‘Opportunity Zones’ Spur New State Tax Incentives

Editor’s note: This story was corrected April 4. Due to an editing error, an earlier version of this story incorrectly named Novogradac & Co. LLP.

Governors helped the U.S. Treasury Department choose nearly 9,000 economically distressed “opportunity zones” where people can get a tax break for investing in certain businesses and properties. But the 2017 federal tax law that created the zones doesn’t allow governors or state lawmakers to steer investors’ money into certain projects.

They’re trying to influence the market anyway.

This year 17 state legislatures have considered opportunity zone bills, including proposals for additional tax breaks to lure investors or encourage certain projects, such as affordable housing or solar energy development, according to Novogradac & Co. LLP, an accounting and consulting firm that is keeping track.

The federal government is expected to announce a second round of proposed opportunity zone regulations any day now, which would give many investors confidence to start striking deals.

“Through the added incentives, states can encourage the type of development they want to see in opportunity zones,” said Michael Novogradac, managing partner of Novogradac & Company.

Novogradac cautioned, however, that ultimately cities and counties may have more power over what gets built in a zone than states do. Last year, for example, the City Council in Boulder, Colorado, halted some development in its zone, citing the need for more planning.

“I do think they can bend the curve to be sure,” Novogradac said of states. “But at the end of the day it really depends on local government and local policies.”

Trump Tax Break Aims to Turn Distressed Areas Into ‘Opportunity Zones’

Much of the early investment in opportunity zones is flowing into real estate. Sales of undeveloped land, previously developed but vacant land, and properties ripe for demolition and redevelopment surged in zones last year, according to a December report from Real Capital Analytics, a company that tracks real estate markets.

New York City, Los Angeles and Phoenix may be the hottest markets for opportunity zone funds, the report said.

Some state lawmakers want to tip the scales in favor of projects their constituents need but may be riskier or less lucrative than a new hotel or apartment building in a big city.

California Gov. Gavin Newsom, a Democrat, has proposed a state tax break like the federal one, though it would apply only to green technology and affordable housing projects.

Maryland Gov. Larry Hogan, a Republican, wants to lure businesses into zones with additional tax breaks for creating jobs, expanded workforce training assistance, and more funding for affordable housing development and small-business loans, among other incentives.

Washington state Rep. Mike Chapman also is interested in offering state tax credits to opportunity zone investors who can create jobs in economically depressed rural areas.

“We don’t have a lack of construction work in this state, so it’s not like we need to build more buildings,” the Democrat said. “We need jobs in rural counties that are living wage jobs where people can consistently receive a paycheck.”

A ‘Windfall to Investors’

To get the federal tax break, people must invest earnings from selling stocks, bonds or property in a fund that, in turn, invests in businesses or property in an opportunity zone. Investors who put money into such a fund can defer paying taxes on their gains right away and earn a 15 percent tax cut on the gains after holding their shares for seven years.

Investors who hold their shares for 10 years don’t have to pay capital gains taxes on money they make from those shares.

Most states have adopted a similar tax break. Nine states have not aligned with the federal tax break because they don’t tax incomes. Lawmakers in eight states have either declined to offer the same incentive or haven’t acted yet, according to Novogradac. But it’s not clear that creating a state version of the federal opportunity zone tax break will make much of a difference to investors.

Federal tax law typically influences people’s choices more than state tax law, the California Legislative Analyst’s Office, a nonpartisan adviser to the legislature, said of Newsom’s plan in a recent report. “Any state tax benefit provided would be a ‘windfall’ to investors because they likely would have made the investment even without the state benefit,” the report said.

Some progressive advocacy groups say the state tax breaks are a waste of money.

“It’s going to be going to the investor class, which is not a piece of our society that we need to help,” said Jody Wiser, executive director of Tax Fairness Oregon, a nonprofit pushing to eliminate Oregon’s version of the opportunity zone tax break.

“Most of the money will be spent where money was going to be spent anyway,” she said.

She pointed to zones in downtown Portland that already are filling up with office buildings and trendy restaurants.

Piling on Tax Breaks

Lawmakers are looking for other ways to use the state tax code to spur investment, particularly in businesses.

Encouraging investors to put money into businesses under current opportunity zone rules could be a challenge. State economic development officials have called for clarifying some of the criteria, such as the requirement that eligible businesses must derive half their income within a zone.

That requirement could disqualify “most e-commerce companies, manufacturers, and other businesses with the potential to create significant numbers of new jobs and wealth for their communities,” officials from Rhode Island, Utah and Louisiana wrote in a recent op-ed in The Hill.

West Virginia Del. Joshua Higginbotham, a Republican, has proposed giving investors in zone businesses a 10-year reprieve from state income and business taxes.

“What we wanted to do in West Virginia,” he said, “is make sure that our 55 opportunity zones are the most competitive of any opportunity zones in the country.”

Last week West Virginia Republican Gov. Jim Justice vetoed Higginbotham’s proposal, but the legislator said he plans to push his bill again during an upcoming special session without the amendments Justice opposed.

Washington’s Chapman wants his state to offer $60 million in business tax credits to investors in opportunity zone funds focused on rural, economically depressed counties.

Funds would need permission from the state Department of Commerce to pass on the credits, and if they were to misuse the taxpayer dollars, they’d have to pay the state back.

The Senate has amended the bill to conduct a study on rural economic development programs, including tax credits, before the state makes any investments.

In Maryland, Hogan has proposed both new tax credits and expanding existing economic development programs — such as one that pays for the demolition of derelict buildings — to advance projects in opportunity zones.

“We’re really tying together everything that we were already doing and trying to use it to bolster the opportunity zone investment,” said Sara Luell, director of communications for the Maryland Department of Housing and Community Development.

The additional state assistance would be available to any business or real estate project in a zone, she said, even those not receiving money from an opportunity zone fund.

Hogan recently toured a real estate project that will turn 40 acres of parking lots near a light-rail station into a hotel, office space for health care company Kaiser Permanente, apartments, a parking garage, and shops and restaurants.

An opportunity zone fund will help finance the apartment buildings, said Scott Nordheimer, a partner at Urban Atlantic, the company behind the project. But the project also relies on a long list of other incentives, he said, including state income tax credits and Prince George’s County’s multimillion-dollar investment in streets, utilities and other infrastructure on the site.

Without county help, the development would still be a parking lot.

“You could not privately finance the infrastructure,” Nordheimer said.

https://www.pewtrusts.org/en/research-and-analysis/blogs/stateline/2019/04/03/opportunity-zones-spur-new-state-tax-incentives?utm_campaign=2019-04-03+Stateline+Daily&utm_medium=email&utm_source=Pew

NEW STATE GROUP TO PROMOTE OPPORTUNITY ZONES

image via caloz.org

image via caloz.org

Published On March 25, 2019 – 11:58 AM
Written By The Business Journal Staff

A new California organization has been formed to help investors and developers take advantage of federal Opportunity Zones.

CalOZ “will promote competitive, equitable and sustainable Opportunity Zone investments in California,” according to a release from the organization.

“Our state must embrace new strategies to rebuild an upward economy that works for all Californians,” said Kunal Merchant, president and Co-Founder of CalOZ. “Opportunity zones offer an important new tool, not only to promote economic mobility and the green economy in areas of our state that need it most, but also to re-evaluate and re-imagine how business, government, and community work together to foster a more competitive, equitable and sustainable economy in California.”

In President Donald Trump’s 2016 Tax Cuts and Jobs Act, he outlined what was labeled Opportunity Zones, which offered tax breaks on capital gains for investments in distressed areas.

In Fresno, a number of the areas were established, including the Kings Canyon and Blackstone avenue corridors.

On average, Opportunity Zones have a poverty rate of nearly 31 percent with families making 59 percent of the median income for the area, according to the release, citing information from Economic Innovation Group.

“Opportunity zones offer an intriguing new pathway for our state to expand our middle class and restore the California Dream for all residents,” said Ashley Swearengin, Central Valley Community Foundation’s CEO and former Mayor of Fresno. “I’m thrilled to see CalOZ showing leadership on this issue and excited to support their work both in the Central Valley and state as a whole.”

CalOZ’s first priority will be coordinating with the state to create “high-impact” policies in addition to the ones being offered by the federal government. The plan is to create a “triple-bottom line mindset” for social, environmental and financial opportunities, according to the release.

“With more than three million Californians residing in opportunity zones, California can and must seize the chance to deploy an unprecedented source of private capital into the communities that need it most, “ said Jim Mayer, President and CEO of California Forward. “We’re proud to partner with CalOZ to support state and local action to ensure California emerges as a national leader in this program.”

The U.S. Department of the Treasury certified more than 8,700 qualified areas throughout the country. Of those, California has around 10 percent within its boundaries. And Fresno County is ranked third in terms of having the largest designated Opportunity Zones, according to Merchant.

Those designations will last through the end of 2028.

New state group to promote Opportunity Zones

New Turlock retail development, and Dutch Bros Coffee, proposed next to Stan State

Land for a new commercial retail plaza called Warrior Crossing is pictured on Wednesday March 20, 2019 in Turlock, Calif. The area will feature two commercial buildings, one which will have the area’s first and only Dutch Bros. Coffee shop.
Land for a new commercial retail plaza called Warrior Crossing is pictured on Wednesday March 20, 2019 in Turlock, Calif. The area will feature two commercial buildings, one which will have the area’s first and only Dutch Bros. Coffee shop. JOAN BARNETT LEE JLEE@MODBEE.COM

Almond milk is booming. Blue Diamond will expand its Turlock plant to meet the demand

PROPOSED NEW VALLEY CHILDREN’S CLINIC, COMMERCIAL CENTER CLEARS HURDLE

The Tulare County Planning Commission has recommended the approval of the Sequoia Gateway Commerce and Business Park near Visalia.

Published On November 16, 2018 – 12:20 PM
Written By David Castellon
Share this:

The Tulare County Planning Commission voted Wednesday to recommend county supervisors approve a large shopping, hotel, office and medical complex off Highway 99 near Visalia.

Plans for the Sequoia Gateway Commerce and Business Park off the southeast exit of Caldwell Avenue and Highway 99, just outside the Visalia city limits, would include in its first phase a 60,000-square-foot Valley Children’s Medical Group Specialty Care Center, along with a gas station and convenience store, fast food and retail outlets built on 12.4 acres.

The second phase would include a hotel, additional retail and fast food spaces, restaurants and office space built on 101 acres.

A visitors center also is planned for the site.

Valley Children’s reportedly plans to relocate its Akers Specialty Care Center in Visalia to the new, larger locale, with projections that about 30,000 patients may be seen there over a decade.

A commission representative is tentatively scheduled to present the group’s recommendation during the Dec. 4 Tulare County Board of Supervisors meeting.

https://thebusinessjournal.com/proposed-new-valley-childrens-clinic-commercial-center-clears-hurdle/

MANUFACTURER AWARDED TAX CREDIT FOR BIOLA EXPANSION

Published On November 5, 2018
Written By Gabriel Dillard

NutriaAg has been awarded a $180,000 state tax credit to help expand its manufacturing facility in Biola, just west of Fresno.

Headquartered in Toronto, NutriAg makes and distributes environmentally friendly fertilizers and plant nutrients. It opened its Biola plant in 2015.

The tax credit is part of the California Competes program, which is administered through the Governor’s Office of Business and Economic Development, or GO-Biz. The credit is aimed at businesses that want to locate or grow in the state.

As part of the tax credit agreement, NutriAg plans to invest $1.62 million in its expansion plans over the next three years, as well as hire at least seven new employees in that span.

All together, GO-Biz on Monday approved $70 million in tax credits for 17 companies that would create more than 2,000 jobs.

Lockheed Martin was awarded a $39.5 million tax credit — the largest single tax credit in the program’s five-year history. The company has committed to adding 450 new jobs in addition to retaining over 2,400 existing employees in its “Skunk Works” operations near Palmdale.

The next application period begins on Jan. 2, 2019 with $75 million in tax credits available.

For more information, visit this blog from the Fresno County Economic Development Corp.

https://thebusinessjournal.com/manufacturer-awarded-tax-credit-for-biola-expansion/?utm_source=Daily+Update&utm_campaign=e403c6474a-EMAIL_CAMPAIGN_2018_11_05_09_09&utm_medium=email&utm_term=0_fb834d017b-e403c6474a-78934409&mc_cid=e403c6474a&mc_eid=a126ded657

Large tax incentive seals the deal for new hotel, conference center in Oakhurst

BY WILLIAM RAMIREZ

New Industrial Building to Be Built at the Tejon Ranch Commerce Center

Tejon Ranch Co. and Majestic Realty Co. form a new joint venture to construct a 580,000-square-foot Class-A industrial facility

TEJON RANCH, Calif.–(BUSINESS WIRE)–Nov. 2, 2018– Tejon Ranch Co. (NYSE: TRC) announced today a third joint venture agreement with Majestic Realty Co., the nation’s largest privately-held industrial developer, this one to build an approximate 580,000-square-foot speculative industrial building at the Tejon Ranch Commerce Center (TRCC).

The new building will be located next to a 480,480-square-foot building Tejon and Majestic built in 2017 and subsequently leased to Dollar General and L’Oréal USA in 2018. Dollar General’s lease effectively increased its footprint at TRCC by 40-percent, as it currently leases more than 600,000-square feet in a separate building located on the west side of Interstate 5. L’Oréal USA is moving its SalonCentric operation from a facility in Valencia, about 40 minutes south of TRCC.

“Given the success with our most recent building, and with the demand we’re seeing out of Southern Californiaand elsewhere, we wanted to move as quickly as possible to bring another new building online,” said Joseph N. Rentfro, Tejon Ranch Co.’s Executive Vice President of Real Estate. “Whoever occupies the space will find an abundant and high-quality labor pool to draw from and the opportunity to apply for tax incentives through the County of Kern’s AdvanceKern initiative, as did L’Oréal USA, which was approved for $2.3 million in tax rebates.”

“There continues to be a very tight market in terms of both available product and land available for the development of large scale distribution centers in Southern California,” said Majestic Realty Co. Senior Vice President, Brett Tremaine. “The Tejon Ranch Commerce Center features turn-key sites for distribution, manufacturing and e-commerce operations that allow users to serve southern and northern California, as well as all 11 western states, from one location, and as we believe many more companies currently located in the Los Angeles basin, like SalonCentric, will want to avail themselves of the Tejon Ranch Commerce Center’s strategic location and outstanding labor pool, it’s important to have a building ready for them.”

The building’s 34-acre site has more than 2,000 feet of frontage along the east side of I-5, just a half-mile north of the I-5/Laval Road interchange, providing almost immediate access to California’s principal north/south highway, with the ability to serve nearly 90% of California consumers within a single day truck turn. The Class-A cross-dock distribution facility will feature a 36-foot clear height, ESFR sprinkler system, 62 dock high doors, 177 trailer parking stalls and 327 vehicle parking stalls. A 180-foot wide truck court will allow for maximum efficiency and maneuverability.

Construction is expected to begin later this year or early 2019, with completion anticipated in the third quarter of 2019.

Tejon Ranch and Majestic also jointly own a fully-leased 651,909-square-foot industrial building within the Tejon Ranch Commerce Center on the west side of I-5, adjacent to IKEA’s 1.8 million square foot distribution center.

John DeGrinis, SIOR, senior executive vice president of Colliers International will serve as the listing broker for the new development.

https://www.businesswire.com/news/home/20181102005085/en/

Gallo will expand into vacant Seneca fruit cannery in Modesto

Seneca on Finch Road in Modesto, Calif. is pictured on Monday October 29, 2018. E.&J. Gallo Winery has purchased part of the vacant fruit cannery for wine production purposes.
Seneca on Finch Road in Modesto, Calif. is pictured on Monday October 29, 2018. E.&J. Gallo Winery has purchased part of the vacant fruit cannery for wine production purposes. Joan Barnett Lee jlee@modbee.com

Valley Children’s moving forward with plans for new Merced medical facility

Central Valley Business TImes

October 16, 2018

  • Will be on site of former police headquarters
  • “This is a great addition to the medical landscape”

Valley Children’s Healthcare has entered into negotiations to buy a 4.54-acre parcel in North Merced to create a specialty medical building. The Merced City Council unanimously approved the agreement at its Monday meeting.

The proposed purchase price is $2.1 million. The property is the former police headquarters site on the northwest corner of Yosemite Avenue and Mansionette Drive.

“This is a great addition to the medical landscape,” says Mayor Pro Tem Jill McLeod, a nurse practitioner. “Valley Children’s is a name that parents and doctors have trusted for decades, with caring, knowledgeable staff and excellent service. We are very fortunate to have them expanding their operations in Merced.”

Each year, more than 14,000 children from Merced County are cared for by Valley Children’s team of pediatric specialists. Since 1989, Valley Children’s has provided outpatient support  at Olivewood Specialty Care Center. Today, only 23 percent of outpatient visits are able to be made in Merced. A new pediatric primary and specialty care medical office in the city will expand that figure to 90 percent, the city says.

“As demands for pediatric services in Merced continue to grow, we are committed to keeping as many families as close to home as possible,” says Valley Children’s Healthcare President and CEO Todd Suntrapak. “Our ultimate goal is to have every family throughout the Valley be within 30 minutes or 30 miles from a Valley Children’s pediatric doctor, because that is what is bestfor kids and their families.”

“This ties in well to our existing medical community,” adds Economic Development Director Frank Quintero. “Mercy Medical Center is just blocks away, Golden Valley Health Center will be around the corner and we have other medical facilities nearby.”

Since 1989, Valley Children’s has operated a pediatric specialty care center in the city of Merced and since 1996, it has owned and operated a level II Neonatal Intensive Care Unit at Mercy Medical Center. Valley Children’s Healthcare is one of the biggest pediatric healthcare networks in the country, serving more than 1.3 million children in 12 counties throughout Central California and the Central Coast.

The new outpatient center in Merced will offer several pediatric specialties, including pediatric cardiology and pediatric neurology. The first phase of the building would be 15,000 to  20,000 square feet and could grow to 40,000 square feet as demand for pediatric services increases.

It’s expected to have 50 to 60 full-time equivalent employees at build-out with salaries and benefits totaling $4-$5 million. Mr. Quintero says the purchase is just the first step in a long process before the medical center is constructed and opened.

“We will help them move through the planning and permitting process as quickly as possible, but Valley Children’s has several other projects ahead of us, so it will take some time before they have this one shovel-ready.”

The city purchased the property in 2010 with the intention of building the new police headquarters on the site. Construction was put on hold during the Great Recession and subsequently the site was re-evaluated and it was determined that the location wasn’t the best for a police station. The city purchased the Merced Sun-Star property on G Street for the police headquarters and decided to surplus the Yosemite Avenue land.

http://files.constantcontact.com/2cb20f61601/abecb6e8-5a01-407c-bc4d-acc97b11a634.pdf