The New York Times's Gretchen Morgenson: Home Builders (You Heard That Right) Get a Gift
The Worker, Homeownership and Business Assistance Act of 2009 into law, extending unemployment benefits by 20 weeks and renewing the first-time homebuyer tax credit until next April.  But tucked inside the law was another prize: a tax break that lets big companies offset losses incurred in 2008 and 2009 against profits booked as far back as 2004. The tax cuts will generate corporate refunds or relief worth about $33 billion, according to an administration estimate.  This is getting to be a habit: companies that participated on the upside and are now reaping rewards from the taxpayers on the downside. The banks that underwrote so many dubious loans, for example, received government aid to get them lending again. Unfortunately, that hasn’t been the result.

Before the bill became law, the so-called look-back on losses was limited to small businesses and could be used to counterbalance just two years of profits. Now the profit offset goes back five years, and the law allows big companies to take advantage of it, too. The only companies that can’t participate are Fannie Mae and Freddie Mac and any institution that took money under the Troubled Asset Relief Program.

Among the biggest beneficiaries are home builders, analysts say. Once again, at the front of the government assistance line, stand some of the very companies that contributed mightily to the credit crisis by building and financing too many homes.

This is getting to be a habit: companies that participated on the upside and are now reaping rewards from the taxpayers on the downside. The banks that underwrote so many dubious loans, for example, received government aid to get them lending again. Unfortunately, that hasn’t been the result.

One can make an argument that throwing money at the banking system is necessary if we are to jump-start the economy. And banks need a bigger capital cushion to protect against future losses.

But dropping helicopter money on the home builders — the folks who massively overbuilt in community after community — seems decidedly less urgent (unless you are one of these companies, of course). Given that the supply of housing far outstrips demand, it is unlikely that these companies will use these tax breaks to hire workers (unless they go into a completely new line of business).

“I AM surprised that home builders are getting hundreds of millions of dollars given that many have very strong balance sheets,” said Ivy Zelman, chief executive at Zelman & Associates, a research firm. “We question the public policy decision to gift home builders with capital that many will not use to create jobs, since they admit that job growth will be dependent not on capital, but on improving demand.”

When Mr. Obama signed the law, his administration said the tax break would help “struggling businesses.” But as Ms. Zelman pointed out, many large home builders are sitting atop mountains of cash. Pulte Homes, which will receive refunds exceeding $450 million under the new law, has $1.5 billion in cash and cash equivalents on its balance sheet, according to its most recent financial statement.

Hovnanian Enterprises is another big beneficiary of the tax break. It anticipates a refund of $250 million to $275 million next year. It had $550 million in cash in its most recent quarter.

Smaller recipients include Standard Pacific, which is poised to reap cash refunds of $80 million under the new tax break. According to its most recent financial filing, Standard Pacific held $523 million in cash and cash equivalents.

Finally, Beazer Homes told investors that it expects to receive a refund of $50 million. The company reported cash and equivalents of $557 million at the end of September.

Some of the home builders poised to receive tax refunds have even more cash today than they did last year. D. R. Horton, for example, has $1.966 billion in cash, up 45 percent from September 2008 levels. And some are healthy enough to have retired significant amounts of debt from their balance sheets this year. Pulte has bought back $1.93 billion in debt in 2009.

So what do these companies plan to do with their refunds?

Ken Campbell, the chief executive of Standard Pacific, said the money would allow his company to continue buying land. “Will we build more houses or will there be more people employed in the first quarter? Probably not,” he said. “Will employment accelerate when the market starts to grow? It will.”

Caryn Klebba, a spokeswoman for Pulte Homes, said in a statement that the company planned to use the funds it receives “to support its current operations and, when market conditions improve, fund future growth and expansion.”

In other words, job creation does not seem imminent, notwithstanding the claims of the administration or those in Congress who supported the giveaway.

Representative Lloyd Doggett, a Texas Democrat, has conducted a lonely fight against the tax break all year.

“Some have said this is like a bridge loan to these companies,” Mr. Doggett said in an interview. “Well if it’s a loan, it is like a no-doc loan, because the recipients provide no indication that they will create jobs or do anything other than keep the money. I just feel it is a total windfall.”

Unfortunately, this seems to be another example of an age-old phenomenon: Good Things Come to Those With Lobbying Power.

Securing this tax break was a top priority for home builders, lobbying records show. The Center for Responsive Politics reports that through Oct. 26 of this year, home builders paid $6 million to their lobbyists. Last year, the industry spent $8.2 million lobbying.

Much of this year’s lobbying expenditures were focused on arguing for the tax loss carry-forward, documents show.

Among individual companies, Lennar spent $240,000 lobbying while companies affiliated with Hovnanian Enterprises spent $222,000. Pulte Homes spent $210,000 this year.

That’s some return on investment. After spending its $210,000, Pulte will receive $450 million in refunds. And Hovnanian, after spending its $222,000, will get as much as $275 million.

Meanwhile, the bag that we taxpayers are left holding gets bigger and bigger.

THE problem here is that this public policy decision was made with little to no input from the public. Sure, tax rebates like these give a lifeline to companies that were about to sink beneath the waves, but would it be so terrible if some builders that lost their heads during the housing mania ceased to exist? It is not as if a housing shortage will result or that more jobs will be lost if these companies don’t receive these tax breaks.

Pretending to promote job creation, the government is dispensing cash to companies that either do not need it or need it precisely because they didn’t run their businesses prudently. Isn’t there something wrong with that picture?

http://www.nytimes.com/2009/11/15/business/economy/15gret.html?_r=1