Springfield could nab investors on a nationwide scale as part of a new federal incentive program meant to help redevelop distressed communities.
As part of the recently passed federal tax reforms, corporations and individuals now have an option to avoid federal taxes on capital gains by rolling their private money into “opportunity funds” to finance improvements in low- and medium-income census tracts.
The money then goes to “opportunity zones” throughout the United States, though federal regulations remain in limbo concerning how the money will be set up or operated, according to city Economic Development Director Sarah Kerner.
For its part, Springfield City Council on Feb. 26 voted 7-1 to approve the city’s application to designate three so-called opportunity zones: Center city, north Springfield, and a tract surrounding Bass Pro Shops that’s split by Campbell Avenue and lies roughly between Sunshine and Sunset streets, and Kansas Expressway and Fremont Avenue.
Center city took first priority, followed by the area surrounding Bass Pro Shops, with north Springfield listed third. If certified by the U.S. Department of Treasury, an area would carry its opportunity zone designation for a decade.
Councilwoman Kristi Fulnecky voted in opposition, citing a need for more time to study the application and taking issue with north Springfield placing last. The city, however, is required to submit its application to the governor’s office by March 2.
The state then must submit its zone nominations by March 21 to the Treasury Department, which will certify which zones actually get financing through the federal Investing in Opportunity Act.
“We should know in about two months whether or not we got this,” Kerner told council while detailing the program.
She said the United States carries about $2 trillion in unrealized capital gains – unsold stocks, for example – that would otherwise garner a profit. Kerner said sale proceeds are taxed federally by up to 20 percent, plus a 3.8 percent surtax.
Rolling the money into opportunity funds offers an alternative: tax deferment.
The exact deferral varies by investment, Kerner said. A five-year investment, for example, would equate to 90 percent of capital gains being taxed.
For an investment of 10 years or more, “any additional gains on that investment are completely exempt, so obviously, that would be ideal,” she said.
“If you could make a long-term investment, it’s going to make you money,” she added.
Kerner said the city prioritized its three zones in terms of areas primed for development that would create investment-ready projects.
The largest qualifier of low-income census tracts, the encompassing area must have a poverty rate of at least 20 percent, Kerner said.
“The other way to be an eligible census tract is to be a moderate-income tract that is contiguous to a low-income tract,” she said.
Eligible opportunity zone projects include stock purchases in new or expanding businesses, infrastructure, real estate and housing, Kerner said, noting that “sin” businesses, such as liquor stores, gambling operations or massage parlors, don’t qualify.
“The whole idea behind this bill was to create an incentive for private investors to put their money into communities that are distressed,” she said.
Construction of a McDonald’s restaurant near Sunshine Street and Campbell Avenue is moving forward after the previous building was demolished in May following a 2018 fire.
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