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Home My WebLink AboutMinutes - March 3, 2020 SSLODI CITY COUNCIL SHIRTSLEEVE SESSION CARNEGIE FORUM, 305 WEST PINE STREET TUESDAY, MARCH 3, 2020 An Informal Informational Meeting ("Shirtsleeve" Session) of the Lodi City Council was held Tuesday, March 3, 2020, commencing at 7:04 a.m. NOTE: Council Member Mounce participated via teleconference. Present: Council Member Mounce, Mayor Pro Tempore Nakanishi, and Mayor Kuehne Absent: Council Member Chandler Also Present: City Manager Schwabauer, City Attorney Magdich, and Assistant City Clerk Farris Business Development Manager Astrida Trupovnieks provided a PowerPoint presentation regarding opportunity zones (OZ). Specific topics of discussion included description of OZ, selection process, creation, Qualified Opportunity Fund, benefits of investing in a fund, city benefits, incentives, Lodi OZ map, Sacramento OZ project, Northern California OZ projects, OZ program in California, wide-ranging projects, and development prospectus. In response to Mayor Pro Tempore Nakanishi, City Manager Schwabauer stated the major expense behind producing a prospectus would be staff time; there may be other expenses associated with production of materials, but the partnership and the Chamber would be of significant assistance to the City. In response to Mayor Pro Tempore Nakanishi, Ms. Trupovnieks explained the City’s participation would be through stacking of incentives, such as assisting in application for new market tax credits or low-income housing tax credits, and the development of local incentives; this is a private sector initiative. Council Member Mounce commented that getting these projects off the ground is key, otherwise the opportunity for the capital gains deferral is missed. She further commented that she would not be in favor of adding low-income housing on the Eastside, except for along the railroad tracks for workforce housing next to the train station. In response, City Manager Schwabauer confirmed the Transit Station is not within the OZ and the passenger portion of the rail service will be moving, but he further stated that there is other transit in the area, such as Greyhound, the City transit system, and the Regional Transit District. Council Member Mounce stated that the Eastside would benefit most from broadband deployment, the expansion of hospitality and industrial businesses, and the addition of senior and veteran housing. In response to Mayor Kuehne, Ms. Trupovnieks confirmed that real estate acquisition is central to the program; development does not need to take place solely on vacant property. In response to Council Member Mounce, Ms. Trupovnieks stated that she plans to meet with local businesses during the prospectus process. A.Roll Call by City Clerk B. Topic(s) B-1 Receive Overview of Opportunity Zones (CM) 1 Ms. Trupovnieks invited Bob Gutierrez, Interim President of the San Joaquin Partnership, to speak. Mr. Gutierrez stated he has been involved with the City of Stockton’s prospectus; developers are now beginning to invest, so this is an opportune time for Lodi to become involved; the State did not pass the conformity bill last year, but there is a push to pass it this year with the focus on affordable housing and renewable energy; San Joaquin Partnership is working with the City, the Chamber, and the Business Council to put together an investment tour, and OZ will become part of that; and the Partnership is committed to helping put together the prospectus. Mike Rudé, member of the pubic, stated that he is a real estate broker, and questioned what needs to be done to avoid the delay experienced by City of Stockton and to get the OZ going more quickly in Lodi. Ms. Trupovnieks stated that the first step is the prospectus; and the second step is promoting the zone to potential developers, which has already been set in motion. City Manager Schwabauer confirmed that one benefit expires but other benefits do not; he further stated Stockton is not necessarily at fault for not having a project currently going; there is a host of factors that influence investment based on developers’ different needs and desires for their projects. Council Member Mounce stated that in regard to the range of projects, the Heritage District/Eastside has the majority of Lodi’s affordable housing, and to add more low-income housing would be a mistake, as that concentration causes slums over time. She stated she would be an advocate of rehabbing existing housing or replacing housing with the same use, but she would be concerned with added new use for apartments. None. No action was taken by the City Council. The meeting was adjourned at 7:54 a.m. C. Comments by Public on Non-Agenda Items D.Adjournment ATTEST: Pamela M. Farris Assistant City Clerk 2 About Opportunity Zones A Private and Public Partnership Opportunity Zone Topics •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? 2 What are opportunity zones? •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 3 How were they selected? •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 4 Why were Opportunity Zones created? •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 5 What is a Qualified Opportunity Fund? •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 6 What are the benefits of investing in a fund? •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 7 How do cities benefit from OZ investment? •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 8 Stacking incentives makes OZ attractive •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 9 Lodi Opportunity Zone 10 Sacramento OZ Project-Hotel & Residential 11 Northern California OZ Projects •Mare Island-Vallejo •Mixed Use-Santa Rosa 12 OZ Program in California •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 13 Wide -ranging projects •Multi-family •Mixed use •Office •Industrial •Hospitality •Broadband deployment •Workforce Housing •Real Estate •Healthcare •Small business development •Renewable Energy •Senior Housing •Veterans Housing •Operating business 14 By the numbers •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) 15 Next Steps Development Prospectus 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 16