Hoping For Post-Michael Investment, City Pushes ‘Opportunity Zones’

Before Hurricane Michael happened, a small piece of legislation went into effect that created a lot of buzz around downtown Panama City.

Federal legislators, concerned that some communities were still seeing little to no investment after the Great Recession, came up with a way to sweeten the deal for investors willing to take a risk on overlooked communities by creating opportunity zones in 2018.

Opportunity zones allow investors to take their capital gains -- money made from the sale of a property or an investment -- and normally steeply taxed -- and put it into an "opportunity fund." The money in that fund can then be invested into designated opportunity zones, and the perk for them is they can defer the capital gains taxes on the money for up to 10 years and reduce the payment of those taxes by continuing to stay invested in the community, explained Erin Gillespie and Grey Dodge of Madison Street Strategies. The tax savings can be huge.

The government set it up so every state would get some of these zones in low-income census tracts. From there, Florida set it up so that every county would receive some zones and it would be relative to the area's population. In the end, Panama City had three census tracts designated, two in the downtown area and one in Millville.

These areas have been talked about as a game changer for investors because of the tax breaks, and by extension a game changer for communities that are hoping to see big investments.

"That kind of the investment coming into the community will help everyone already here," said Mayor Greg Brudnicki. "It will drive the value of our real estate up, it will create jobs for the community and when people come in and make investments it will drive your tax base up."

The buzz around the idea has a lot of people thinking, including city leaders, that with the amount of damage Hurricane Michael brought to the area and the need for private investment to recover, it would be beneficial to have the whole county east of the Hathaway Bridge turned into an opportunity zone.

"Within a week after the storm ... we were saying we need to extend opportunity zones benefit of opportunity zones to the entirety of the affected area," said City Manager Mark McQueen. "We need to capitalize on literally the availability of trillions of dollars (in private capital gains) instead of waiting on for federal monies and state monies to come in, we could use private capital and incentives private investors to invest in the affected area."

The idea has been taken up by Rep. Neal Dunn, R-Fl, who has been shopping it around the House of Representatives and by Sen. Marco Rubio, R-Fl, and Sen, Rick Scott, R-Fl, where Rubio filed the Disaster Opportunity Zones Act in the Senate.

The bill would allow governors to nominate areas affected by 2018 hurricanes and California wildfires as opportunity zones, allowing for up to the greater of 25% qualified low-income census tracts affected by natural disasters to be disaster opportunity zones.

"Local communities devastated by recent natural disasters, like Hurricane Michael, are still struggling to recover from the catastrophic loss of jobs and business," Rubio said in a statement. "The Disaster Opportunity Zones Act would help stimulate local economies and encourage private investment from job creators."

Scott, who co-sponsored the bill, said the bill is a chance to expand economic opportunity.

"The Disaster Opportunity Zones Act will make a real and lasting difference for our communities impacted by Hurricane Michael. I'm proud to sponsor this bill to bring new capital investment and more jobs to Florida's Panhandle as we continue to recover and rebuild following Hurricane Michael," Scott said in a statement.

So far, the bill, S. 1000, has been read twice and referred to the Committee on Finance.

The bill isn't quite the broad swath leaders were initially hoping for that would make everything eligible, but in a presentation at a "Monday Mornings with the City Manager" before the bill was filed, Gillepsie explained the logic behind the more targeted approach she thought legislators would take.

"Over the last 18, 20 months, every county in Florida has had a major federal disaster declaration, so you can imagine by opening up the entire state, and Florida and North Carolina it really dilutes the policy behind this of trying to have targeted investment," Gillepsie said. "If you look at the zones that were eligible originally, the low income census tracts that were eligible, that has a much better chance of moving through."

One of the reasons opportunity zones appear to be a good match for disaster areas is they tend to bring in housing investments, as investors look for projects that will have cash flow and generate a return. Housing also happens to be one of the biggest needs. National data on what established opportunity funds have used their money for show 89% have invested in commercial real estate, which includes commercial real estate, mixed use, hospitality and student housing, and 48% have invested in community development, which includes affordable housing, workforce housing and community revitalization.

"Honestly, the federal disaster recovery money that is coming in ... it gives a huge opportunity to Florida Housing, which is a big deal in opportunity zones because you are looking at low income communities. And what kind of investment can you put in there that has cash flow and will generate a return? Housing," Gillepsie said. "And that is one of the biggest needs."

Right now, the city is working with the opportunity zones they already have, Brudnicki said.

"We've been waiting to see what the federal government will do, whether they will have disaster zones. We are not sure," he said. "But in the meantime, whatever zones are already designated in the city we are marketing that this is already available."

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