for  EZ incentives, due to data limitations the studies cannot estimate the  extent to which these outcomes vary with the amount of incentives  actually used in an area.

Both JCT and the Congressional Research Service (CRS) conducted  literature reviews and reported modest effects and methodological  limitations in making any definite assessments on the effectiveness of  EZs. JCT reported that studies generally found modest effects overall  with relatively high costs. In addition, it is difficult to determine whether  the spending or tax incentives were responsible for any increases in  economic activity. CRS’s review of academic literature found modest, if  any, effects of the program and called into the question their cost- effectiveness. According to CRS, one persistent issue in evaluating the  potential impact of EZs is the inherent difficulty of identifying the effect of  the programs apart from overall economic conditions.

With the expiration of the RCs at the end of 2009 and EZs at the end of  2011, we have made observations in prior work that Congress can  consider if these or similar programs are authorized in the future.  Without adequate data on the use of program grant funds or tax benefits,  neither the responsible federal agencies nor we could determine whether  the EZ/EC funds had been spent effectively or that the tax benefits had in  fact been used as intended. If Congress authorizes similar programs that  rely heavily on tax benefits in the future, it would be prudent for federal  agencies responsible for administering the programs to collect information  necessary for determining whether the tax benefits are effective in  achieving program goals. In 2010, the U.S. Census Bureau began  releasing more frequent poverty and employment updates at the Census  tract level than it has traditionally provided. This information could be a  useful tool in determining the effects of such programs on poverty and  employment in designated Census tracts.

section_title: Limited Data Collection and Methodological Challenges in Establishing Comparison Areas May Inhibit Evaluations of Effectiveness on Disaster Provisions
paragraphs: Though we identified literature that discussed use of disaster tax  provisions and their design, none of the articles attempted to measure  empirically the impact the incentives had on promoting community  development. A potential challenge in designing tax relief for disaster  areas is that those communities within the zones most affected by the  disaster may be slower to respond to the incentives than other areas  within the zone. Our prior work on the GO Zone reported that bonds were  awarded on a first-come, first-served basis that led to awarding bond  allocation to projects in less damaged areas in the zone because  businesses in these areas were ready to apply for and issue bonds before  businesses in more damaged areas could make use of the incentive.

Thus, assessing the impact of disaster relief on an entire zone may not  reflect how the provisions affected specific areas within the zone. Another  key challenge in evaluating disaster relief tax expenditures is the difficulty  in establishing a comparison area where a “comparable” disaster has  taken place but government programs or tax provisions were not  available. Moreover, evaluations of disaster relief tax expenditures may  be difficult because IRS collects limited information on the use of  temporary disaster aid, as discussed above.

section_title: Literature on the Rehabilitation Tax Credits Has Often Not Focused on Community Development Aspects
paragraphs: While we identified numerous articles focused on historic restoration  funded with the federal rehabilitation tax credits and the potential benefits  of historic preservation in adapting currently vacant or underused  property, we identified only one study that attempted to empirically  measure the impact of the tax credit on community development. The  study analyzed rehabilitation investment in the Boston office building  market between 1978 and 1991 and found that the percentage of  investment spending that would have occurred without the tax credit  varied over time from about 60 to 90 percent. Another study we  reviewed used economic modeling to quantify some community  development outputs associated with the 20 percent rehabilitation tax  credit, such as estimated jobs and projected income data.the study did not assess whether a rehabilitation project would have  occurred in the absence of the credit nor did it compare community  development in a project community with development in similar  communities. As we previously reported, a complete evaluation of a  credit’s effectiveness also requires determining the costs of the program  and an assessment of the program’s economic and social benefits.

A challenge in attempting to evaluate how the rehabilitation tax credits  affect measures of community development is that the credits have a dual  purpose and are not solely intended to promote community development.  Evaluators may have difficulty reviewing the program’s effectiveness  because they lack specific data on the geographic locations of the  projects. In addition, the small size of the rehabilitation tax credit projects  relative to the total activity in the area’s economy makes it difficult to  isolate the economic effects of the credit.

section_title: Conclusions
paragraphs: The annual federal commitment to community development is substantial,  with revenue losses from community development-related tax  expenditures alone totaling many billions of dollars. However, all too often  even basic information is not available about who claims tax benefits from  community development tax expenditures and which communities benefit  from the activities supported by the tax expenditures. Further, relatively  few evaluations of the effectiveness of community development tax  expenditures have been done and when they have been done, results  have often been mixed about their effects. These issues are familiar and  long-standing for tax expenditures generally. We have made  recommendations to OMB in 1994 and 2005 to move the Executive  Branch forward in obtaining and using information to evaluate tax  expenditures’ performance, which can help in comparing their  performance to that of related federal efforts.

GPRAMA offers a new opportunity to make progress on these issues. For  those limited areas where OMB sets long-term, outcome-oriented,  crosscutting priority goals for the federal government, a more coordinated  and focused effort should ensue to identify, collect, and use the  information needed to assess how well the government is achieving the  goals and how those efforts can be improved. We look forward to  progress in achieving GPRAMA’s vision for a more robust basis for  judging how well the government is achieving its priority goals. The  Administration’s interim crosscutting policy goals include some that  identify tax expenditures among the contributing programs and activities.  OMB’s forthcoming guidance should be helpful in further drawing tax  expenditures into the GPRAMA crosscutting performance framework.

Clearly, community development is but one of many areas where OMB  could choose to set priority goals, and the interim goals to date  encompass 1 of the 23 tax expenditures we reviewed. In this regard,  Congress has a continuing opportunity to express its priorities about the  goals that should be selected, including whether community development  should be among the next cycle of goals. Whether or not OMB selects  community development as a priority goal area, Congress also has the  opportunity to urge more evaluation and focus Executive Branch efforts  on addressing community development performance issues through  oversight activities, such as hearings and formal and informal meetings  with agency officials. Given the overlap and fragmentation across  community development tax and spending programs, coordinated  congressional efforts, such as joint hearings, may facilitate crosscutting  reviews and ensure Executive Branch efforts are mutually reinforcing.

While GPRAMA provides a powerful opportunity to review how tax  expenditures contribute to crosscutting goals, progress is likely to be  incremental and require sustained focus. Evaluating the impact of  community development efforts is inherently difficult and definitive  performance conclusions often cannot be drawn. Data limitations are not  easy or inexpensive to overcome, and resources to evaluate programs  must compete with other priorities even as the federal government copes  with significant fiscal challenges. Thus, judicious choices will need to be  made as efforts to improve tax expenditure performance information  available to policymakers continue.

section_title: Matters for Congressional Consideration
paragraphs: Congress may wish to use GPRAMA’s consultation process to provide  guidance on whether community development should be among OMB’s  long-term crosscutting priority goals as well as stress the need for  evaluations whether or not community development is on the crosscutting  priority list. Congress may also wish to focus attention on addressing  community development tax expenditure performance issues through its  oversight activities.

section_title: Agency Comments and Our Evaluation
paragraphs: We provided a draft of this report for review and comment to the Director  of OMB, the Secretary of the Treasury, the Commissioner of Internal  Revenue, as well as representatives of three federal agencies helping  administer certain community development tax expenditures—the  Director of the CDFI Fund, the Secretary of Housing and Urban  Development (HUD), and the Secretary of the Interior (Interior). The  Deputy General Counsel of OMB, the Director of HUD’s Office of  Community Renewal, the GAO Audit Liaison of Interior, and the Director  of the CDFI Fund provided general comments. The first three provided  email comments and the last provided a comment letter which is reprinted  in appendix VIII. Only the HUD comments addressed our matters for  congressional consideration directly, stating that the report provided  minimal justification for them.  Although the Secretary of the Treasury and  Commissioner of Internal Revenue did not provide written comments,  Treasury’s Office of Tax Analysis and IRS’s Office of Legislative Affairs  provided technical changes, which we incorporated where appropriate.

While not commenting on our matters for congressional consideration,  OMB staff reiterated the view that the Administration has made significant  progress in addressing tax expenditures. OMB staff cited assorted  Fiscal Year 2013 budget proposals which it estimated would save billions  of dollars by eliminating certain spending through the tax code and  modifying other tax provisions. Some of the budget proposals relate to tax  expenditures covered in this report, and we updated the text to reflect the  President’s latest proposals. We also updated our report to reflect the  release of new interim crosscutting priority goals and that the  Administration has identified some tax expenditures that contribute to  these goals, as required under GPRAMA. OMB staff said that this is a  significant step forward and will be important for broader GPRAMA  implementation over 2012 and 2013. We agree that this inclusion of tax  expenditures along with related other programs in the GPRAMA goals is  an important step toward providing policymakers with the breadth of  information needed to understand the full federal effort to accomplish  national objectives. Finally, OMB staff expressed concern that we were  suggesting that tax expenditures be addressed through a “one size fits  all” framework. We do not believe this report or earlier products suggest  that assessing the performance of tax expenditures be done in only one  way. We have emphasized the need for greater scrutiny of tax  expenditures and more transparency over how well they work and how  they compare to other related federal programs.

In its comments, HUD described the report as substantive and  comprehensive in addressing community development tax incentives with  accurate information about the EZ/RC tax expenditures and HUD’s role in  their administration. However, HUD expressed the view that we had  minimal justification for our matters for Congress to consider using the  GPRAMA consultation process to express congressional priorities related  to community development and to focus attention on community  development tax expenditures’ performance through its oversight  activities. We disagree. The basic issues we found in this review—the all  too often lack of even basic information about tax expenditures’ use and  the relative paucity of evaluations of their performance—are among the  key issues that could be mitigated through GPRAMA crosscutting goals  and Congress’s oversight activities. HUD also said we had skirted the  issue of identifying programs with the greatest probability for elimination  due to duplication, fragmentation, and overlap. This was not among our  review’s objectives and we believe the type of information we present can  assist Congress in understanding what information is available to support  such decisions. As we have previously reported, agencies engaging  Congress in identifying which issues to address and what to measure are  critical, and GPRAMA significantly enhances requirements on the  consultation process. With the release of the interim crosscutting goals,  we believe that Congress has a continuing opportunity to express its  priorities regarding community development ahead of the next goal cycle  due in February 2014. HUD also noted the expiration of some tax  expenditures and sought clarification about their inclusion in the report.  Our report includes recently expired tax expenditures and where  applicable discusses our prior findings and suggestions for Congress to  consider if it wishes to extend the tax expenditures that have expired or  create similar new ones. HUD also provided technical and editorial  comments which we incorporated as appropriate.

In its comments, Interior disagreed with several findings. Interior  characterized our report as expressing the view that unwarranted overlap,  fragmentation, or duplication existed involving the 20 percent historic  rehabilitation credit that Interior’s NPS helps administer. Interior agreed  that the tax credit—which has a primary purpose to preserve and  rehabilitate historic buildings—has a two-fold mission to also promote  community development by revitalizing historic districts and  neighborhoods. However, Interior disagreed that the historic rehabilitation  tax credit overlaps or duplicates with other community development tax  expenditures. Interior stated that only the tax credit has a specific purpose  to preserve historic buildings, that the tax credit is not targeted to certain  census tracts or low-income areas, and that Congress generally did not  exclude historic tax credit users from also using other federal programs.  In addition, Interior said that the administration of the historic rehabilitation  tax credit was not fragmented, but instead was an example of joint  administration that effectively draws upon the best resources of two  federal agencies in a coordinated way to implement the law. Finally,  Interior disagreed with our finding that limited information is available  about the effectiveness of the 20 percent historic rehabilitation tax credit.

Our report does not characterize any overlap, fragmentation, or  duplication as “unwarranted.” Rather, we provide a factual description  based on standard definitions used in many GAO reports of the  relationships between the various tax expenditures that have at least a  partial purpose of supporting community development. We make the  same point that Interior raises as well—that Congress was aware of and  often designed rules to govern the interrelationships among these tax  expenditures. Accordingly, our report says these interrelationships do not  necessarily represent unnecessary duplication. Based on Interior’s  comments, however, we further clarified our text to note that one of the  differences between the historic rehabilitation credit and the other  community development tax expenditures is that the rehabilitation credit  targets certain older structures. Regarding Interior’s comment about  fragmentation in the credit’s administration, our report describes the roles  of IRS and NPS and says fragmentation may sometimes be necessary  when the resources and expertise of more than one agency are required,  such as in the case of NPS overseeing technical standards for historic  preservation. As we reported, however, fragmentation can result in  administrative burdens when an applicant needs to apply at multiple  agencies to finance a specific project, such as restoring a historic building  as low-income housing. Finally, regarding Interior’s comments on the  effectiveness of the rehabilitation tax credit, we continue to note that little  is known about the effectiveness of the credit as a community  development program given that we identified only one empirical analysis  of the effect of the tax credit on community development. Interior pointed  specifically to reports based on an economic model NPS helped fund.  However, as our report states, the modeling reports did not assess what  would have happened in the absence of the historic rehabilitation tax  credits or compare development in tax credit project communities to  similar communities.

In its comment letter (reprinted in app. VIII), the CDFI Fund said that it  appreciated GAO’s ongoing efforts to improve and strengthen  performance measurement and evaluation of community and economic  development programs. The CDFI Fund said that it has committed  resources to systematically evaluate the impacts of the NMTC program  and proposed to develop tools that would have provided standard  benchmarking and estimation techniques for measuring outcomes and  coordinating reporting for projects with multiple sources of funding. Our  literature review for this report drew on a study contracted by the CDFI  Fund that provided an overview of the inherent challenges in evaluating  community development programs. The literature review will inform a  forthcoming independent evaluation of the NMTC to be issued later this  spring. The CDFI Fund also provided technical comments which we  incorporated as appropriate.

The CDFI Fund said that it continued to have strong reservations with our  2010 option for Congress to consider offering grants in lieu of NMTC tax  credits if it extends the NMTC program. As stated in our 2010 report and  reiterated as a cost saving option in our 2011 duplication report, our  analysis suggests that converting the NMTC to a grant program would  increase the amount of the equity investment that could be placed in low- income businesses and make the federal subsidy more cost-effective.

Our 2010 report addressed both concerns that the CDFI Fund reiterated  in its comments on this report.

As arranged with your offices, unless you publicly announce the contents  of this report earlier, we plan no further distribution until 30 days after the  date of this report. At that time, we will send copies of this report to the  Director of the Office of Management and Budget, the Secretary of the  Treasury, the Commissioner of Internal Revenue, and other interested  parties. In addition, the report will be available at no charge on the GAO  website at http://www.gao.gov.

If you or your staff have questions about this report, please contact me at  (202) 512-9110 or brostekm@gao.gov. Contact points for our Offices of  Congressional Relations and Public Affairs may be found on the last page  of this report. Other key contributors to this report are listed in appendix  IX.

section_title: Appendix I: Objectives, Scope, and Methodology
paragraphs: Our objectives were to (1) identify tax expenditures that promote  community development, and areas of potential overlap and interactions  among them; (2) assess data and performance measures available and  used to assess performance for community development tax  expenditures; and (3) determine what previous studies have found about  the effectiveness of selected tax expenditures in promoting community  development.
subsections: section_title: Identification of Community Development Tax Expenditures and Interactions
paragraphs: While both the U.S. Department of the Treasury (Treasury) and the Joint  Committee on Taxation (JCT) annually compile a list of tax expenditures  and estimates of their cost, the Treasury and JCT lists differ somewhat in  terms of what is listed as a tax expenditure and how many specific  provisions may be combined in a listed tax expenditure. Our count of  community development tax expenditures is based on the Treasury and  JCT published tax expenditure lists, detailed below. Where a single tax  expenditure listing encompasses more than one tax code provision, we  separately describe those provisions to provide a more detailed  perspective of the mix of tax assistance available for community  development.

Federal agencies do not have a standard definition of what constitutes  community or economic development. To identify community  development tax expenditures, we developed a list of community  development activities based on various federal sources and compared  these activities to the authorized uses of tax expenditures. As a starting  point for developing the list of activities, we used the definition of the  community and regional development budget function and its three  subfunctions—urban community development, rural and regional  development, and disaster relief and insurance.JCT list tax expenditures by budget function.

We also used descriptions of spending programs under the community  and regional development budget function as detailed in the 2010 Catalog  of Federal Domestic Assistance (CFDA). We further reviewed descriptions of allowable uses under the Community Development Block  Grant (CDBG)—the largest single spending program in the budget  function. Finally, we reviewed the community development definition for  the Community Reinvestment Act (CRA) and identified certain tax  expenditures that banks can use in meeting CRA community investment  tests. We included tax expenditures targeted to certain geographies,  such as low-income areas or designated disaster areas, or specific  populations, such as Native Americans. Table 7 summarizes the  definition of community development for purposes of this report.

We compiled a preliminary list of tax expenditures for fiscal year 2010  listed under community and regional development budget function by  Treasury and JCT. Our universe included expired tax expenditures listed  by either Treasury or JCT which had estimated revenue losses or outlays  in fiscal year 2010. While the tax expenditure lists published by Treasury  and JCT are generally similar, specific tax expenditures reported by each  under the community and regional development budget function differed,  as shown in table 8. Four tax expenditures were listed by both under the  community and regional development budget function. Another four tax  expenditures were reported by both Treasury and JCT but appeared  under community and regional development function on one list and  under a different budget function on the other list. Fourteen tax  expenditures were reported under the community and regional  development budget function by either Treasury or JCT, including eight  tax expenditures supporting disaster relief and recovery.

Whereas JCT lists six disaster tax packages as tax expenditures,  Treasury officials told us that disaster-related revenue losses were  included in Treasury estimates for specific tax expenditures made  available in disaster areas. For example, revenue losses from additional  allocations of the Low-Income Housing Tax Credit for the GO Zone were  incorporated into Treasury’s Low-Income Housing Tax Credit estimate.  To avoid double-counting, we dropped two tax expenditures—credit to  holders of Gulf and Midwest tax credit bonds, and employee retention  credit for employers in certain federal disaster areas—listed separately by  Treasury that were included in the JCT disaster package estimates. We  used JCT and Internal Revenue Service (IRS) documents to identify  specific tax code provisions within the disaster relief tax expenditures on  JCT’s list. Appendix VI lists 45 tax provisions and special rules in the  six disaster relief tax expenditures included in JCT’s list. We did not sum  disaster revenue loss estimates to avoid double counting amounts  already included in estimates for specific tax expenditures.

Using our list of community development activities as criteria, we also  identified tax expenditures reported by Treasury under other budget  functions that appeared to be at least partially intended to support  activities we had identified as community development activities. Table 9  includes six tax expenditures reported by Treasury under other budget  functions and our rationale for inclusion.

Table 10 shows how we categorized the community development tax  expenditures as primarily promoting community development versus  supporting community development and other federal mission areas.

We shared the preliminary universe of community development tax  expenditures with Treasury, IRS, Office of Management and Budget  (OMB) and CRS. We also shared the preliminary universe with federal  agencies helping administer specific community development tax  expenditures, including the Community Development Financial  Institutions (CDFI) Fund which administers the New Markets Tax Credit;  the Department of Housing and Urban Development (HUD) which helps  administer the Empowerment Zones and Renewal Communities  programs; and the National Park Service (NPS) which helps administer  rehabilitation tax credits. We asked these agencies to review the  preliminary universe and confirm that the tax expenditures could be used  to promote community development, delete tax expenditures that were  listed incorrectly or are duplicative, or add tax programs that we had  omitted.

Based on feedback from federal agencies, we refined the universe of  community development tax expenditures as appropriate. We excluded  six tax expenditures reported under the community and regional budget  function, as shown in table 11. As discussed above, we excluded two  disaster tax expenditures listed by Treasury to avoid double counting  disaster aid packages listed by JCT. Similarly, we excluded a District of  Columbia tax expenditure listed by JCT to avoid duplication with  Treasury’s estimate for Empowerment Zones and Renewal Communities.  We excluded three tax expenditures listed by Treasury or JCT under the  community and regional development budget function that were not  specifically linked to community development activities. Our final universe  does not include various energy tax expenditures that may be claimed for  bank investments used to meet CRA regulatory requirements nor tax  expenditures for deductible charitable contributions. Although certain  charitable contributions may fund organizations or activities that  contribute to community development, we excluded charitable  contribution tax deductions from the universe based on external feedback  that it is not feasible to isolate the community development portion of the  large charitable contributions tax expenditures or link the charitable aid to  specific communities.

See appendix II for our final universe of 23 community development tax  expenditures. This count reflects the number of tax expenditures as  reported on the Treasury or JCT lists. Whereas appendix II lists the  Empowerment Zones and Renewal Communities (EZ/RC) as a single tax  expenditure consistent with Treasury’s list, appendix IV details the various  tax incentives available in EZs and RCs. We used Treasury revenue loss  estimates for each tax expenditure except in cases where only JCT  reported a tax expenditure. Where appropriate, we summed revenue loss  estimates to approximate the total federal revenue forgone through tax  expenditures that support community development. Certain tax  expenditures, including tax credit and direct payment bonds, also have  associated outlays, and we included those outlays in presenting total  costs. While sufficiently reliable as a gauge of general magnitude, the  sum of the individual tax expenditure estimates does not take into  account interactions between individual provisions.

To identify areas of potential overlap among the tax expenditures, we  used the definitions from our March 2011 report on duplication in  government programs:

Overlap occurs when multiple agencies or programs have similar  goals, similar activities or strategies to achieve them, or similar target  beneficiaries;

Fragmentation refers to circumstances where multiple agencies or  offices are involved in serving the same broad area of national need;  and

Duplication occurs when two or more agencies or programs are  engaged in the same activities or provide the same services to the  same beneficiaries.

Using information from prior GAO products, publications from CRS, IRS,  JCT, Office of the Comptroller of Currency (OCC), and OMB; as well as  documentation from other federal agencies helping administer specific tax  expenditures, we compiled publicly available information about each tax  expenditure’s design and implementation, including descriptions; specific  geographies or populations targeted; volume caps and other allocation  limits; and roles of entities within and outside the federal government in  administration. Based on the information we collected and the  clarifications that the agencies provided, we determined that this  descriptive information was sufficiently reliable for the purposes of this  engagement to identify potential duplication, overlap, and fragmentation.  We reviewed the Internal Revenue Code and IRS regulations to identify  allowable interactions or limits on using community development tax  expenditures together. Where specified in tax law and regulations, we  also identified interactions and limits on using tax expenditures with other  federal spending programs. The review of allowable interactions and  limits was not exhaustive—we did not search documentation from all  federal agencies carrying out community development programs, and  regulations for related spending programs may also document  interactions between those programs and the community development  tax expenditures.

section_title: Tax Expenditure Information and Performance Measures
paragraphs: To determine what data and performance measures are available and  used to assess community development tax expenditures, we identified  the data elements and types of information that IRS and federal agencies  collect. We also reviewed tax forms, instructions, and other guidance and  interviewed IRS officials to determine the types of information that IRS  collects on how the tax expenditures in our universe are used. For certain  community development tax expenditures in our universe where other  federal agencies help with administration—the New Markets Tax Credit,  Empowerment Zone/Renewal Community tax incentives, and the  rehabilitation tax credits—we reviewed prior GAO reports, and  interviewed and collected information from the CDFI Fund, HUD, and  NPS to identify their roles in helping administer the tax expenditures and  any measures the agencies use to review tax expenditure performance.  We also interviewed officials and reviewed documentation from OMB,  Treasury, IRS, HUD, and NPS about efforts to assess performance for  community development tax expenditures and any crosscutting reviews of  related tax and spending programs. For the purposes of this report, we  focused on information collected by federal agencies. State and local  entities also collect information on some of the tax expenditures included  in our universe. For example, housing finance agencies collect data on  low-income housing tax credit projects. Similarly, state and local bond  financing authorities may have additional data on specific projects and  activities funded with federally subsidized bond financing.

section_title: Previous Studies of Selected Tax Expenditures
paragraphs: To determine what previous studies have found about effectiveness for  selected tax expenditures, we conducted a literature review for selected  tax expenditures—the Empowerment Zone/Renewal Community tax  programs, the New Markets Tax Credit program, and tax expenditures  available for certain disaster areas. We selected these tax expenditures  because they account for most of the 2010 revenue loss for the tax  expenditures that primarily promote community development. The EZ tax  incentives and the NMTC expired after December 31, 2011. For the  EZ/RC and NMTC programs, we focused on literature published since our  2010 reports on these programs. We also selected the rehabilitation  tax credits; these multipurpose tax expenditures support community  development as well another federal mission area, and they can be used  in combination with other community development tax expenditures. We  searched databases, such as Proquest, Google Scholar, and Econlit, for  studies through May 2011. To target our literature review on  effectiveness, we identified studies that attempted to measure the impact  of the incentives on certain measures of community development, such  as the poverty and unemployment rate. We reviewed studies that met the  following criteria:  studies that include original data analysis,  studies based on empirical or peer-reviewed research, and  studies not derived from or sponsored by associations representing  industry groups and other organizations that may benefit from  adjustments to laws and regulations concerning community  development tax expenditures.

Using these criteria, we identified and reviewed eight studies on the  EZ/RC programs published since our most recent report on the topic. For  NMTC, although we did not identify any new studies meeting our criteria,  we included a literature review study contracted by CDFI Fund that was  intended to provide the groundwork for a forthcoming evaluation and  provides an overview of inherent challenges in evaluating community  development programs. Additionally, we summarized our prior findings  about the selected tax expenditures, and these findings are not  generalizable to the universe of community development tax  expenditures. For the rehabilitation tax credits, we identified one study  that used empirical methods to measure one aspect of community  development. We also included an academic study prepared with  assistance from NPS that highlights some limitations in attempting to  evaluate the effectiveness of the rehabilitation tax credits. For disaster  relief incentives, we identified peer reviewed articles that made potentially  useful qualitative points, but the articles did not use rigorous or empirical  methods to examine effectiveness. See the bibliography for a listing of  the studies we reviewed in detail.

We conducted this performance audit from January 2011 through  February 2012 in accordance with generally accepted government  auditing standards. Those standards require that we plan and perform the  audit to obtain sufficient, appropriate evidence to provide a reasonable  basis for our findings and conclusions based on our audit objectives. We  believe that the evidence obtained provides a reasonable basis for our  findings and conclusions based on our audit objectives.

section_title: Appendix II: Universe of Community Development Tax Expenditures and Estimates of Revenue Losses and Outlays for Fiscal Year 2010
paragraphs: Budget function(s)

Expiration date  (if applicable)

Empowerment Zones and Renewal  Communities (EZ/RC)

8/10/1993 (EZ);  12/21/2000 (RC)
subsections: section_title: Tax expenditures supporting community development and other federal mission areas 6. $5,650
paragraphs: Low-Income Housing Tax Credit  (LIHTC)  20 percent credit for rehabilitation of  historic structures  environment (Treasury);  commerce and housing  (JCT)

10 percent credit for rehabilitation of  structures (other than historic)

N/A    Community and regional  development (Treasury);  commerce and housing  (JCT)

section_title: Number Tax expenditure 9.
paragraphs: Budget function(s)

Expiration date  (if applicable) 12/31/2009  environment (Treasury);  commerce and housing  (JCT)

N/A    Community and regional  development (Treasury);  Transportation (JCT)

Exclusion of interest on bonds for  water, sewage, and hazardous  waste facilities  environment (Treasury);  community and regional  development (JCT)

6/28/1968 (water  and sewage  facilities);  10/22/1986  (hazardous  waste facilities)

Credit for holders of qualified zone  academy bonds (QZAB)

Exclusion of interest on public  purpose state and local bonds  Build America Bonds  $1,850    General purpose fiscal  assistance (Treasury);  community and regional  development (JCT)

Budget function(s)

Expiration date  (if applicable)

N/A: Not applicable.  The EZ and RC programs offered packages of tax incentives in specific designated communities. Appendix IV lists seven EZ and six RC tax incentives.

JCT indicated a revenue loss of less than $50 million.  The exclusion of interest on public-purpose state and local bonds has been in effect, in one form or another, since the enactment of the Revenue Act of  1913, ch. 16, 38 Stat. 114.  JCT indicated a revenue loss of less than $50 million in fiscal year 2010.  JCT did not quantify revenue losses for this tax expenditure.

section_title: Appendix III: Multiple Tax Expenditures Fund Community Development, Fiscal Year 2010
subsections: section_title: Total – tax expenditures primarily promoting community development in distressed areas Tax relief for certain presidentially declared disaster areas
paragraphs: See Appendix VI for tax provisions and special rules available for disaster  relief and recovery for specific presidentially declared disaster areas  Low-Income Housing Tax Credit   Exclusion of interest on rental housing bonds  Rehabilitation of older structures, subtotal  20 percent credit for rehabilitation of historic structures  10 percent credit for rehabilitation of structures (other than historic)

section_title: Total – tax expenditures supporting community development and other federal mission areas Bond tax expenditures that may support community development

section_title: Total – bond tax expenditures that may support community development
paragraphs: Includes both Recovery Zone Economic Development Bonds and Recovery Zone Facility Bonds.  We did not sum total costs of disaster package tax expenditures listed by JCT to avoid double  counting estimated revenue losses for Treasury tax expenditures we identified as promoting  community development.

Total includes $190 million in revenue losses, and $10 million in outlays for fiscal year 2010.

section_title: Appendix IV: Community Development Tax Expenditures by Description, and Targeted Geographies and Populations
subsections: section_title: Number Tax expenditure Tax expenditures primarily promoting community development 1.
paragraphs: Empowerment Zones and Renewal  Communities (EZ/RC)

Businesses in designated Empowerment Zones (EZ) or  Renewal Communities (RC) are eligible to claim various tax  incentives, listed below. These incentives may help reduce  unemployment, generate economic growth, and stimulate  community development and business activity.

30 urban EZs, 10 rural EZs, 28 urban RCs and 12 rural RCs  located throughout the United States. These areas consist of  Census tracts that are economically depressed and meet  statutory or regulatory requirements (based on 1990 Census  data) for (1) poverty level, (2) overall unemployment, (3) total  population, and (4) maximum required area of EZs or RCs.  Additionally, the boundaries of RCs were expanded based on  2000 Census data.  The eligibility requirements differed by round, by program, and  between urban and rural nominees; for example, round I urban  EZs (selected in 1993) were selected using 6 indicators of  general distress, including incidence of crime and narcotics  use and amount of abandoned housing, while urban and rural  ECs (selected in 2000) were selected using 17 indicators,  including number of persons on welfare and high school  dropout rates.

Employment credit (EZ/RC)

Businesses may claim an annual tax credit of up to $3,000 or  $1,500 for each employee living and working for the employer in  an EZ or RC area, respectively.

Businesses in EZs and RCs, and employees living and  working for the employer in EZs or RCs.

Businesses may claim a tax credit of up to $2,400 for each new  employee age 18 to 39 living in an EZ/RC, or up to $1,200 for a  youth summer hire ages 16 or 17 living in an EZ or RC.

Businesses in EZs and RCs, and employees living and  working for the employer in EZs or RCs aged 18-39, or youth  summer hires ages 16 or 17 living in an EZ or RC.

New construction and rehabilitation projects in RCs.

Businesses may claim an accelerated method of depreciation to  recover certain business costs of new or substantially  rehabilitated commercial buildings located in an RC; states may  allocate up to $12 million annually per RC for the provision.

Increased Section 179 deduction  (EZ/RC)

Businesses may claim an increased deduction of up to the  smaller of $35,000 or the cost of eligible property purchases  (including equipment and machinery) for businesses in an  EZ/RC.

Businesses incurring costs for tangible personal property, such  as equipment and machinery, for use in EZs or RCs.

section_title: Number Tax expenditure
paragraphs: Description  State and local governments can issue tax-exempt bonds to  provide loans to qualified businesses to finance construction  costs in EZs. State and local government entities can issue up  to $60 million for each rural EZ, $130 million for each urban EZ  with a population of less than 100,000, and $230 million for  each urban EZ with a population greater than or equal to  100,000. These bonds are not subject to state volume caps.

Targeted geographies and populations  Large business projects tied to the employment of residents in  EZs.

Rollover of capital gains (EZ)

Owners of businesses located in EZs may be able to postpone  part or all of the gain from the sale of a qualified EZ asset that  they hold for more than 1 year.

Businesses located in EZs.

Increased exclusion of capital  gains (EZ)

Taxpayers can exclude 60 percent of their gain from the sale of  small business stock in a corporation that qualifies as an  enterprise zone business.

Enterprise zone businesses located in EZs.

Exclusion of capital gains (RC)

Owners of businesses located in RCs can exclude qualified  capital gains from the sale or exchange of a qualified  community asset held more than 5 years.

Businesses located in RCs.

New Markets Tax Credit (NMTC)

Investors are eligible to claim a tax credit for investing in  certified Community Development Entities (CDE) for 39 percent  of the investment over 7 years. CDEs, in turn, invest in qualified  low-income community investments such as mixed-use  facilities, housing developments, and community facilities,  which may contribute to employment in low-income  communities.

Low-income communities defined as Census tracts (1) in  which the poverty rate is at least 20 percent, or (2) outside a  metropolitan area in which the median family income does not  exceed 80 percent of median statewide family income or within  a metropolitan area in which the median family income does  not exceed 80 percent of the greater statewide or metropolitan  area median family income. Low-income communities also  include certain areas not within Census tracts, tracts with low  population, and Census tracts with high-migration rural  counties.

section_title: Number Tax expenditure 3.
paragraphs: Description  State and local governments issuing Recovery Zone Economic  Development Bonds (RZEDB) allow investors to claim a tax  credit (equal to 45 percent of the interest rate established  between the buyer and the issuer of the bond). States and  localities also had the option of receiving a direct payment from  the U.S. Treasury of equal value to the tax credit. Bond  proceeds were to be used to fund (1) capital expenditures paid  or incurred with respect to property located in the designated  recovery zone (e.g., Empowerment Zones or Renewal  Communities); (2) expenditures for public infrastructure and  construction of public facilities; and (3) expenditures for job  training and educational programs.  Individuals and corporations can exclude Recovery Zone  Facility Bond (RZFB) interest income from their taxable income.  Bond proceeds are used by state and local governments to  finance projects pertaining to any trade or business, aside from  exceptions listed below. More specifically, RZFBs may be  issued for any depreciable property that (1) was constructed,  reconstructed, renovated, or acquired after the date of  designation of a “recovery zone;” (2) the original use of which  occurs in the recovery zone; and (3) substantially all of the use  of the property is in the active conduct of a “qualified business,”  which is defined to include any trade or business except for  residential rental facilities or other specifically listed projects  under Internal Revenue Code 144(c)(6)(B), including golf  courses, massage parlors, and gambling facilities.

Targeted geographies and populations  RZEDBs and RZFBs target any area designated “recovery  zones”, including (1) areas having significant poverty,  unemployment, rate of home foreclosures, or general distress;  (2) areas that are economically distressed by reason of the  closure or realignment of a military installation pursuant to the  Defense Base Closure and Realignment Act of 1990; or is (3)  any area for which an Empowerment Zone or Renewal  Community was in effect as of February 17, 2009.

Indian reservations. temporary category of tax-exempt bonds, could exclude that  interest income from their taxable income.. Indian tribal  governments were allowed greater flexibility to use the bonds to  finance economic development projects, which in turn were to  promote development on Indian reservations. Previously, Indian  tribal governments could only issue tax-exempt bonds for  essential government services.

section_title: Number Tax expenditure 5.
paragraphs: Description  Businesses on Indian reservations are eligible to claim a tax  credit for employing Indian tribal members and their spouses.  The credit is for 20 percent of the first $20,000 in wages and  health benefits paid to tribal members and spouses. This credit  is intended to provide businesses with an incentive to hire  certain individuals living on or near an Indian reservation.

Targeted geographies and populations  Businesses on Indian reservations, and Indian tribal members  and spouses.

section_title: Tax expenditures supporting community development and other federal mission areas 6.
paragraphs: Low-Income Housing Tax Credit  (LIHTC)

State housing finance agencies (HFA) award the tax credits to  owners of qualified rental properties who reserve all or a portion  of their units for occupancy for low-income tenants. Once  awarded LIHTCs, project owners typically attempt to obtain  funding for their projects by attracting third-party investors that  contribute equity to the projects. These investors can then claim  the tax credits. This arrangement of providing LIHTCs in return  for an equity investment is generally referred to as “selling” the  tax credits. The credit is claimed over a 10-year period, but a  project must comply with LIHTC requirements for 15 years. A 9  percent tax credit—intended to subsidize 70 percent of the  qualified basis in present value terms—is available for the costs  for new construction or substantial rehabilitation projects not  otherwise subsidized by the federal government. An  approximately 4 percent tax credit—intended to subsidize about  30 percent of the qualified basis in present value terms—is  available for the acquisition costs for existing buildings. The 4  percent credit is also used for housing financed with tax-exempt  rental housing bonds. The low-income housing tax credit  program is intended to stimulate the production of affordable  rental housing nationwide for low-income households.

Households with income at or below 60 percent of an area’s  median gross income (AMGI).  Qualified Census tracts and difficult development areas are  eligible for additional credits. In a qualified Census tract, 50  percent or more of the households have incomes of less than  60 percent of the area’s median income. In a difficult  development area, construction, land, and utility costs are high  relative to the area’s median income.

section_title: Number Tax expenditure 7.
paragraphs: Description  Building owners and private investors may qualify to claim a 20  percent tax credit for costs to substantially rehabilitate buildings  that are on the National Register of Historic Places or are  otherwise certified as historic by the National Park Service  (NPS). To be eligible for the credit, buildings must be used for  offices; rental housing; or commercial, industrial, or agricultural  enterprises. Building owners must hold the building for 5 years  after completing the rehabilitation or pay back at least a portion  of the credit. The credit is intended to attract private investment  to the historic cores of cities and towns. The credit is also  intended to generate jobs, enhance property values, and  augment revenues for state and local governments through  increased property, business and income taxes.

Targeted geographies and populations  Certified historic buildings either listed individually in the  National Register of Historic Places, or located in a registered  historic district and certified by NPS as contributing to the  historic significance of that district.

10 percent credit for rehabilitation of  structures (other than historic)

Individuals or corporations may claim a 10 percent tax credit for  costs to substantially rehabilitate nonhistoric, nonresidential  buildings placed into service before 1936. These structures  must retain specified proportions of the buildings’ external and  internal walls and internal structural framework. To be eligible  for the credit, buildings must be used for offices or commercial,  industrial, or agricultural enterprises. Qualified spending must  exceed the greater of $5,000 or the adjusted basis (cost less  depreciation taken) of the building spent in any 24-month  period. The credit is intended to attract private investment to the  historic cores of cities and towns. The credit is also intended to  generate jobs, enhance property values, and augment revenues  for state and local governments through increased property,  business and income taxes.

Nonresidential buildings placed into service before 1936;  especially those located in older neighborhoods and central  cities.

Tax-exempt organizations may exclude gains or losses from the  unrelated business income tax when they acquire and sell  brownfield properties on which there has been an actual or  threatened release of certain hazardous substances. This  exclusion reduces the total cost of remediating environmentally  damaged property and may attract the capital and enterprises  needed to rebuild and redevelop polluted sites.

Environmentally contaminated sites identified as brownfields  held for use in a trade or business on which there has been an  actual or threatened release or disposal of certain hazardous  substances. The exclusion does not target specific  geographies or populations.

section_title: Number Tax expenditure 10.
paragraphs: Description  Firms may deduct expenses related to controlling or abating  hazardous substances in a qualified brownfield property. This  deduction subsidizes environmental cleanup and may help  develop and revitalize urban and rural areas depressed from  environmental contamination.

Targeted geographies and populations  Environmentally contaminated sites identified as brownfields  held for use in a trade or business on which there has been an  actual or threatened release or disposal of certain hazardous  substances. The deduction does not target specific  geographies or populations.

Individuals and corporations can exclude private activity bond  interest income from their taxable income. Bond proceeds are  used by state and local governments to finance the construction  of multifamily residential rental housing units for low- and  moderate-income families. Low-income housing construction  partly financed with the tax-exempt bonds may be used with the  4 percent low-income housing tax credit.

Households with incomes at or below 60 percent of an area’s  median gross income (AMGI).

Individuals and corporations can exclude private activity bond  interest income from their taxable income. Bond proceeds are  used by state and local governments to finance the construction  of government-owned airports, docks, and wharves; mass  commuting facilities such as bus depots and subway stations;  and high-speed rail facilities and government-owned sport and  convention facilities.

Infrastructure such as airports, docks, wharves, mass  commuting facilities, and intercity rail facilities. The bond  provision does not target specific geographies or populations.

Individuals and corporations can exclude private activity bond  interest income from their taxable income. Bond proceeds are  used by state and local governments to finance the construction  of water, sewage, and hazardous waste facilities.

Infrastructure such as water treatment plants, sewer systems  and hazardous waste facilities; the bond provision does not  target specific geographies or populations.

section_title: Number Tax expenditure 14.
paragraphs: Credit for holders of qualified zone  academy bonds (QZAB)

Description  Banks, insurance companies, and other lending corporations  that purchase qualified zone academy bonds are eligible to  claim a tax credit equal to the dollar value of their bonds  multiplied by a Treasury-set credit rate. Or, issuers had the  option for qualified zone academies to receive a direct payment  from the Treasury of equal value to the tax credit. School  districts with qualified zone academies issue the bonds and use  at least 95 percent of the bond proceeds to renovate facilities,  provide equipment, develop course materials, or train personnel  in such academies. Business or nonprofit partners must also  provide at least a 10 percent match of QZAB funds, either in  cash or in-kind donations, to qualified zone academies. The  bond program helps school districts reduce the burden of  financing school renovations and repairs.

Targeted geographies and populations  Public schools below the college level that (1) are located in an  Empowerment Zone, Enterprise Community or Renewal  Community, or (2) have at least 35 percent of their student  body eligible for free or reduced-cost lunches.

Individuals and corporations can exclude governmental bond  interest income from their taxable income. State and local  governments generally use bond proceeds to build capital  facilities such as highways, schools, and government buildings.

Capital facilities owned and operated by governmental entities  that serve the public interest. The bond provision does not  target specific geographies or populations.

Individuals and corporations could claim a tax credit equal to 35  percent of the interest rate established between the buyer and  the issuer of the bond. State and local governments issuing  BABs also had the option of receiving a direct payment from the  Treasury of equal value to the tax credit. Bond proceeds were  intended to be used for stimulating development of public  infrastructure in communities, as well as to aid state and local  governments. If issuers choose to receive a direct payment,  then they must use bond proceeds for capital expenditures.

No specific geographies or populations are targeted.

section_title: Number Tax expenditure Disaster relief and recovery tax expenditures 17. New York Liberty Zone
paragraphs: Areas of Lower Manhattan affected by terrorist attacks  occurring on September 11, 2001.

Hurricane Katrina disaster area (consisting of the states of  Alabama, Florida, Louisiana, Mississippi), including core  disaster areas determined by the President to warrant  individual or individual and public assistance from the federal  government following Hurricane Katrina in August 2005.

Gulf Opportunity Zone (GO Zone)

Counties and parishes in Alabama, Florida, Louisiana,  Mississippi and Texas that warranted additional, long-term  federal assistance following Hurricanes Katrina, Rita and  Wilma in 2005 were designated as Katrina, Rita and/or Wilma  GO Zones.

Individuals and corporations affected by the September 11,  2001, terrorist attacks were eligible for seven tax provisions.  These provisions included tax-exempt bonds targeted toward  reconstruction and renovation; a special depreciation allowance  for certain property that was damaged or destroyed; and a tax  credit for businesses to hire and retain employees in the New  York Liberty Zone.   Individuals and corporations affected by hurricanes Katrina,  Rita, and Wilma, which struck between August-October 2005,  were eligible to claim 33 GO Zone tax provisions. These  provisions include tax-exempt bond financing, expensing for  certain clean-up and demolition costs, and additional allocations  of the New Markets Tax Credit for investments that served the  GO Zone.

Twenty-four counties in Kansas affected by storms and  tornadoes that began on May 4, 2007.

section_title: Number Tax expenditure 21.
paragraphs: Description  Individuals and corporations affected by severe storms,  tornadoes or flooding in 10 states from May 20-July 31, 2008  were eligible for a package of 26 tax benefits, including tax- exempt bond financing, increased rehabilitation tax credits for  damaged or destroyed structures, and suspensions of  limitations on claiming personal casualty losses.   Qualified small or farming businesses affected by disasters in  federally declared disaster areas are eligible to claim a net  operating loss for up to 3 years after the loss was incurred,  instead of the usual 2 years generally permitted. This credit may  allow small and farming businesses in communities declared  disaster areas to recoup a portion of their losses following a  disaster.

Targeted geographies and populations  Selected counties in 10 states affected by tornadoes, severe  storms and flooding occurring from May 20-July 31, 2008.

Individuals and businesses located in any geography declared  a disaster area in the United States during tax years 2008 and  2009.

Qualified small businesses and farming businesses located in  any federally declared disaster area. Qualified small  businesses are sole proprietorships or partnerships with  average annual gross receipts (reduced by returns and  allowances) of $5 million or less during the 3-year period  ending with the tax year of the net operating loss.

For more information on the bond financing by Indian tribal governments, see GAO, Federal Tax Policy: Information on Selected Capital Facilities  Related to the Essential Governmental Function Test, GAO-06-1082 (Washington, D.C.: Sept.13, 2006) and U.S. Department of the Treasury, Report  and Recommendations to Congress reqarding Tribal Economic Development Bond provision under Section 7871 of the Internal Revenue Code  (Washington, D.C.: Dec. 19, 2011).

section_title: Appendix V: Community Development Tax Expenditures by Volume Caps, Other Allocation Limits, and Administration
subsections: section_title: Number Tax expenditures primarily promoting community development 1.
paragraphs: Volume cap or other allocation  limits?

Involves administration by a federal  agency outside IRS?

Involves administration by nonfederal  entity?

Empowerment Zones and  Renewal Communities (EZ/RC)

Varied. Five EZ and four RC tax  incentives did not have any  volume caps or allocation limits.

Yes; HUD oversaw EZ programs in urban  areas, and the USDA oversaw EZ programs  in rural areas.  HUD is responsible for outreach efforts and  serves as a promoter for EZs and RCs. HUD  and IRS established a partnership regarding  the EZ/RC tax incentives, where both HUD  and IRS provide representation at workshops  and conferences.

Yes; state and local governments nominate  communities for EZ and RC designation.  Nominated EZ communities had to submit a  strategic plan showing how they would meet  key program principles, while nominated RCs  had to submit a written “course of action” with  commitments to carry out specific legislatively  mandated activities.

Limit of up to an annual total of  $12 million per RC.

No; IRS has sole federal responsibility for the  administration of the CRD program. HUD  collected data from local administrators used  for commercial projects in RCs.

Yes; state governments allocate CRD authority  to eligible businesses engaged in commercial  projects within RCs.

Limits on issuing EZ facility bond  volume were up to $60 million for  each rural EZ, up to $130 million  for each urban EZ with a  population of less than 100,000,  and $230 million for each urban  EZ with a population greater than  or equal to 100,000.

No; IRS has sole federal responsibility for the  administration of EZ facility bond program.  HUD collected information from local  administrators of EZs on the use of facility  bonds used for construction projects in EZs.

Yes; state and local governments issue EZ  facility bonds to finance construction costs.

section_title: Number 2.
paragraphs: Tax expenditure   New Markets Tax Credit (NMTC)  Yes; the maximum amount of  annual investment eligible for  NMTCs was $3.5 billion each  year in calendar years 2010 and  2011.

Volume cap or other allocation  limits?

Involves administration by a federal  agency outside IRS?  Yes; the Treasury Community Development  Financial Institutions (CDFI) Fund certifies  organizations as community development  entities (CDE), CDFI Fund also provides  allocations of NMTCs to CDEs through a  competitive process.  The CDFI Fund is responsible for monitoring  CDEs to ensure that CDEs are compliant with  their allocation agreements through the New  Markets Compliance Monitoring System and,  on a more limited basis, by making site visits  to selected CDEs. The CDFI Fund also  provides IRS with access to CDFI data for  monitoring CDEs’ compliance with NMTC  laws and regulations.

Involves administration by nonfederal  entity?  Yes; once a CDE receives an allocation of tax  credits, the CDE can offer the tax credits to  investors, who in turn acquire stock or a capital  interest in the CDE. The investor can gain a  potential return for a “qualified equity  investment” in the CDE. In return for providing  the tax credit to the investor, the CDE receives  proceeds from the offer and must invest  “substantially all” of such proceeds into qualified  low-income community investments.

Yes; the Recovery Zone  Economic Development Bond  (RZEDB) and Recovery Zone  Facility Bond (RZFB) programs  had national volume caps of $10  billion and $15 billion,  respectively.

Yes; Treasury determined the amount of  RZEDB and RZFB volume cap allocations  received by each state and the District of  Columbia based on declines in employment  levels for each state and the District during  2008 relative to declines in national  employment levels during the same period.

Yes; each state was responsible for allocating  shares of RZEDB and RZFB volume caps to  counties and large municipalities based on  declines in employment levels for such areas  during 2008 relative to declines in employment  levels for all counties and municipalities in such  states during the same period. State and local  governments issued RZEDBs, and had the  option of allowing investors to claim a tax credit  for the bonds. States and localities also had the  option of receiving a direct payment from the  Treasury of equal value to the tax credit.

section_title: Number 4.
paragraphs: Volume cap or other allocation  limits?  Yes; the bond program had a $2  billion national volume cap.

Involves administration by a federal  agency outside IRS?  Yes; Treasury allocated bond capacity to  Indian tribal governments in consultation with  the Secretary of Interior, and the Department  of Interior (Interior) maintains updated lists of  Indian tribal entities that are eligible to apply  for allocations of bond volume. Interior may  also issue letters to Indian tribal entities  indicating federal recognition of such entities  in order to demonstrate eligibility for the bond  program.

Involves administration by nonfederal  entity?  Yes; Indian tribal governments applied for Tribal  Economic Development Bonds, issued the  bonds, and used proceeds from bond sales to  finance economic development projects or  nonessential governmental activities.  Indian tribal governments had the option of  allowing investors to claim a tax credit for the  bonds. Indian tribal governments also had the  option of receiving a direct payment from the  Treasury of equal value to the tax credit.

section_title: Tax expenditures supporting community development and other federal mission areas 6.
paragraphs: Low-Income Housing Tax Credit  (LIHTC)

Yes; in 2010, the allocation limit  was the greater of $2.10 per- capita or $2.43 million for each  state, U.S. territory, and the  District of Columbia. The per  capita amount is subject to cost  of living adjustments.

No; the IRS has sole federal responsibility for  the administration of LIHTC program.  However, the program is closely coordinated  with HUD housing programs for the  computation of the area median gross income  (AMGI) used to determine household  eligibility and maximum rents, as well as the  definition of income. he IRS also uses HUD’s  Uniform Physical Condition Standards to  determine whether the low-income housing is  suitable for occupancy.  HUD also maintains a LIHTC database with  information on the project address, number of  units and low-income units, number of  bedrooms, year the credit was allocated, year  the project was placed in service, whether the  project was new construction or rehabilitation,  type of credit provided, and other sources of  project financing.

Yes; state housing finance agencies (HFA)  award LIHTCs to owners of qualified low- income housing projects based on each state’s  qualified allocation plan, which generally  establishes a state’s selection criteria for how its  LIHTCs will be awarded. Additionally, state  HFAs monitor LIHTC properties for compliance  with Internal Revenue Code requirements, such  as rent ceilings and income limits for tenants,  and report noncompliance to the IRS.

section_title: Number 7.
paragraphs: Involves administration by a federal  agency outside IRS?  Yes; the Secretary of Interior sets Standards  of Rehabilitation for claiming the tax credit.  Within Interior, NPS maintains a National  Register of Historic Places; approves  applications for rehabilitation projects  proposing use of the 20 percent rehabilitation  tax credit; and certifies whether completed  projects meet the Secretary’s standards and  are eligible for the tax credit.  NPS may inspect a rehabilitated property at  any time during the five-year period following  certification of rehabilitation for claiming the  20 percent preservation tax credit, and NPS  may revoke certification if work was not done  according to standards set by the agency.  NPS also notifies the IRS of such revocations  or dispositions so the tax credit may be  recaptured.

Involves administration by nonfederal  entity?  Yes; state historic preservation offices (SHPO)  review applications and forward  recommendations for historic designation of  structures to NPS, provide program information  and technical assistance to applicants, and  conduct site visits. SHPOs may also inspect a  rehabilitated property at any time during a five- year period following completion of a  rehabilitation project using the tax credit.

10 percent credit for rehabilitation  of structures (other than historic)

Yes; NPS determines whether buildings in  historic districts do not contribute to such  districts and, consequently, are not deemed  to be historic structures. Such decertification  is required before owners of such structures  can claim for the 10 percent tax credit.

Yes; SHPOs review decertification applications  and forward recommendations to NPS, provide  program information and technical assistance to  applicants.

Yes; EPA maintains a National Priority List of  properties; such listed properties are ineligible  for the tax incentive.

Yes; state environmental agencies certify  brownfield properties on which there has been  an actual or threatened release or disposal of  certain hazardous substances. Following  certification, taxpayers may incur eligible  remediation expenditures and claim the tax  provision.

section_title: Number 10.
paragraphs: Involves administration by a federal  agency outside IRS?  Yes; EPA maintains a National Priority List of  properties; such listed properties are ineligible  for the tax incentive.

Involves administration by nonfederal  entity?  Yes; state environmental agencies certify  brownfield properties on which there has been  an actual or threatened release or disposal of  certain hazardous substances. Following  certification, site owners may claim the tax  deduction, including for some expenditures  incurred from prior tax years.

Yes, the bond provision is  subject to the private activity  bond annual volume cap for each  state.

Yes; state and local governments, typically  housing finance agencies, may issue bonds and  use proceeds from bond sales to finance the  construction of multifamily residential rental  housing units for low- and moderate-income  families.

Varied; bond for the construction  of mass commuting facilities, and  25 percent of bond issues for  privately-owned intercity rail  facilities, are included in the  private activity bond annual state  volume cap (government-owned  facilities are exempted).

Yes; state and local governments may issue  bonds, and use proceeds from bond sales to  finance construction of airports, docks, wharves,  mass commuting facilities and intercity rail  facilities.

Yes, the bond provisions are  subject to the private activity  bond annual volume cap for each  state.

Yes; state and local governments may issue  bonds, and then use proceeds from bond sales  to finance capital improvements for water,  sewer and hazardous waste facilities.

section_title: Number 14.
paragraphs: Tax expenditure   Credit for holders of qualified zone  academy bonds (QZAB)

Volume cap or other allocation  limits?  Yes; the bond provision has  national volume caps of $1.4  billion in 2010, and $400 million  in 2011.

Involves administration by a federal  agency outside IRS?  Yes; Treasury determines the credit rate of  QZABs and allocates shares of QZAB volume  to state education agencies on the basis of  the states’ respective populations of  individuals below the poverty line (as defined  by OMB).

Involves administration by nonfederal  entity?  Yes; state education agencies determine the  share of QZAB volume allocated to qualified  zone academies, and issues QZABs following  approval by local education agencies.  Local education agencies issue QZABs after  applying for and obtaining permission from  states.  Business or nonprofit partners provide at least a  10 percent match of QZAB funds, either in cash  or in-kind donations, to qualified zone  academies.

Exclusion of interest on public  purpose state and local bonds  Build America Bonds (BAB)

Yes; state, and local governments may issue  bonds, and then use proceeds from bond sales  to finance eligible projects—primarily public  infrastructure projects such as highways,  schools, and government buildings.

section_title: Number Disaster relief and recovery tax expenditures 17. New York Liberty Zone
paragraphs: Volume cap or other allocation  limits?

Involves administration by a federal  agency outside IRS?

Involves administration by nonfederal  entity?

Varied. Authority to designate  up to $8 billion in tax-exempt  private activity bonds (New York  Liberty bonds) and $9 billion in  advance refunding bonds.

Yes; the Governor of the State of New York and  the Mayor of New York City were allowed to  issue tax-exempt New York Liberty bonds, and  use proceeds to finance reconstruction and  renovation projects within the New York Liberty  Zone. The Governor and Mayor were allowed to  issue advance refunding bonds to pay principal,  interest, or redemption price on certain prior  issues of bonds issued for facilities located in  New York City (and certain water facilities  located outside of New York City).

Katrina Emergency Act   Gulf Opportunity Zone (GO Zone)  Varied.within the tax expenditure  package have volume caps or  other revenue loss limitations.

Varied; multiple provisions within the tax  expenditure package involved administration  by federal agencies besides IRS.

Varied; multiple provisions within the tax  expenditure package involved administration by  state and local governments and other entities.

The maximum amount of  advance refunding for certain  governmental and qualified  501(c)(3) bonds that may have  been issued was capped at $4.5  billion in the case of Louisiana,  $2.25 billion in the case of  Mississippi, and $1.125 billion in  the case of Alabama.

State and local governments in the GO Zone— Alabama, Louisiana, and Mississippi—issued  advance refunding bonds.

Gulf Tax Credit Bonds had a  volume cap of $200 million for  Louisiana, $100 million for  Mississippi, and $50 million for  Alabama.

Yes; Treasury determines the credit rate of  Gulf Tax Credit Bonds.

State and local governments in the GO Zone— Alabama, Louisiana, and Mississippi—issued  Gulf Tax Credit Bonds to help pay principal,  interest, and premiums on outstanding state  and local government bonds.

section_title: Number
paragraphs: Volume cap or other allocation  limits?  The maximum aggregate face  amount of GO Zone Bonds that  may have been issued in  Alabama, Louisiana or  Mississippi was capped at  $2,500 multiplied by the  population of the respective state  within the GO Zone; no other  states were eligible for tax- exempt bond financing.

Involves administration by nonfederal  entity?  State and local governments in the GO Zone— Alabama, Louisiana, and Mississippi—issued  bonds, though state governments approved  projects for bond financing.

Increased credit cap and other  modified provisions for use of the  Low-Income Housing Tax Credit  (LIHTC)

A special allocation of the LIHTC  was issued for each of three  years (2006, 2007 and 2008) to  each of the States within the GO  Zone. Each year’s special  allocation was capped at $18.00  multiplied by the population of  the respective state in the GO  Zone. In addition, the otherwise  applicable LIHTC ceiling amount  was increased for Florida and  Texas by $3,500,000 per State.

See above description of the LIHTC regarding  the involvement of state housing finance  agencies (HFA).

An additional allocation of the  New Markets Tax Credit (NMTC)  in amounts equal to $300 million  for 2005 and 2006, and $400  million for 2007, were to be  allocated among qualified  community development entities  (CDE) to make qualified low- income community investments  within the Gulf Opportunity Zone.

See above description of the NMTC regarding  involvement of the Community Development  Financial Institutions (CDFI) Fund.

See above description of the NMTC regarding  the involvement of CDEs.

section_title: Number 21.
paragraphs: Volume cap or other allocation  limits?  Varied. Multiple provisions  within the tax expenditure  package have volume caps or  other revenue loss limitations.

Involves administration by a federal  agency outside IRS?  Varied; multiple provisions within the tax  expenditure package involved administration  by federal agencies besides IRS.

Involves administration by nonfederal  entity?  Varied; multiple provisions within the tax  expenditure package involved administration by  state and local governments.

The maximum amount of  Midwestern Tax Credit Bonds  that may have been issued was  capped at: (1) $100 million for  any state with an aggregate  population located in all Midwest  disaster areas within the state of  at least 2,000,000; (2) $50 million  for any state with an aggregate  population located in all Midwest  disaster areas within the state of  at least 1,000,000 but less than  2,000,000; and (3) $0 for any  other state.

Yes; Treasury determines the credit rate of  Midwestern Tax Credit Bonds.

State governments in the Midwest disaster area  issued Midwestern tax credit bonds to help pay  principal, interest and premiums on outstanding  state and local government bonds.

The maximum aggregate face  amount of Midwestern disaster  zone bonds that may have been  issued in any state in which a  Midwestern disaster area was  located, was capped at $1,000  multiplied by the population of  the respective state within the  Midwestern disaster zone; no  other states were eligible for tax- exempt bond financing.

State and local governments in the Midwest  disaster area issued bonds.

section_title: Number
paragraphs: Tax expenditure   Increased credit cap and other  modified provisions for use of the  Low-Income Housing Tax Credit  (LIHTC)

Volume cap or other allocation  limits?  A special allocation of the LIHTC  was issued for each of three  years (2008, 2009, and 2010) to  any state in which a Midwest  disaster area was located. Each  year’s special allocation was  capped at $8.00 multiplied by the  population of the respective state  in a Midwest disaster area.

Involves administration by nonfederal  entity?  See above description of the LIHTC regarding  the involvement of state housing finance  agencies (HFA).

Yes; for the provision allowing expensing of  environmental remediation costs from disasters,  state environmental agencies certify brownfield  properties on which there has been an actual or  threatened release or disposal of certain  hazardous substances as a result of a federally  declared disaster.

State and local governments had the authority to issue RZEDBs and RZFBs from February 17, 2009 through December 31, 2010.

Tribal governments are authorized to issue tax-exempt bonds only if substantially all of the proceeds are used for essential governmental functions or  certain manufacturing facilities.

section_title: Appendix VI: Tax Provisions and Special Rules Available for Disaster Relief and Recovery in Specific Presidentially Declared Disaster Areas
paragraphs: Legislation targeted towards the New York Liberty Zone  and the Gulf Opportunity Zones (GO Zone) allowed an  additional advance refunding to redeem certain prior tax- exempt bond issuances from state and local  governments. The provision allowed state and local  governments to refund, or refinance, bonds that are not  redeemed within 90 days after the refunding bonds are  issued.

Residential rental property may be financed with tax- exempt facility bonds issued by state and local  governments, if the financed project is a “qualified  residential rental project” with required ratios of residents  with certain income limitations. Under the provision, the  operator of a qualified residential rental project may rely  on the representations of prospective tenants displaced  by reason of certain disasters to determine whether such  individual satisfies the income limitation for a qualified  residential rental project.

Description  Mortgage revenue bonds are tax-exempt bonds issued by  state and local governments to make mortgage loans to  qualified mortgagors for the purchase, improvement, or  rehabilitation of owner-occupied residences, and are  typically required to exclusively finance mortgages for  “first-time homebuyers.” Qualified mortgage revenue  bonds, may be issued in targeted disaster areas without a  first-time homebuyer financing requirement. Additionally,  the permitted amount of qualified home-improvement  loans increases from $15,000 to $150,000 for residences  in a disaster zone.

State and local governments in GO Zones and the  Midwest disaster area may have issued tax credit bonds  in areas affected by certain disasters. 95 percent of these  bonds must be used to (1) pay principal, interest, or  premium on outstanding bonds (other than private activity  bonds) issued by state and local governments, or (2)  make a loan to any political subdivision (e.g., local  government) of such state to pay principal, interest, or  premium on bonds (other than private activity bonds)  issued by such political subdivision. These bonds differed  from tax-exempt bonds in that rather than receiving tax- exempt interest payments, bondholders were entitled to a  federal tax credit equal to a certain percentage of their  investment.

Description  In certain disaster areas, tax-exempt bonds for qualified  private activities may have been issued and were not  restricted by aggregate annual state private activity bond  limits. These bonds allow state and local governments to  finance the construction or rehabilitation of properties  following a disaster.

Treasury named Series I inflation-indexed savings bonds  purchased through financial institutions as “Gulf Coast  Recovery Bonds” from March 29-December 31, 2006, in  order to encourage public support for recovery and  rebuilding efforts in areas devastated by Hurricanes  Katrina, Rita, and Wilma. Proceeds from the sale of the  bonds were not specifically designated for hurricane relief  and recovery efforts.

The provision provided a temporary tax credit of 30  percent to qualified employers for the value of employer- provided lodging to qualified employees affected by  certain disasters. The amount taken as a credit was not  deductible by the employer.

Certain disaster relief tax packages included a credit of 40  percent of the qualified wages (up to a maximum of  $6,000 in qualified wages per employee) paid by an  eligible employer that conducted business in a disaster  zone and whose operations were rendered inoperable by  the disaster.

Description  For 2005, the Hope Scholarship Credit rate was 100  percent on the first $1,000 of qualified tuition and related  expenses, and 50 percent on the next $1,000 of qualified  tuition and related expenses. For 2005, the Hope credit  was temporarily increased for students attending eligible  educational institutions in the GO Zone to 100 percent of  the first $2,000 in qualified tuition and related expenses  and 50 percent of the next $2,000 of qualified tuition and  related expenses, for a maximum credit of $3,000 per  student. For 2006, this provision increased the tax credit  again to 100 percent of the first $2,200 of qualified tuition  and related expenses (instead of $1,100 under standard  law in 2006), and 50 percent of the next $2,200 of  qualified tuition and related expenses (instead of $1,100)  for a maximum credit of $3,300 per student (instead of  $1,650). For 2008 and 2009, the Hope scholarship credit  was extended to students attending eligible educational  institutions in the Midwestern disaster area, based on  increased credit rates enacted in 2006.

Individual taxpayers are typically allowed to claim a  nonrefundable credit, the Lifetime Learning Credit, equal  to 20 percent of qualified tuition and related expenses of  up to $10,000 (resulting in a total credit of up to $2,000)  incurred during the taxable year on behalf of the taxpayer,  the taxpayer’s spouse, or any dependents. The Lifetime  Learning Credit rate was temporarily increased from 20  percent to 40 percent for students attending institutions in  certain disaster areas.

Description  The provision increased from 20 to 26 percent, and from  10 to 13 percent, respectively, the preservation credits  with respect to any certified historic structure or qualified  rehabilitated building located in certain disaster areas,  provided the qualified rehabilitation expenditures with  respect to such buildings or structures were incurred  during an established period of time following the disaster.

The LIHTC cap amount increased for affected states  within the GO Zones and the Midwestern disaster area.  Also, rules concerning implementation of the LIHTC were  modified for the GO Zone; in the case of property placed  in service from 2006-2008 in a nonmetropolitan area  within the GO Zone, LIHTC income targeting rules are  applied by using a national nonmetropolitan median gross  income standard instead of the area median gross income  standard typically applied to low-income housing projects.

The provision allowed an additional allocation of NMTCs  in an amount equal to $300 million for 2005 and 2006,  and $400 million for 2007, to be allocated among qualified  community development entities to make qualified low- income community investments within the Katrina GO  Zone.

Description  Individuals whose principle residence were in certain  disaster areas or were otherwise displaced from their  homes by disasters may have elected to calculate their  Earned Income Tax Credit and Refundable Child Credit  for the taxable year when the disaster occurred using their  earned income from the prior taxable year.

Employers hiring and retaining individuals who worked in  certain disaster areas were eligible to claim up to $2,400  in Work Opportunity Tax Credits per employee (or 40  percent of up to the first $6,000 of wages). Employees in  other targeted categories for the tax credit (e.g., qualified  veterans or families receiving food stamps) are typically  required to provide certification from a designated local  agency of their inclusion in such groups on or before they  begin work, or their employer provides documentation to  said agencies no later than 28 days after the employee  begins work. However, employees who worked and/or  lived in certain disaster areas do not require certification  from such agencies for employers to qualify for the tax  credit.

Tax provision  or special rule  Deductions  Carryback of net operating losses (NOL)

Under present law, a net operating loss (NOL) is,  generally, the amount by which a taxpayer’s business  deductions exceed its gross income. In general, an NOL  may be carried back 2 years and carried over 20 years to  offset taxable income in such years. NOLs offset taxable  income in the order of the taxable years to which the NOL  may be carried. This provision provided a special 5-year  carryback period for NOLs to the extent of qualified  disaster losses in any presidentially declared disaster  area during 2008 and 2009.

Individuals and corporations affected by certain disasters  may have carried back NOLs, for a period of 5 years, of  the sum of the aggregate amount of deductions from such  disasters, including deductions for qualified casualty  losses; certain moving expenses; certain temporary  housing expenses; depreciation deductions with respect  to qualified property in disaster areas for the taxable year  the property was placed into service; and certain repair  expenses resulting from applicable disasters.

A NOL to a farming business may have been carried back  for five years if such loss was attributable to any portion of  qualified timber property which was located in the Katrina  or Rita GO Zones.

Description  The provision provided an election for taxpayers who  incurred casualty losses attributable to certain disasters  with respect to public utility property located in applicable  disaster zones. Under the election, such losses may be  carried back 5 years immediately preceding the taxable  year in which the loss occurred. If the application of this  provision resulted in the creation or increase of a NOL for  the year in which the casualty loss is taken into account,  the NOL may be carried back or carried over as under  present law applicable to NOLs for such year.

The provision provided an election for taxpayers to treat  any GO Zone public utility casualty loss caused by  Hurricane Katrina as a specified liability loss to which the  present-law 10-year carryback period applies. The  amount of the casualty loss is reduced by the amount of  any gain recognized by the taxpayer from involuntary  conversions of public utility property (e.g. physical  destruction of such property) located in the GO Zone  caused by Hurricane Katrina. Taxpayers who elect to use  this provision are not eligible to treat the loss as part of  the 5-year net operating loss carryback provided under  another provision of the GO Zone Act (see 5-year NOL  carryback of public utility casualty losses mentioned  above).

The provision suspended two limitations on personal  casualty or theft losses to the extent those losses arise in  certain disaster areas and are attributable to such  disasters. First, personal casualty or theft losses meeting  the above requirements needed not exceed $100 per  casualty or theft; present law at the time contained a  required threshold of $100. Second, such losses were  deductible without regard to whether aggregate net losses  exceed 10 percent of a taxpayer’s adjusted gross income,  which was standard under present law at the time the  disasters took place. The provision treats personal  casualty or theft losses from the pertinent disaster as a  deduction separate from other casualty losses.

Description  The provision removed one limitation on personal casualty  or theft losses to the extent those losses arise in federally  declared disaster areas during 2008 and 2009. More  specifically, losses were deductible without regard to  whether aggregate net losses exceed 10 percent of a  taxpayer’s adjusted gross income, which was standard  under present law at the time the disasters took place.  The provision treats personal casualty or theft losses from  federally declared disasters as a deduction separate from  other casualty losses. However, present law at the time  contained a required threshold of $100 for meeting  requirements to claim losses, and this provision increases  the threshold to $500. These rules are in effect for all  federally declared disaster areas in 2008 and 2009 aside  from those areas declared “Midwestern disaster areas”  from flooding, tornadoes, and storms in 2008. The portion  of the provision increasing the limitation per casualty to  $500 only applies to 2009.

Under present law, a taxpayer’s deduction for charitable  contributions of inventory generally is limited to the  taxpayer’s basis (typically cost) in the inventory, or if less,  the fair market value of the inventory. Under this  provision, a C Corporation was eligible to claim an  enhanced deduction for qualified book donations. An  enhanced deduction is equal to the lesser of (1) basis plus  one-half of the item’s appreciation (basis plus one-half of  fair market value in excess of basis) or (2) two times  basis.

Description  Under present law, a taxpayer’s deduction for charitable  contributions of inventory generally is limited to the  taxpayer’s basis (typically cost) in the inventory, or if less,  the fair market value of the inventory. Under this  provision, any taxpayer, whether or not a C corporation,  engaged in a trade or business was eligible to claim an  enhanced deduction for donations of food inventory. An  enhanced deduction is equal to the lesser of (1) basis plus  one-half of the item’s appreciation (i.e., basis plus one- half of fair market value in excess of basis) or (2) two  times basis. For taxpayers other than C corporations, the  total deduction for donations of food inventory in a taxable  year generally may not exceed 10 percent of the  taxpayer’s net income for such taxable year from which  contributions of apparently wholesome food are made.

The provision allowed a taxpayer using a vehicle while  donating services to charity for the provision of relief  related to certain disasters to compute charitable mileage  deduction using a rate equal to 70 percent of the business  mileage rate in effect on the date of the contribution,  rather than the charitable standard mileage rate generally  in effect under law.

The provision allowed for qualified contributions up to the  amount by which an individual’s contribution base  (adjusted gross income without regard to any NOL  carryback) or corporation’s taxable income exceeds the  deduction for other charitable contributions. Contributions  in excess of this amount are carried over to succeeding  taxable years subject to limitations under law.

The provision allowed an additional first-year depreciation  deduction equal to a percentage of the adjusted basis of  qualified property; the percentage varies depending on  the disaster area where the property is located, e.g., 30  percent for New York Liberty Zone, 50 percent for GO  Zones, Kansas Disaster Zone, and other areas in the U.S.  declared disaster areas under national disaster relief.

A taxpayer was permitted a deduction for 50 percent of  qualified disaster clean-up costs, such as removal of  debris or demolition of structures, paid or incurred for an  established period of time following certain disasters.

Under the provision, a taxpayer may have elected to treat  any repair of business-related property affected by  presidentially declared disasters, including repairs that are  paid or incurred by the taxpayer, as a deduction for the  taxable year in which paid or incurred.

Description  Taxpayers may typically elect to deduct (or “expense”)  certain environmental remediation expenditures that  would otherwise be chargeable to a capital account, in the  year paid or incurred. The deduction applies for both  regular and alternative minimum tax purposes. The  expenditure must be incurred in connection with the  abatement or control of hazardous substances at a  qualified contaminated site. The provision was extended  beyond present law for qualified contaminated sites  located in the GO Zone and Midwestern disaster zones,  as well as federally declared disaster areas in 2008 and  2009. The length of such extensions depended on the  applicable disaster zone.

Qualified improvements made on leasehold property in  the New York Liberty Zone could have been depreciated  over a 5-year period using the straight-line method of  depreciation, instead of the 39-year period standard under  present law. Qualified leasehold property improvements  included improvements to nonresidential real property,  such as additional walls and plumbing and electrical  improvements made to an interior portion of a building.

Description  In lieu of depreciation, a taxpayer with a sufficiently small  amount of annual investment may elect to expense  qualified property placed in service for the taxable year  under section 179 of the Internal Revenue Code.  Taxpayers in certain disaster areas were eligible to  increase the maximum dollar amount of Section 179  expensing for qualified property, which is generally  defined as depreciable tangible personal property that is  purchased for use in the active conduct of a trade or  business. Taxpayers in the New York Liberty Zone could  deduct an additional amount up to the lesser of $35,000  or the cost of the qualified Section 179 property put into  service during the calendar year. Taxpayers in the GO  Zone, Kansas Disaster Zone or disaster zones covered  under “National Disaster Relief” could deduct an  additional amount up to the lesser of $100,000 or the cost  of the qualified Section 179 property put into service  during the calendar year.

The provision doubled, for certain taxpayers, the present- law expensing limit of $10,000 for reforestation  expenditures paid or incurred by such taxpayers for  certain periods of time with respect to qualified timber  property in the Katrina, Rita and Wilma GO Zones. For  example, single taxpayers may have claimed $20,000  instead of $10,000 for eligible reforestation expenditures.

Description  The Internal Revenue Code allowed an additional first- year depreciation deduction equal to 30 or 50 percent of  the adjusted basis of qualified property, including (1)  property to which the modified accelerated cost recovery  system applies with an applicable recovery period of 20  years or less, (2) water utility property, (3) certain  computer software, or (4) qualified leasehold improvement  property placed in service by December 31, 2005. Under  this provision, the Secretary of Treasury had authority to  further extend the placed-in-service date (beyond Dec. 31,  2005), on a case-by-case basis, for up to 1 year for  certain property eligible for the December 31, 2005  placed-in-service date under present law. The authority  extended only to property placed in service or  manufactured in the Katrina, Rita or Wilma GO Zones. In  addition, the authority extended only to circumstances in  which the taxpayer was unable to meet the December 31,  2005 deadline as a result of Hurricanes Katrina, Rita,  and/or Wilma.

The provision provided an additional exemption of $500  for each displaced individual of a taxpayer affected by  certain disasters. The taxpayer may have claimed the  additional exemption for no more than four individuals;  thus the maximum additional exemption amount was  $2,000.

Individuals whose principal residence was located in the  Hurricane Katrina core disaster area or certain portions of  the Midwestern disaster area on the date that a disaster  was declared may generally exclude any nonbusiness  debt from gross income, such as a mortgage, that is  discharged by an applicable entity on or after the  applicable disaster date for an established time period. If  the individual’s primary residence was located in the  Hurricane Katrina disaster area (outside the core disaster  area) or other portions of the Midwestern disaster area,  the individual must also have had an economic loss  because of the disaster.

A taxpayer may have elected not to recognize gain with  respect to property that was involuntarily converted, or  destroyed, if the taxpayer acquired qualified replacement  property within an applicable period, which is typically 2  years. The replacement period for property that was  involuntarily converted in certain disaster areas is 5 years  after the end of the taxable year in which a gain is  realized. Substantially all of the use of the replacement  property must be within the affected area.

Description  The provision provided a temporary income exclusion for  the value of in-kind lodging provided for a month to a  qualified employee (and the employee’s spouse or  dependents) affected by certain disasters by or on behalf  of a qualified employer. The amount of the exclusion for  any month for which lodging is furnished could not have  exceeded $600. The exclusion did not apply for purposes  of Social Security and Medicare taxes or unemployment  tax.

Under the provision, reimbursement by charitable  organizations to a volunteer for the costs of using a  passenger automobile in providing donated services to  charity for relief of certain disasters was excludable from  the gross income of the volunteer. The reimbursement  was allowed up to an amount that did not exceed the  business standard mileage rate prescribed for business  use.

The provision provided an exception to the 10 percent  early withdrawal tax in the case of a qualified distribution  of up to $100,000 from a qualified retirement plan, such  as a 401(k) plan), a 403(b) annuity, or an IRA. Income  from a qualified distribution may have been included in  income ratably over 3 years, and the amount of a qualified  distribution may have been recontributed to an eligible  retirement plan within 3 years.

Description  In general, under the provision, a qualified distribution  received from certain retirement plans in order to  purchase a home in certain disaster areas may be  recontributed to such plans in certain circumstances. The  provision applies to an individual who receives a qualified  distribution that was to be used to purchase or construct a  principal residence in a disaster area, but the residence is  not purchased or constructed on account of the disaster.

Under this provision, residents whose principal residence  was located in designated disaster areas and who  suffered economic loss as a result of such disasters may  borrow up to $100,000 from their employer plan. In  addition to increasing the aggregate plan loan limit from  the usual $50,000, the provision also relaxed other  requirements relating to plan loans.

The provision permits certain retirement plan  amendments made pursuant to changes made under  Section 1400Q of the Internal Revenue Code, or  regulations issued there under, to be retroactively  effective. In order for this treatment to apply, the plan  amendment is required to be made on or before the last  day of the first plan year beginning on or after January 1,  2007, or such later date as provided by the Secretary of  the Treasury. Governmental plans are given an additional  2 years in which to make required plan amendments.

The Secretary of the Treasury was required to provide  certain administrative relief to taxpayers affected by  certain presidentially declared disasters. Such relief  allows for postponement of actions required by law, such  as filing tax returns, paying taxes, or filing a claim for  credit or refund of tax, for an applicable period of time  following a disaster.

The provision authorized the Secretary of the Treasury to  make such adjustments in the application of federal tax  laws to ensure that taxpayers did not lose any deduction  or credit or experience a change of filing status by reason  of temporary relocations caused by applicable disasters.  Any adjustments made under this provision must insure  that an individual is not taken into account by more than  one taxpayer with respect to the same tax benefit.
subsections: section_title: Total provisions by disaster relief packages
paragraphs: (h)

The Katrina Emergency Act package was enacted by the Katrina Emergency Tax Relief Act of 2005 (Pub. L. No. 109-73), and targeted the Hurricane  Katrina disaster area (consisting of the states of Alabama, Florida, Louisiana, and Mississippi), including core disaster areas determined by the  President to warrant individual or individual and public assistance from the federal government following Hurricane Katrina in August 2005. On  enactment, JCT projected total budget effects of $6,109 million for fiscal years 2006 through 2015.

The Gulf Opportunity Zone package was enacted by the Gulf Opportunity (GO) Zone Act of 2005 (Pub. L. No. 109-135). Counties and parishes in  Alabama, Florida, Louisiana, Mississippi and Texas that warranted additional, long-term federal assistance following Hurricanes Katrina, Rita and Wilma  in 2005 were designated as Katrina, Rita and/or Wilma GO Zones. Portions of the Katrina and Rita GO Zones overlapped with counties and parishes  eligible for relief under the Katrina Emergency Tax Relief Act. The Gulf Opportunity Zone tax package also included some nondisaster-related tax  provisions: election to treat combat pay as earned income for purposes of the Earned Income Tax Credit; modifications of suspension of interest and  penalties where IRS fails to contact taxpayer; authority for undercover operations; disclosure of tax information to facilitate combined employment tax  reporting; disclosure of return information regarding terrorist activities; disclosure of return information to carry out contingent repayment of student  loans; and various tax technical corrections. On enactment, JCT projected total budget effects of $8,715 million for the disaster provisions for fiscal years  2006 through 2015.  The Kansas disaster relief package was enacted by the Food, Conservation, and Energy Act of 2008 (Pub. L. No. 110-246). The Kansas disaster relief  package targeted 24 counties in Kansas affected by storms and tornadoes that began on May 4, 2007. On enactment, JCT projected total revenue  effects of $63 million for the disaster provisions for fiscal years 2008 though 2018.  The Midwest disaster relief package was enacted by the Emergency Economic Stabilization Act of 2008, Energy Improvement and Extension Act of  2008, and Tax Extenders and the Alternative Minimum Tax Relief Act of 2008 (Pub. L. No. 110-343). The Midwest disaster relief package targeted  selected counties in 10 states affected by tornadoes, severe storms and flooding occurring from May 20-July 31, 2008. The listed components  associated with the Midwest disaster relief package do not include rules outlining IRS reporting requirements for contributions to disaster relief; these  rules apply for tax returns due after December 31, 2008. On enactment, JCT projected total revenue effects of $4,576 million for the Midwest disaster  provisions for fiscal years 2009 through 2018.  The National disaster relief package was enacted by the Emergency Economic Stabilization Act of 2008, Energy Improvement and Extension Act of  2008, and Tax Extenders and the Alternative Minimum Tax Relief Act of 2008 (Pub. L. No. 110-343). The National disaster relief package targeted  individuals and businesses located in any geography declared a disaster area in the United States during tax years 2008 and 2009. Certain provisions of  the National Disaster Relief Act of 2008 do not apply to the Midwest disaster areas because the Heartland and Hurricane Ike Disaster Relief Act, part of  the same legislation that resulted in the National Disaster Relief Act, provides other tax benefits. On enactment, JCT projected total revenue effects of  $8,091 million for fiscal years 2009 through 2018.  The numbers of provisions across the six disaster relief packages exceeds the total number of provisions because some tax provisions and special  rules were part of more than one disaster package.

section_title: Appendix VII: Potential Duplication, Overlap, and Fragmentation among Economic Development Spending Programs
paragraphs: In March 2011 and more recently in May 2011, we reported on the  potential for duplication among 80 federal economic development  programs at four agencies—the Departments of Commerce (Commerce),  Housing and Urban Development (HUD), and Agriculture (USDA) and the  Small Business Administration (SBA). According to the agencies,  funding provided for these 80 programs in fiscal year 2010 amounted to  $6.2 billion, of which about $2.9 billion was for economic development  efforts, largely in the form of grants, loan guarantees, and direct loans.  Some of these 80 programs can fund a variety of activities, including such  noneconomic development activities as rehabilitating housing and  building community parks.

Our work as of May 2011 suggested that the design of each of these 80  economic development programs appears to overlap with that of at least  one other spending program in terms of the economic development  activity that they are authorized to fund, as shown in table 12. For  example, 35 programs can fund infrastructure, and 27 programs can fund  commercial buildings. Some of the 80 economic development programs  are targeted to economically distressed areas.

In February 2012, we reported our findings to date on overlap and  fragmentation among 53 economic development programs that support  entrepreneurial efforts. Based on a review of the missions and other  related program information for these 53 programs, we determined that  these programs overlap based not only on their shared purpose of  serving entrepreneurs but also on the type of assistance they offer. Much  of the overlap and fragmentation among these 53 programs is  concentrated among programs that support economically distressed and  disadvantaged businesses. In ongoing work that will be published as a  separate report, we plan to examine the extent of potential duplication  among the 53 programs.

section_title: Appendix VIII: Comments from the Department of the Treasury

section_title: Appendix IX: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact

section_title: Staff Acknowledgments
paragraphs: In addition to the contact named above MaryLynn Sergent, Assistant  Director; Elizabeth Curda; Jeffrey DeMarco; Edward Nannenhorn;  Melanie Papasian; Mark Ryan; and Sabrina Streagle made key  contributions to this report.

section_title: Bibliography
paragraphs: To determine what is known about the effectiveness of selected  community development tax expenditures, we conducted a literature  review of studies that addressed the following tax expenditure provisions:  (1) the Empowerment Zone/Renewal Community tax programs; (2) the  New Markets Tax Credit program; (3) tax expenditures available for  certain disaster areas; and (4) rehabilitation tax credits, including the 20  percent tax credit for preservation of historic structures and the 10  percent tax credit for the rehabilitation of structures (other than historic).  We searched databases, including Proquest, Google Scholar, and  Econlit, for studies through May 2011. We focused on studies that  attempted to measure the impact of the selected tax incentives on certain  measures of community development, such as the poverty and  unemployment rate.

Abravanel, Martin D., Nancy M. Pindus, and Brett Theodos. Evaluating  Community and Economic Development Programs: A Literature Review  to Inform Evaluation of the New Markets Tax Credit Program. Prepared  for the Department of the Treasury Community Development Financial  Institutions Fund. The Urban Institute. September 2010.

Aprill, Ellen P., and Richard Schmalbeck. “Post-Disaster Tax Legislation:  A Series of Unfortunate Events.” Duke Law Journal, vol. 56, no. 1 (2006):  51-100.

Bartik, Timothy J. “Bringing Jobs to People: How Federal Policy Can  Target Job Creation for Economically Distressed Areas.” Discussion  paper prepared for The Hamiltion Project (2010).

Busso, Matias, Jesse Gregory., and Patrick M Kline. “Assessing the  Incidence and Efficiency of a Prominent Place Based Policy.” National  Bureau of Economic Research Working paper no. 16096 (2010).

Chernick, Howard and Andrew F. Haughwout. “Tax Policy and the Fiscal  Cost of Disasters: NY and 9/11.” National Tax Journal, vol. 59, no. 3  (2006): 561-577.

Congressional Research Service. Empowerment Zones, Enterprise  Communities, and Renewal Communities: Comparative Overview and  Analysis. Washington, D.C.: 2011.

Gotham, Kevin F., and Miriam Greenberg. “From 9/11 to 8/29: Post- Disaster Recovery and Rebuilding in New York and New Orleans.” Social  Forces, vol. 87, no. 2 (2008): 1039-1062.

Ham, John C., Charles Swenson, Ayse Imrohoroglu, and Heonjae Song.  “Government Programs Can Improve Local Labor Markets: Evidence  from State Enterprise Zones, Federal Empowerment Zones and Federal  Enterprise Community. Journal of Public Economics, vol. 95, no. 7-8  (August 2011): 779-797.

Hanson, Andrew. “Utilization of Employment Tax Credits: An Analysis of  the Empowerment Zone Wage Tax Credit.” Public Budgeting & Finance,  vol. 31, no. 1 (2011): 23-36.

Hanson, Andrew and Shawn Rohlin. “The Effect of Location-Based Tax  Incentives on Establishment Location and Employment across Industry  Sectors.” Public Finance Review, vol. 39, no. 2 (2011): 195-225.

Hebert, Scott, Avis Vidal, Greg Mills, Franklin James, and Debbie  Gruenstein. Interim Assessment of the Empowerment Zones and  Enterprise Communities (EZ/EC) Program: A Progress Report. A report  prepared for the U.S. Department of Housing and Urban Development.  November 2001.

Jennings, James. “The Empowerment Zone in Boston, Massachusetts,  2000-2009.” Review of Black Political Economy, vol. 38, no. 1 (2011): 63- 81.

Joint Committee on Taxation. Incentives for Distressed Communities:  Empowerment Zones and Renewal Communities (JCX-38-09), October 5,  2009.

Kolko, Jed and David Neumark. “Do Some Enterprise Zones Create  Jobs?” Journal of Policy Analysis and Management, vol. 29, no. 1 (2010):  5-38.

Listokin, David, Michael L. Lahr, Charles Heydt, and David Stanek.  Second Annual Report on the Economic Impact of the Federal Historic  Tax Credit. A report prepared for the Historic Tax Credit Coalition. May  2011.

Rich, Michael J., and Robert P. Stoker. “Rethinking Empowerment:  Evidence from Local Empowerment Zone Programs.” Urban Affairs  Review, vol 45, no. 6 (2010): 775-796.

Richardson, James A. “Katrina/Rita: The Ultimate Test for Tax Policy.”  National Tax Journal, vol. 59, no. 3 (September 2006): 551-560.

Schilling, James D., Kerry D. Vandell, Ruslan Koesman, and Zhenguo  Lin. “How Tax Credits Have Affected the Rehabilitation of the Boston  Office Market.” Journal of Real Estate Research, vol. 28, no. 4 (2006):  321-348.

Stead, Meredith M. “Implementing Disaster Relief Through Tax  Expenditures: An Assessment of the Katrina Emergency Tax Relief  Measures.” New York University Law Review, vol. 81, no. 6 (2006): 2158- 2191.

Tolan, Patrick E, Jr. “The Flurry of Tax Law Changes Following the 2005  Hurricanes: A Strategy for More Predictable and Equitable Tax Treatment  of Victims.” Brooklyn Law Review, vol. 72, no. 3 (2007): 799-870.

section_title: Related GAO Products
paragraphs: 2012 Annual Report: Opportunities to Reduce Duplication, Overlap, and  Fragmentation, Achieve Savings, and Enhance Revenue.  GAO-12-342SP. Washington, D.C.: February 28, 2012.

Follow-up on 2011 Report: Status of Actions Taken to Reduce  Duplication, Overlap, and Fragmentation, Save Tax Dollars, and Enhance  Revenue. GAO-12-453SP. Washington, D.C.: February 28, 2012.

Managing for Results: Opportunities for Congress to Address  Government Performance Issues. GAO-12-215R. Washington, D.C.:  December 9, 2011.

Economic Development: Efficiency and Effectiveness of Fragmented  Programs Are Unclear. GAO-11-872T. Washington, D.C.: July 27, 2011.

Efficiency and Effectiveness of Fragmented Economic Development  Programs Are Unclear. GAO-11-477R. Washington, D.C.: May 19, 2011.

Managing for Results: GPRA Modernization Act Implementation Provides  Important Opportunities to Address Government Challenges.  GAO-11-617T. Washington, D.C.: May 10, 2011.

Performance Measurement and Evaluation: Definitions and  Relationships. GAO-11-646SP. Washington, D.C.: May 2, 2011.

Indian Issues: Observations on Some Unique Factors that May Affect  Economic Activity on Tribal Lands. GAO-11-543T. Washington, D.C.:  April 7, 2011.

Government Performance: GPRA Modernization Act Provides  Opportunities to Help Address Fiscal, Performance, and Management  Challenges. GAO-11-466T. Washington, D.C.: March 16, 2011.

Opportunities to Reduce Potential Duplication in Government Programs,  Save Tax Dollars, and Enhance Revenue. GAO-11-318SP. Washington  D.C.: March 1, 2011.

Recovery Act: Opportunities to Improve Management and Strengthen  Accountability over States’ and Localities’ Uses of Funds. GAO-10-999.  Washington, D.C.: September 20, 2010.

Community Development Block Grants: Entitlement Communities’ and  States’ Methods of Distributing Funds Reflect Program Flexibility.  GAO-10-1011. Washington, D.C.: September 15, 2010.

Revitalization Programs: Empowerment Zones, Enterprise Communities,  and Renewal Communities. GAO-10-464R. Washington, D.C.: March 12,  2010.

New Markets Tax Credit: The Credit Helps Fund a Variety of Projects in  Low-Income Communities, but Could Be Simplified. GAO-10-334.  Washington, D.C.: January 29, 2010.

Disaster Recovery: Past Experiences Offer Insights for Recovering from  Hurricanes Ike and Gustav and Other Recent Natural Disasters.  GAO-08-1120. Washington, D.C.: September 26, 2008.

Gulf Opportunity Zone: States Are Allocating Federal Tax Incentives to  Finance Low-Income Housing and a Wide Range of Private Facilities.  GAO-08-913. Washington, D.C.: July 16, 2008.

Tax Expenditures: Available Data Are Insufficient to Determine the Use  and Impact of Indian Reservation Depreciation. GAO-08-731.  Washington, D.C.: June 26, 2008.

Tax Policy: Tax-Exempt Status of Certain Bonds Merits Reconsideration,  and Apparent Noncompliance with Issuance Cost Limitations Should Be  Addressed. GAO-08-364. Washington, D.C.: February 15, 2008.

HUD and Treasury Programs: More Information on Leverage Measures’  Accuracy and Linkage to Program Goals is Needed in Assessing  Performance. GAO-08-136. Washington, D.C.: January 18, 2008.  21st Century Challenges: How Performance Budgeting Can Help.   GAO-07-1194T. Washington, D.C.: September 20, 2007.

Leveraging Federal Funds for Housing, Community, and Economic  Development. GAO-07-768R. Washington, D.C.: May 25, 2007.

Tax Policy: New Markets Tax Credit Appears to Increase Investment by  Investors in Low-Income Communities, but Opportunities Exist to Better  Monitor Compliance. GAO-07-296. Washington, D.C.: January 31, 2007.

Empowerment Zone and Enterprise Community Program: Improvements  Occurred in Communities, but the Effect of the Program is Unclear.   GAO-06-727. Washington, D.C.: September 22, 2006.

Federal Tax Policy: Information on Selected Capital Facilities Related to  the Essential Governmental Function Test. GAO-06-1082. Washington,  D.C.: September 13, 2006.

Rural Economic Development: More Assurance Is Needed That Grant  Funding Information Is Accurately Reported. GAO-06-294. Washington  D.C.: February 24, 2006.

Telecommunications: Challenges to Assessing and Improving  Telecommunications for Native Americans on Tribal Lands.  GAO-06-189.  (Washington, D.C.: January, 11, 2006).

Results-Oriented Government: Practices That Can Help Enhance and  Sustain Collaboration among Federal Agencies. GAO-06-15. Washington,  D.C.: October 21, 2005.

Government Performance and Accountability: Tax Expenditures  Represent a Substantial Federal Commitment and Need to Be  Reexamined. GAO-05-690. Washington, D.C.: September 23, 2005.

A Glossary of Terms Used in the Federal Budget Process.   GAO-05-734SP. Washington, D.C.: September 2005.

Community Development: Federal Revitalization Programs Are Being  Implemented, but Data on the Use of Tax Benefits Are Limited.   GAO-04-306. Washington, D.C.: March 5, 2004.

New Markets Tax Credit Program: Progress Made in Implementation, but  Further Actions Needed to Monitor Compliance. GAO-04-326.  Washington, D.C.: January 30, 2004.

September 11: Overview of Federal Disaster Assistance to the New York  City Area. GAO-04-72. Washington, D.C.: October 31, 2003.

Tax Administration: Information Is Not Available to Determine Whether $5  Billion in Liberty Zone Tax Benefits Will Be Realized. GAO-03-1102.  Washington, D.C.: September 30, 2003.

Economic Development: Multiple Federal Programs Fund Similar  Economic Development Activities. GAO/RCED/GGD-00-220.  Washington, D.C.: September 29, 2000.

Tax Policy: Tax Expenditures Deserve More Scrutiny.   GAO/GGD/AIMD-94-122. Washington, D.C.: June 3, 1994.


Question-summary annotations: questions: question: What tax expenditures were available in FY2010?
answer: GAO identified 23 community development tax expenditures available in fiscal year 2010.
child_questions: question: What did the tax expenditures support?
answer: For example, five ($1.5 billion) targeted economically distressed areas, and nine ($8.7 billion) supported specific activities such as rehabilitating structures for business use.

question: How is tax expenditures funding designated for different areas?
answer: The design of each community development tax expenditure appears to overlap with that of at least one other tax expenditure in terms of the areas or activities funded.
child_questions: question: How is the overlap considered federally?
answer: Federal tax laws and regulations permit use of multiple tax expenditures or tax expenditures with other federal spending programs, but often with limits.
child_questions: question: When is overlap not allowed?
answer: For instance, employers cannot claim more than one employment tax credit for the same wages paid to an individual.

question: What federal agencies are involved in tax expenditures?
answer: Besides IRS, administering many community development tax expenditures involves other federal agencies as well as state and local governments.
child_questions: question: What is one of these other federal agencies?
answer: For example, the National Park Service oversees preservation standards for the 20 percent historic rehabilitation tax credit.

question: What can cause administrative burden?
answer: Fragmented administration and program overlap can result in administrative burden, such as applications to multiple federal agencies to fund the needs of a distressed area or finance a specific.

questions: question: How are tax expenditures documented and measured?
answer: Limited data and measures are available to assess community development tax expenditures’ performance.
child_questions: question: Why is this information so limited?
answer: IRS only collects information needed to administer the tax code or otherwise required by law, and IRS data often do not identify the specific communities assisted.

question: How do agencies outside the IRS contribute to the limited information?
answer: Other federal agencies helping administer community development tax expenditures also collect limited information on projects and associated outcomes.

question: What recommendations have the GAO given regarding tax expenditure assessments?
answer: GAO has long recommended that the Executive Branch improve its ability to assess tax expenditures, but little progress has been made in developing an evaluation framework.
child_questions: question: What assessment procedures are lacking?
answer: Generally, neither these agencies, nor the Department of the Treasury or the Office of Management and Budget (OMB) have assessed or plan to assess community development tax expenditures individually or as part of a crosscutting review.

question: What document supports assessment procedures?
answer: The Government Performance and Results Act Modernization Act of 2010 (GPRAMA) calls for a more coordinated approach to focusing on results and improving performance.
child_questions: question: How will the OMB asses federal performance regarding GPRAMA?
answer: OMB is to select a limited number of long-term, outcome-oriented crosscutting priority goals and assess whether the relevant federal agencies and activities—including tax expenditures—are contributing to these goals.
child_questions: question: What is the goal of this assessment?
answer: These assessments could help identify data needed to assess tax expenditures and generate evaluations of tax expenditures’ effect on community development.

question: What control does Congress have regarding GPRAMA?
answer: Through related GPRAMA consultations agencies are to have with Congress, Congress has a continuing opportunity to say whether it believes community development should be among the limited number of governmentwide goals.
child_questions: question: How can Congress utilize this control with GAO recommendations?
answer: While community development was not on the interim priority list, Congress also can urge more evaluation and focus attention on community development performance issues through oversight activities.

questions: question: Why haven't previous studies had certain results regarding tax procedures?
answer: In part due to data and methodological limitations, previous studies have not produced definitive results about the effectiveness of the New Markets Tax Credit, Empowerment Zone tax incentives, historic rehabilitation tax credits, and tax aid for certain disaster areas.
child_questions: question: What one of the methodological limits?
answer: A key methodological challenge is\ demonstrating a causal relationship between community development efforts and economic growth in a specific community.

question: What information is limited in the report?
answer: As a result, policymakers have limited information about the tax expenditures reviewed, including those that expired after 2011, and ways to increase effectiveness.

questions: question: How does the government promote community development?
answer: Tax expenditures—exclusions, credits, deductions, deferrals, and preferential tax rates—are one tool the government uses to promote community development. Multiple tax expenditures contribute to community development.

question: What is the GAO reviewing?
answer: GAO (1) identified community development tax expenditures and potential overlap and interactions among them; (2) assessed the data and performance measures available and used to assess their performance; and (3) determined what previous studies have found about selected tax expenditures’ performance.

question: What sources will the GAO review?
answer: GAO identified community development activities using criteria based on various federal sources and compared them with authorized uses of tax expenditures.
child_questions: question: What agencies will the GAO be reviewing material from?
answer: GAO reviewed agency documents and interviewed officials from the Internal Revenue Service (IRS) and five other agencies.

question: What additional studies will the GAO be reviewing?
answer: GAO also reviewed empirical studies for selected tax expenditures, including the New Markets Tax Credit and Empowerment Zone program which expired in 2011.

questions: question: What guidance could Congress provide to OMB?
answer: Congress may wish to provide OMB guidance on whether community development should be among OMB’s long-term crosscutting priority goals, stress the need for evaluations, and focus attention on addressing community development tax expenditure performance issues through its oversight activities.

question: How was the given matter questioned?
answer: Two agencies questioned the matters for congressional consideration or findings.
child_questions: question: How does GAO regard this questioning?
answer: GAO believes its analysis and matters remain valid as discussed in the report.