Established by the U.S. Congress in the Tax Cuts and Jobs Act of 2017, Opportunity Zones are economically distressed census tracts, designated by states and territories and certified by the U.S. Treasury Department, in which certain types of investments may be eligible for preferential tax treatment. The tax incentive is designed to spur economic development and job creation in distressed communities by providing these tax benefits to investors.

In Alabama, 629 of the state’s 1,181 census tracts qualified as low-income. Of those 629 eligible tracts, Governor Kay Ivey was authorized to select 158 as Opportunity Zones. The following census tracts were identified by Gov. Ivey as Opportunity Zones in Baldwin County:

• 01003010200 (Highway 31 between Perdido and Bay Minette)

• 01003010400 (Parts of Bay Minette, Pine Grove, Stapleton, all of Gateswood)

• 01003010500 (Bay Minette)

• 01003010600 (Coastal Alabama Community College)

• 01003011501 (Foley, north of Highway 98 and east of Foley Beach Express)

• 01003011502 (Foley, south of Highway 98)

Graphic courtesy of Opportunity Alabama.

Since Opportunity Zones were established, the State of Alabama has become a national leader in the implementation of the legislation. Much of this can be attributed to the creation of Opportunity Alabama (OPAL). OPAL is a nonprofit initiative dedicated to connecting investors with investable assets in Alabama’s Opportunity Zones. By using a data-driven approach, OPAL brings investors, opportunities, communities and key institutional supporters together to generate real returns while improving economic vitality and quality of life.

Baldwin County is fortunate to have the largest Opportunity Zone footprint in Alabama and has immense investment opportunity being home to a 3,000-acre mega site. The Baldwin County Economic Development Alliance is the current owner of the mega site and has made strategic site enhancements to position the region for targeted industrial recruitment of high-growth industries. Depending on the deal structure, this major project along with others in the region could be eligible to receive monies from Qualified Opportunity Fund and increase the amount of private capital being invested in the area.

To be eligible for Opportunity Zone investment, projects must fall under at least one of the following categories: real estate and active businesses. Opportunity Alabama provides a helpful resource on their website to determine if a project qualifies.

Just about any real estate investment could qualify for Opportunity Zone investment, but only if the project meets certain statutory tests:

• Was the project acquired after December 31, 2017?

• Is the project located in an Opportunity Zone?

• Will the investment create a “substantial improvement”?

• Can the cash raised be spent within 31 months?

Under existing guidance, raising capital for active businesses is trickier than raising capital for real estate. Questions to consider include:

• When did a business acquire most of its tangible property? 70% or more must have been acquired after December 31, 2017.

• Where was the tangible property owned by the business used? 70% or more must be used in the Opportunity Zone.

• How much of the business’s revenue comes from its operations within the Opportunity Zone?

• How much of the business’s intangible property is used in the Opportunity Zone?

• How much cash does the business typically keep in reserves?

To date, most Opportunity Zone investments are being realized in larger markets across the country, but Opportunity Alabama has made great strides in helping communities throughout the state market their assets and opportunities to regional and national Qualified Opportunity Funds. Since Opportunity has already visited Baldwin County a number of times and has developed familiarity with the area, the City of Bay Minette and the Steering Committee should continue to strengthen this partnership and solicit their assistance in setting up a regional Qualified Opportunity Fund to target private investment in Bay Minette and the surrounding areas. This would be a win-win situation for all parties involved allowing residents with capital gains to invest in their own community through a financial vehicle that provides them with preferential tax treatment so they can realize short- and long-term gains.

A Qualified Opportunity Fund (QOF) is a legal vehicle – like an LLC – taxed as a corporation or a partnership and organized specifically to invest in Qualified Opportunity Zone Businesses/Property. Setting up a QOF requires nothing more than a lawyer and an accountant to draft the documents and demonstrate that the investment meets the tests in the Internal Revenue Service’s (IRS) regulations. You can use your independent gain event to create your own fund (that you 100% control) and invest in your own projects, if you so choose. Or you can find an already existing QOF and invest in that entity. You can also find a third-party fund manager to invest your money for you, so that the investment is deployed in locations/projects that you would like to focus on.

Source: Opportunity Alabama

To begin, Bay Minette should consider the mixed-use building (including multi-family units and a restaurant) proposed in this plan as a potential Opportunity Zone investment should the region elect to create a Qualified Opportunity Fund to target local projects. Contact Opportunity Alabama to learn more about pursuing this strategy.

To pitch projects to Qualified Opportunity Funds or third-party fund managers, review the PowerPoint slide deck provided by Opportunity Alabama in Appendix F.

For more resources visit:

• Alabama Department of Economic and Community Affairs

• Economic Innovation Group

• Local Initiatives Support Corporation

• Novogradac

• Opportunity Now

In 2017, the City of Bay Minette requested $300,000 from the U.S. Environmental Protection Agency (EPA) to perform community-wide hazardous substance and petroleum assessments on brownfield sites throughout the city. According to the EPA, a brownfield is a property, the expansion, redevelopment, or reuse of which may be complicated by the presence or potential presence of a hazardous substance, pollutant, or contaminant. The purpose of the brownfields assessment funding is to support the City of Bay Minette’s long term vision to improve the current cycle of socioeconomic suppression and community disinvestment, and move towards a community that stimulates business development, job creation, and an expanded tax base. Fortunately, several brownfield sites located throughout the city have been assessed by PPM Consultants and can be eligible for additional funding to support the redevelopment of these sites. Utilizing federal and state dollars, the assessed sites that are approved for redevelopment can become new sites for housing, industry, cultural amenities, etc. Coupling these public dollars with private capital investment through the Opportunity Zones program and other state and local incentives will be crucial for the city in achieving its goals to spur economic development and revitalization at these sites and throughout north Baldwin County.

Partner with Opportunity Alabama

WHO:

City of Bay Minette, North Baldwin Chamber of Commerce, local financing institution(s)

HOW:

Reach out to Opportunity Alabama to discuss partnership opportunities to support the creation of an investment prospectus and technical assistance workshops for community leaders to build awareness for the benefits of the Opportunity Zone program at the federal and state level.

WHEN:

Q1 2020

Identify community assets and eligible investment opportunities

WHO:

Opportunity Alabama, City of Bay Minette

HOW:

Create an investment prospectus of the region to highlight socioeconomic data, physical and cultural assets, and investment opportunities for local, regional, and external investors.

WHEN:

Q2 2020

Create Qualified Opportunity Fund (QOF)

WHO:

City of Bay Minette, Opportunity Alabama, attorney, accountant

HOW:

Determine the appropriate existing or new entity to manage the fund on behalf of local/regional investors. Working with an attorney and accountant, file the required documentation with the Internal Revenue Service to create a QOF.

WHEN:

Q3 2020

Identify potential projects for the brownfield sites

WHO:

City of Bay Minette, Opportunity Alabama, QOF manager, PPM Consultants

HOW:

Partner with property owners and prospective developers to determine how the brownfield sites can be reutilized. Review the potential projects with PPM Consultants, Opportunity Alabama, and the QOF manager to ensure the reuse options are appropriate and investable opportunities through the Opportunity Zone program.

WHEN:

Q3 2020