Opportunity Zones attract investment and help create jobs
Consider these two tales of recent business success.
One: The headquarters of Porsche North America, a $100-million new facility built on Atlanta’s southside in 2015 that houses hundreds of employees.
Two: A small business in downtown Social Circle, which created three new full-time jobs.
What do they have in common? Both are located in Opportunity Zones (OZs), areas designated by the Georgia Department of Community Affairs (DCA) as having substantial blight and needing redevelopment. Technically speaking, the area must be within or adjacent to a census block group with at least 15 percent poverty. New or existing businesses within OZs that create two or more full-time jobs with benefits can qualify for a $3,500 tax credit annually per job up to five years.
To be fair, landing in an OZ wasn’t the main reason Porsche moved from North to South Fulton County. But it didn’t hurt, either. And as for Social Circle, “Three new white-collar jobs in a small community is an economic development win,” says former DCA Commissioner Camila Knowles.
The very flexibility of OZs is key to their ability to help blighted communities. The jobs created can be in any industry or business, as long as they are full-time jobs. The tax credit is applied to the employer’s state income tax liability and withholding tax.
“This is a bottom-line write-off on your state income taxes, so it’s a dollar-for-dollar write-off,” says Larry Hanson, vice chair of the DCA board and city manager for Valdosta, where 24 businesses have taken advantage of the OZ tax credit since 2011.
“What I love about the Opportunity Zones is that they are flexible to a community’s needs,” says Knowles. “We’ve seen them used for very big economic development projects [like Porsche]. But we’ve also seen them used in very small areas. This is a great small business tool. We all love the big companies, and Georgia is doing a great job of attracting them. But [the majority] of our businesses are classified as small businesses.”
Jobs Come First
Hanson lists off some of the types of businesses that have located within Valdosta’s three OZs: a chemical company, healthcare agency, software company, law firm, manufacturer, Family Dollar store, construction company and a dairy farm.
“It’s a really interesting cross-section of businesses that have been able to take advantage of [the tax credit],” he says. “For some businesses, it could be the difference in the business starting or not starting. For others, it could be the difference in whether they’re starting with five employees [or] being able to start with six or seven.”
And of course, for a larger company the financial incentives add up. “When you think about an industry employing a lot of people, that can be a significant benefit to a company that would like to start at a certain level of payroll but has challenges doing it,” Hanson says.
With his city manager hat on, Hanson says designating an area as an Opportunity Zone is an incentive to get businesses to look at places that are distressed and in need of economic development, provided they have the ability to be somewhat flexible about location. Of course, a number of considerations go into where a business chooses to locate, and some may have specific needs – to be close to a major highway or a particular supplier or customer base.
“It’s a tool in the toolbox to say, if you look [then] look at this area – or if you’re looking at multiple sites, it’s an advantage to offer for one [site],” he says. “When they do have discretion [in choosing a site], we can use these programs to steer development. It’s a very attractive program.”
It does take work to get the OZ designation. Hanson says there’s homework involved, researching census data to make sure an area qualifies, and then working with DCA to get an approval. “In several cases, DCA sent [the application] back and we had to do a little more homework. We had to tweak it a little, maybe take a certain area out [to qualify],” he says. “They do a thorough job of making sure it meets all the criteria.”
One of the requirements is that the proposed OZ be within an Enterprise Zone, which provides for exemptions from some local taxes, or an urban redevelopment plan. Unlike OZs, both function on the local level and don’t require DCA approval.
The best thing about the job tax credit, in Hanson’s opinion, is that it’s a credit and not an exemption – meaning the jobs have to come first. “You make the investment first, and then you get the reward,” he says.
Beyond the Tax Credit
Opportunity Zones can be powerful tools for redevelopment, even if the businesses in an OZ don’t wind up taking advantage of the tax credit. That’s been the case in Rome, where a large OZ in the heart of downtown has garnered $24 million in private investment and $875,000 in public dollars since 2011. Community Development Director Bekki Fox estimates about 321 jobs have been created.
She describes a blighted area dominated in part by a 150-unit vacant public housing development. Now it’s a mixed-use retail center anchored by a 54,000-square-foot Publix. “We have restaurants and a Wells Fargo branch in the development,” she says. “The investment has been tremendous.”
Only two businesses – Wells Fargo and La Parrilla restaurant – have taken advantage of the tax credit. Fox isn’t sure why businesses skipped applying for the credit – perhaps the paperwork seems daunting to a small business, or perhaps they didn’t meet the minimum requirements for wages – but she’s doing all she can to explain it to potential beneficiaries. “I just [met] with a business that wants to relocate into our River District … and they were excited to hear about the Opportunity Zone because they plan to take full advantage of the tax credit,” she says.
“In our first five years, it just really helped redevelop the area,” she says. “Our chamber of commerce and the city, our planning department, talked about the Opportunity Zone [with developers], and I think that sold the area. It was a really smart tool for us to use.”
Now the city is turning its attention to another part of the OZ that it calls the River District, adjacent to Broad Street. A 124-room Courtyard by Marriott hotel on West Third Street is scheduled for completion this year, and Fox says a few successful businesses have already made their home there, including The Foundry Growler Station, which serves craft beers and wine on tap, and Makervillage, a startup and co-working space that’s home to entrepreneurs and artists. A planned streetscape project will focus on making the area more walkable and pedestrian-friendly.
“We want it to have a different kind of feel, more of an arts district,” says Fox, adding that she recently met with a business looking to relocate there and “they plan to take full advantage of the tax credit. It helped them solidify their reasoning for wanting to expand and relocate to this area.”
A Plan for Rural Areas
For businesses to take advantage of an OZ, they have to create full-time jobs with benefits. That can be a stretch for some very small (population 15,000 or less) rural communities. So in 2017, the Georgia Legislature passed House Bill 73, the RURAL (Revitalizing Underdeveloped Rural Areas Legislation) bill, which creates Rural Revitalization Zones.
Businesses that locate within a zone are eligible for up to three tax credits: an investment credit for purchasing a downtown building, a rehabilitation credit and a job tax credit for creating two full-time jobs or the equivalent. That last part is important because it’s easier on retail, which is often the lifeblood of small downtowns.
“As long as you have two part-time people that work the same amount of hours as a full-time person, we want to recognize that you are creating economic activity and encourage that,” says Knowles. “This is intended to get the coffee shop open, or the shoe store. But it would also include an accounting firm or a small-town law office that might want to open.”
The job tax credit is $2,000 each year per new full-time equivalent job, for up to five years.
The first applications came across Knowles’ desk in September. She says DCA has heard from about 80 communities that are interested, although the law limits the number that can be designated each year to 10. There shouldn’t be any problem filling those up.
Tax Credits from EZ to OZ
To qualify for Opportunity Zone status, an area either has to be part of an Enterprise Zone (EZ) or fall under an urban redevelopment plan. An EZ is designated by counties or cities and offers exemption or reduction of local taxes and fees, which could include property taxes, occupation taxes, regulator fees, building inspection fees, etc.
Opportunity Zones are designated by the Department of Community Affairs and are required to be within or adjacent to a census block group with 15 percent or more poverty, and where an EZ or urban redevelopment plan exists. Businesses can receive a $3,500 tax credit per job for up to five years.
Similar to the OZ, Military Zones are designed for communities that have military bases. The requirements are the same – 15 percent poverty in a census tract adjacent to the base – as are the benefits of a job tax credit of $3,500.
Economic development creates jobs. The next question is, where do the employees live?
The Georgia Housing Tax Credit Program, administered through the DCA, allocates federal and state tax credits to owners of approved rental properties who offer low-income housing in some or all of their multifamily units. The number of credits available changes each year, but Laurel Hart, director of the Housing Finance and Development Division at DCA, says one of the best things about the program is how it can adapt to a particular community’s needs.
“The need in Columbus may be different than the need in Savannah,” she says. “Or the need in rural Quitman County may be different than the need in suburban Marietta.” About 35 percent of the resources are designated for rural areas, where senior housing is especially needed. Properties can be new construction or adaptive reuse.
“Jobs, education and affordable housing,” Hart says, “that’s the three-legged stool for success in a community.” – Kenna Simmons
Opportunity Zones by the Numbers
Since 2008, 92 communities across Georgia have created 118 Opportunity Zones.
Building permits issued: 1,331
Building licenses issued: 6,741
Jobs created: 4,952
Private investment: $615.7 million
Public investment: $125.7 million
Source: Georgia Department of Community Affairs