City Council

LODI CITY COUNCIL "SHIRTSLEEVE" SESSION Date: March 3, 2020 Carnegie Forum 305 West Pine Street, Lodi Time: 7:00 a.m. TM For information regarding this Agenda please contact: *and via conference call: Pamela M. Farris 437 E. Elm Street Lodi, CA 95240 Assistant City Clerk Telephone: (209) 333-6702 Informal Informational Meeting A. Roll Call by City Clerk B. Topic(s) B-1 Receive Overview of Opportunity Zones (CM) C. Comments by Public on Non-Agenda Items D. Adjournment Pursuant to Section 54954.2(a) of the Government Code of the State of California, this agenda was posted at least 72 hours in advance of the scheduled meeting at a public place freely accessible to the public 24 hours a day. ______________________________ Pamela M. Farris Assistant City Clerk All staff reports or other written documentation relating to each item of business referred to on the agenda are on file in the Office of the City Clerk, located at 221 W. Pine Street, Lodi, and are available for public inspection. If requested, the agenda shall be made available in appropriate alternative formats to persons with a disability, as required by Section 202 of the Americans with Disabilities Act of 1990 (42 U.S.C. Sec. 12132), and the federal rules and regulations adopted in implementation thereof. To make a request for disability-related modification or accommodation contact the City Clerk’s Office as soon as possible and at least 72 hours prior to the meeting date. Language interpreter requests must be received at least 72 hours in advance of the meeting to help ensure availability. Contact Pamela M. Farris at (209) 333-6702. Solicitudes de interpretación de idiomas deben ser recibidas por lo menos con 72 horas de anticipación a la reunión para ayudar a asegurar la disponibilidad. Llame a Pamela M. Farris (209) 333-6702. J:\CITYCLRK\AGENDA\SHIRTSLV\SHRTSLV  AGENDA ITEM B-01 CITY OF LODI COUNCIL COMMUNICATION TM AGENDA TITLE: About Opportunity Zones MEETING DATE: March 3, 2020 PREPARED BY: Business Development Manager RECOMMENDED ACTION: Receive PowerPoint Overview of Opportunity Zones BACKGROUND INFORMATION: In recent months, interested parties have contacted the City Manager’s Office about the potential of an Opportunity Zone program in Lodi. This PowerPoint overview explains opportunity zones and how they serve to facilitate private investment. Opportunity Zones were added to the tax code by the Tax Cuts and Jobs Act on December 22, 2017 to stimulate private investment in economically distressed areas. In early 2018, Governors throughout the United States nominated census tracts meeting specific criteria to become certified as opportunity zones by the US Treasury. Private investment in opportunity zones is achieved only through opportunity zone funds by capital gains tax incentives. California does not currently offer these capital gains tax incentives, however, 870 opportunity zones have been established in California. The exact number of Opportunity Zone funds is not certain, however, the estimates range from 207 to over 300 as of February 2020. According to GoBiz, Governor Newsome’s economic development arm, the investment focus of these funds is wide-ranging from affordable housing for seniors and veterans to mixed-use, and from business start-ups to healthcare and broadband development. Staff requests that City Council receive this presentation and provide guidance on next steps in order to realize the potential of Lodi’s opportunity zone. There are twenty Opportunity Zones in San Joaquin County, nineteen in Stockton and one in Lodi. FISCAL IMPACT: Not Applicable FUNDING AVAILABLE: Not Applicable _______________________________________ Astrida Trupovnieks Business Development Manager _______________________________ Steve Schwabauer City Manager APPROVED: ________________________________ Stephen Schwabauer, City Manager About Opportunity Zones A Private and Public Partnership Opportunity Zone Topics 2 • What are Opportunity Zones? • How were they selected? • What is a Qualified Opportunity Fund? • What are the benefits of investing in an opportunity fund? • How do cities benefit from private sector investment in an OZ? • Where is Lodi’s opportunity zone? • Are there opportunity zone projects nearby? • What are next steps? What are opportunity zones? 3 • Census tracts defined by IRS as economically-distressed areas where capital gains can be reinvested in qualified opportunity funds • Added to the tax code by Tax Cuts and Jobs Act on December 22, 2017. • Long-term reinvestments are eligible for three types of capital gains tax incentives How were they selected? 4 • Census tracts were nominated by state governors and certified by U.S. Treasury • Census tracts had to meet one of two criteria including a. At least 20% poverty rate b. Median family income below 80% of statewide or metropolitan area median • Adding census tracts or adjusting boundaries not currently an option Why were Opportunity Zones created? 5 • Stimulate private investment in low-income areas without public assistance from government programs • Less restrictive than subsidies and credits No cap on amount of capital that can be invested Not subject to Congressional approval Not subject to tax credit allocation authority (caps) by IRS or US Treasury Opportunity Fund can self-certify What is a Qualified Opportunity Fund? 6 • Investment vehicle set up as a partnership or corporation • Capital gains from prior investments are rolled over and reinvested • Investments can be: Partnership interests in businesses that operate in an OZ Stock ownership in businesses that operate in an OZ Factory equipment in an operating business Real estate development located in an OZ Single-asset or many assets in fund What are the benefits of investing in a fund? 7 • Defer paying capital gains tax until December 31, 2026 • Reduction of capital gains tax If held 5 years reduction of 10 percent • Exemption of capital gains tax If held at least 10 years • Capital gains tax benefits apply to original gain and potentially appreciation How do cities benefit from OZ investment? 8 • Introduce new capital investment opportunity that may not otherwise not occur • Many low income communities don’t receive private capital • Tax credit programs are limited • Help residents and cities realize goals i.e. affordable housing, mixed-use and retail development • Help cities realize economic gains • Preferential consideration for federal and state grants Stacking incentives makes OZ attractive 9 • The New Markets Tax Credit • Historic Tax Credit • Renewable Energy Tax Credit • Low-income Housing Tax Credit • Enhanced Infrastructure Financing District • Restores tax increment financing in California  10 Lodi Opportunity Zone Sacramento OZ Project- Hotel & Residential 11 Northern California OZ Projects 12 • Mare Island- Vallejo • Mixed Use- Santa Rosa OZ Program in California 13 • Some say OZ program in California is struggling.  California does not currently have capital gains incentive  Investors pay up to 13.3% capital gains tax in California  No mandatory reporting requirement  Cities/Media would not necessarily know projects have OZ fund dollars  Tight OZ timeframe and real estate development timeline not in alignment  Governor is proponent of capital gains tax conformity for affordable housing Wide-ranging projects 14 • Multi-family • Healthcare • Mixed use • Small business development • Office • Renewable Energy • Industrial • Senior Housing • Hospitality • Veterans Housing • Broadband deployment • Operating business • Workforce Housing • Real Estate By the numbers 15 • 879 Opportunity Zones in California in 57 counties • 3,000,000 Californians living in Opportunity Zones • 8700 Opportunity Zones in US • 6 years left to defer capital gains tax • 6 years left to reduce capital gains tax by 10 percent • 27 years left to make election of tax exclusion benefit • $790 million in OZ equity raised May 2019 • $6.72 billion in OZ equity raised Jan 2020 (partial estimate) Next Steps Development Prospectus 16  Lodi data profile  Lodi Opportunity zone profile  Highlight Lodi Electric Utility and Water/Wastewater capacity  Area highlights and anchor institutions  Private and public investments profile  Identify Lodi opportunity zone potential  Identify local development incentives potential  Invite formation of partnerships/opportunity funds