[BoulderCouncilHotline] Re: CAC's Discussion of Opportunity Zones

[Carlisle, Cynthia]

Steve,
Thank you for your informative email regarding the size and scope of this area and the probable negatives to our community. I agree that this matter should be brought to discussion sooner rather than later.
Cindy Carlisle
Councilmember

From: Pomerance, Stephen <stevepom335 at comcast.net>
Sent: Tuesday, November 27, 2018 8:55 AM
To: Jones, Suzanne <JonesS at bouldercolorado.gov>; Council <council at bouldercolorado.gov>
Cc: HOTLINE <HOTLINE at bouldercolorado.gov>
Subject: Re: [BoulderCouncilHotline] CAC's Discussion of Opportunity Zones

To the Council:

With all due respect, now that the cat is out of the bag that you all are aware of what a rip-off these Opportunity Zones are, the likely outcome is that property owners who want to take advantage of this tax scam will submit their applications as fast as possible so that they can take advantage of existing legal protections from the City attempting to restrict them after the fact. (Also, it's not clear that under its "police powers" the City could actually do anything directly related to how someone finances their project.)

So if you are going to do anything to save most of east Boulder from massive redevelopment into whatever makes the most money, you better act, and act fast. It will almost certainly require rezoning, and interim restrictions while that work is in progress. Getting the Governor to cancel the designation is unlikely, but conceivable.

You owe it to the citizens to get the facts out ASAP about what the City staff knew and when they knew it. You don't have to do weeks of research to do this - just send all the emails and memos out on the Hotline and publish them on the City website. Like tomorrow! It is entirely unacceptable that this all went down without the council or the citizens being informed, but the Chamber being in the discussion.

Please stop attempting to minimize or excuse this. The "one designated OZ" is huge (see the map below) - if I remember correctly the City has said that it's actually some 2.5 square miles (see map below), and runs from Arapahoe to Iris and Independence Road, and 28th Street to 55th and Airport Road.

As for these OZs being "low income urban and rural communities", that's complete nonsense - Boulder's OZ encompasses the newly developed Google offices, the new hospital and office buildings, the continually expanding Boulder Junction apartment complex, the Peleton on Arapahoe, the recently developed CU east campus, lots of successful businesses, and a few nice residential neighborhoods. And there are OZs in Estes Park, Fort Collins, Grand Junction, etc., etc., hardly "low income urban and rural communities". None of these are places that need help from the rest of us taxpayers. (As to Diagonal Plaza, the issue there is not money but diffuse ownership, and it's a tiny piece of the the whole thing anyway.)

It is entirely unnecessary to take weeks to research this. And if you continue to wait, you may have missed the chance to actually do anything that will have a significant effect. Also, the basics are on-line (see below).

If you want details, you can ask any of the many real estate types who have studied the situation and are already creating the "Qualified Opportunity Funds" to receive the money, as well as the multiple investors (and investment managers who see this as a huge benefit to their clients) that are already planning what investments to sell to realize their capital gains that they will then invest in projects already laid out at rates of returns that will almost certainly be way higher (like multiples) than what they could have gotten in the ordinary course of doing such deals. (This can be calculated by anyone who can lay out a spreadsheet; it takes maybe an hour.)

Steve Pomerance




On Nov 27, 2018, at 6:56 AM, Jones, Suzanne <JonesS at bouldercolorado.gov<mailto:JonesS at bouldercolorado.gov>> wrote:

Dear colleagues-

I want to provide more information on CAC's discussion of the issue of Opportunity Zones, which was only mentioned briefly in the notes from yesterday's CAC meeting.
Yvette Bowden, our Director of Community Vitality, Parks & Recreation, is actively researching and compiling information about the new Opportunity Zone program, which she will share with us and publish on a city webpage for the public to review as soon as she is done. She hopes to have that done within a few weeks, although the IRS has released very limited guidance to date.
What we do know is that the newly enacted Opportunity Zone program is a federal program enacted as part of the 2017 tax reform package (Tax Cuts and Jobs Act) that provides a federal tax incentive for investors to invest in low-income urban and rural communities through favorable treatment of reinvested capital gains and forgiveness of tax on new capital gains. In order for investors to invest in an opportunity zone, they must first create an investment fund that meets IRS criteria, although few details have been provided to date.
As a federal program, local communities do not have control over it, however, it does not change our local land use and regulatory powers. While it is an issue we should look into in the near-term, staff did not think it was so urgent to add to the agenda tonight given that the program is still being defined.
That said, CAC agreed that Council should discuss OZs, and in particular thought Council should examine whether we have the zoning and land use governance in place for the one designated OZ in Boulder, in case it does attract investment, to ensure we get the outcomes we want-a discussion we thought would be most fruitful after staff had time to gather more information. If we do want to make any regulatory changes, it might affect our workplan next year, and so we thought it would be useful as part of the pre-retreat discussion on January 8th.
If Council wants, we could discuss before then, however, Yvette was going to inquire whether the state OZ representative could be available for that meeting to answer more in-depth questions about how the federal program would function.
Lastly, while some have said we won't need three hours to discuss the future funding of our library system this evening, staff and CAC disagreed -- the number of questions about funding options at CAC alone made us think otherwise-so we resisted changing the agenda on such short notice.
CAC strives to be responsive to the request of our colleagues and I hope that sheds more light on our thinking. We can, of course, alter course as the majority of Council desires.
Cheers,
Zan
Suzanne Jones
Mayor, City of Boulder
(720) 633-7388
joness at bouldercolorado.gov<mailto:joness at bouldercolorado.gov>

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https://www.irs.gov/pub/irs-drop/reg-115420-18.pdf<https://protect-us.mimecast.com/s/MswIC4xGnKiB5GQZiBufiY?domain=irs.gov>
This is the update on the rules - long and boring, but has the facts.

https://www.irs.gov/newsroom/opportunity-zones-frequently-asked-questions<https://protect-us.mimecast.com/s/M7nzC5yKo0TZ9OQyF2wIJ8?domain=irs.gov>
This is one of the easiest to read IRS publication on the subject that I have found.
Opportunity Zones Frequently Asked Questions
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Q. What is an Opportunity Zone?
A. An Opportunity Zone is an economically-distressed community where new investments, under certain conditions, may be eligible for preferential tax treatment. Localities qualify as Opportunity Zones if they have been nominated for that designation by the state and that nomination has been certified by the Secretary of the U.S. Treasury via his delegation of authority to the Internal Revenue Service.
Q. How were Opportunity Zones created?
A. Opportunity Zones were added to the tax code by the Tax Cuts and Jobs Act on December 22, 2017.
Q. Have Opportunity Zones been around a long time?
A. No, they are new. The first set of Opportunity Zones, covering parts of 18 states, were designated on April 9, 2018. Opportunity Zones have now been designated covering parts of all 50 states, the District of Columbia and five U.S. territories.
Q. What is the purpose of Opportunity Zones?
A. Opportunity Zones are an economic development tool-that is, they are designed to spur economic development and job creation in distressed communities.
Q. How do Opportunity Zones spur economic development?
A. Opportunity Zones are designed to spur economic development by providing tax benefits to investors. First, investors can defer tax on any prior gains invested in a Qualified Opportunity Fund (QOF) until the earlier of the date on which the investment in a QOF is sold or exchanged, or December 31, 2026.   If the QOF investment is held for longer than 5 years, there is a 10% exclusion of the deferred gain.  If held for more than 7 years, the 10% becomes 15%.  Second, if the investor holds the investment in the Opportunity Fund for at least ten years, the investor is eligible for an increase in basis of the QOF investment equal to its fair market value on the date that the QOF investment is sold or exchanged.
Q. What is a Qualified Opportunity Fund?
A. A Qualified Opportunity Fund is an investment vehicle that is set up as either a partnership or corporation for investing in eligible property that is located in a Qualified Opportunity Zone.
Q. Do I need to live in an Opportunity Zone to take advantage of the tax benefits?
A. No. You can get the tax benefits, even if you don't live, work or have a business in an Opportunity Zone. All you need to do is invest a recognized gain in a Qualified Opportunity Fund and elect to defer the tax on that gain.
Q. I am interested in knowing where the Opportunity Zones are located. Is there a list of Opportunity Zones available?
A. Yes. The list of designated Qualified Opportunity Zones can be found at Opportunity Zones Resources<https://protect-us.mimecast.com/s/Lf5uCyP2WkfroEzGU5JXrf?domain=cdfifund.gov> and in the Federal Register at IRB Notice 2018-48<https://protect-us.mimecast.com/s/Ss-aCzpYgliMqvpXCvGUWh?domain=irs.gov>.  Further a visual map of the census tracts designated as Qualified Opportunity Zones may also be found at Opportunity Zones Resources [link].
Q: What do the numbers mean on the Qualified Opportunity Zones list, Notice 2018-48?
A: The numbers are the population census tracts designated as Qualified Opportunity Zones.
Q: How can I find the census tract number for a specific address?
A: You can find 11-digit census tract numbers, also known as GEOIDs, using the U.S. Census Bureau's Geocoder.  After entering the street address, select ACS2015_Current in the Vintage drop-down menu and click Find.  In the Census Tracts section, you'll find the number after GEOID.
Q. I am interested in forming a Qualified Opportunity Fund. Is there a list of Opportunity Zones available in which the Fund can invest?
A. Yes. The list of designated Qualified Opportunity Zones in which a Fund may invest to meet its investment requirements can be found at Notice 2018-48<https://protect-us.mimecast.com/s/Ss-aCzpYgliMqvpXCvGUWh?domain=irs.gov>.
Q. How does a corporation or partnership become certified as a Qualified Opportunity Fund?
A. To become a Qualified Opportunity Fund, an eligible corporation or partnership self-certifies by filing Form 8996, Qualified Opportunity Fund, with its federal income tax return. Early-release drafts of the form<https://protect-us.mimecast.com/s/5Th_CADKEOtNOM3xCZVhSY?domain=irs.gov> and instructions<https://protect-us.mimecast.com/s/kCCgCBB9GEf7K39xfVOKit?domain=irs.gov> are posted, with final versions expected in December. The return with Form 8996 must be filed timely, taking extensions into account.
Q: Can a limited liability company (LLC) be an Opportunity Fund?
A: Yes.  A LLC that chooses to be treated either as a partnership or corporation for federal tax purposes can organize as a Qualified Opportunity Fund.
Q.  I sold some stock for a gain in 2018, and, during the 180-day period beginning on the date of the sale, I invested the amount of the gain in a Qualified Opportunity Fund.  Can I defer paying tax on that gain?
A. Yes, you may elect to defer the tax on the amount of the gain invested in a Qualified Opportunity Fund. Therefore, if you only invest part of your gain in a Qualified Opportunity Fund(s), you can elect to defer tax on only the part of the gain which was invested.
Q. How do I elect to defer my gain on the 2018 sale of the stock?
A.  You may make an election to defer the gain, in whole or in part, when filing your 2018 Federal Income Tax return. That is, you may make the election on the return on which the tax on that gain would be due if you do not defer it.
Q. I sold some stock on December 15, 2017, and, during the required 180-day period, I invested the amount of the gain in a Qualified Opportunity Fund.  Can I elect to defer tax on that gain?
A. Yes. You make the election on your 2017 return. Attach Form 8949<https://protect-us.mimecast.com/s/dsrRCDkWKEu5AQK7H3jnyd?domain=irs.gov>, reporting Information about the sale of your stock. Precise instructions on how to use that form to elect deferral of the gain will be forthcoming shortly.
Q. Can I still elect to defer tax on that gain if I have already filed my 2017 tax return?
A. Yes, but you will need to file an amended 2017 return, using Form 1040X<https://protect-us.mimecast.com/s/vYprCERWLQH3xKJwSEXNYg?domain=irs.gov> and attaching Form 8949<https://protect-us.mimecast.com/s/nlxTCG6WNKi14oprfq6LTR?domain=irs.gov>.
Q. How can I get more information about Opportunity Zones?
A. Over the next few months, the Treasury Department and the Internal Revenue Service will be providing further details, including additional legal guidance, on this new tax benefit. More information will be available at Treasury.gov<https://protect-us.mimecast.com/s/Z3SECL9WmBhR95p0hp2i8N?domain=treasury.gov> and IRS.gov<https://protect-us.mimecast.com/s/2rGnCM8WnBiq3G0pSykkq4?domain=irs.gov>.






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