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Tuesday, May 21 Business

In Danbury and Connecticut, tax breaks to fill ‘Ozone’ holes

Calling it perhaps the biggest opportunity for community development she has seen in two decades, a financier joined other officials Wednesday in Danbury to exhort investors to take advantage of a Trump administration program designed to unleash a flood of private-sector money to benefit struggling neighborhoods across Connecticut and the nation.

Last May, the U.S. Department of the Treasury approved more than 70 districts statewide as “opportunity” zones, including sites in Bridgeport, Danbury, New Haven, Norwalk and Ansonia.

The Danbury zone extends south from Interstate 84 along Main Street and adjacent blocks to South Street.

Under Treasury’s Opportunity Zones program, business and real estate development investments can qualify for federal tax breaks on any capital gains they reap for eligible “Ozone” projects in more than 7,900 census tracts. The program was authorized as part of the Tax Cuts & Jobs Act of 2017.

On Wednesday, more than 40 businesspeople and municipal officials attended a workshop on the program sponsored by the Connecticut Economic Resource Center and CityCenter Danbury.

Speakers included Liddy Karter, a partner with Enhanced Capital which funds business expansions through tax credits it secures. A similar workshop will be held in Stamford at 10 a.m. Friday, with information online at www.cerc.com.

Unlike other incentive programs that focus on grants or loans, Opportunity Zones offer full tax breaks on any capital gains from equity-based investments in real estate and businesses after a 10-year window.

Deals can be structured to resemble sophisticated financing vehicles like mezzanine debt that give investors preferred terms as a bridge to a later sale, which Karter indicated should appeal to a far wider range of financiers.

“The Opportunity Zones represent the first time that we can actually ... invest in these underserved communities without government constraints and oversight at the same level that we have (had) before,” Karter said Wednesday. “Low-income housing tax credits, new-market tax credits, historic tax credits — all of those still exist and we will continue to work with those programs, but the Opportunity Zone is different in that it is not a program. It is a benefit, ... like depreciation is a benefit.”

‘Bubbling up from the bottom’

Karter described as “dead easy” the process for companies like Enhanced Capital to set up Opportunity Zone funds to focus investments where the Trump administration and Congress want moneys to be steered, and envisioned funds working alongside established community lenders to provide a boost that can get some projects over the top financially that might otherwise fall short.

With investors having “a short fuse” in her words to put any funds to work — the clock runs six months for them to do so, with checks in place — Karter said communities in California and elsewhere are setting up fast-track approval processes for Opportunity Zone projects to help investors meet those deadlines and jump start projects. She added that with the 10-year horizon to realized gains, Opportunity Zones investors are anxious to tee up projects this year with the goal of cashing out in 2029.

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“This has the potential to seriously transform our communities,” Karter said. “There’s so much excitement about the kinds of projects that are being done, and what we are seeing is they are all bubbling up from the bottom. And as investors, we don’t want to walk into a neighborhood and say, ‘This is what you need.’ We want a neighborhood to come to us and say, ‘Hey, could you help us do this?’

Investments are designed to promote the rehabilitation of existing properties or the acquisition of businesses that are already operating, rather than startups, ground-up construction or buildings that are already in good shape.

The regulations include a list of “sin” businesses banned from the Opportunity Zones program, to include liquor sellers, smoke shops, gambling venues and even sun-tan parlors.

The Connecticut Department of Economic and Community Development is now working with municipalities on an online database that will list possible projects for investors to consider, according to David Kooris, a deputy DECD commissioner.

“We are fleshing that out right now (and) compiling project information from towns and cities across the state,” Kooris said. “They’ll be able to drill down and identify individual projects and learn more about them. ... We are focused on those things that are ready to go almost immediately, things have all their entitlements in place through zoning, ... things for which elements of the ‘capital stack’ are already secured and an additional equity investment can push it across the finish line.”

Alex.Soule@scni.com; 203-842-2545; @casoulman

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