February 25, 2019 at 4:37 p.m.
Reaching the summit: Lac du Flambeau open for investment and opportunity
Reaching the summit: Lac du Flambeau open for investment and opportunity
By Kayla Houp-
The federal 2017 Tax Cuts and Job Acts established Opportunity Zones, a program designed to assist economically depressed communities in generating long-term capital and economic development.
Lac du Flambeau was established as an Opportunity Zone and is one of 120 across Wisconsin alongside Eagle River in Vilas County.
Attendees at the Summit last week heard from local leaders and economic development experts to share the tax and developmental incentives within Opportunity Zones, as well as the unique developmental potential in Lac du Flambeau.
These experts shared presentations examining the intricacies of economic development, capital gain, tax laws, and incentives for investing in Opportunity Zone communities.
"We all care about economic and business development. We all care about building a solid future foundation for generations throughout out community," Lac du Flambeau Band of Lake Superior Chippewa Indians president Joseph Wildcat, Sr. said. "When I look around the room, I see promise."
Wildcat, Sr. said the tribe was open for business, developing opportunities and striving to make working together as easy as possible.
"Cooperation amongst organizations is a vital part of how we develop and strive in business," Wildcat, Sr. said. "I just want to say I understand it and hope to build some very good relationships."
"We're very focused on improving the economic climate and quality of life in Vilas County," Vilas County Economic Development Corporation chairman Jim Tuckwell said. "Our board and staff are very diverse. We come from all corners of the county."
What are Opportunity Zones?
Opportunity Zones are a tax policy with the intent of spurring economic development in economically distressed communities where new investments could be eligible for a preferential tax treatment.
"The basic concept of Opportunity Zones is that there is a tremendous amount of wealth in this country that is untapped," Husch Blackwell senior counsel Hal Karas said. "It's sitting in the stock market, it's sitting in real estate, it's sitting in other capital assets."
Karas mentioned he had heard estimates of up to $6 trillion, but that there was no way to "know for sure."
"The question becomes," Karas said, "Is there a way to tap that wealth and try to redirect it to investment in areas that have been historically underserved by capital formation?"
Opportunity Zones, then, stimulate economic development by providing tax benefits to investors.
"Tax payers can get capital gains, tax deferral, and more, so basic tax benefits," Karas said. "They get that for making timely investments in something new that we call Qualified Opportunity Funds (QOF). Qualified Opportunity Funds have some money, so now what they need to do (is) they have to invest it in Qualified Opportunity Zone property."
According to Karas, there are three main tax incentives in pursuing an investment in an Opportunity Zone: gain deferral, partial forgiveness, and forgiveness of additional gains.
"The first thing that participating in this program - making the timely investment in a QOF - the first thing they get is the deferral of that gain that will be deferred, it won't have to be recognized, until Dec. 31, 2026," Karas said.
Essentially, this gain deferral leads into the second benefit of partial forgiveness if the investment is held for five to seven years.
The third tax benefit Karas mentioned was forgiveness on future additional gain should the investment be held for 10 years.
"That's a huge incentive for people to invest," Karas said.
Thus, the program incentivizes investors to remain in the area and potentially foster economic growth and employment opportunities.
Some 'important considerations'
Though the Opportunity Zone program offers a variety of tax benefits, director of business and community engagement for the Wisconsin Housing & Economic Development Authority (WHEDA) Stuart Kuzik advised being aware of some "important considerations."
WHEDA's mission, according to Kuzik, is affordable housing as well as economic development in communities. Kuzik explained the eight guarantee programs WHEDA offers that can help businesses get access to capital and grow.
As far as the Opportunity Zones, Kuzik believes it's an "amazing resource, but there's some important considerations," namely leveraging financial resources for development projects in these zones.
Another important consideration was the prospect of being "investment ready" before the end of 2019, according to Mikaela Hout, vice president of Springsted Incorporated.
Being "investment ready" is a combination of being "shovel ready," where the project is considered to be ready for development, among being aware of investment returns and an official statement.
"'Shovel ready,' this describes the status of a project that's already in advanced stages of development," Huot said. "It means that it's passed the planning stages and construction can start."
According to Huot, Shovel Ready Site certification is one of the most effective site marketing tools for economic development professionals wanting to create a competitive advantage for their community over another.
Opportunities in Lac du Flambeau
Lac du Flambeau Business Development Corp CEO Darold Londo said there were five main areas for potential development in Lac du Flambeau.
These Opportunity Zone districts, according to Londo, are entertainment, housing, industrial and business, downtown and business, and retail.
"One message that we want everyone to leave here with is we want things to happen here in Lac du Flambeau," Londo said.
Kayla Houp may be reached via email at [email protected].
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