Development projects in low-income areas of Lawrence could become eligible for new tax breaks under recently enacted federal tax cuts.
A provision in the Tax Cuts and Jobs Act of 2017 asks each state to designate certain low-income census tracts as “opportunity zones,” qualifying those who invest in business or real estate developments in those areas for certain tax incentives.
In Kansas, 70 low-income census tracts will be designated as opportunity zones, according to the Kansas Department of Commerce. The City of Lawrence has proposed a tract for consideration that covers a large portion of eastern Lawrence, and city officials said the federal investment benefits provided by the program are a good opportunity for the city.
“Sometimes that can make the difference between a project happening or not, or being more successful or not,” Assistant City Manager Diane Stoddard said. “In any case, we just want to be able to be a community where we have as many of these tools at play as possible, so that investors in our community can take advantage of those opportunities.”
Kansas Gov. Jeff Colyer requested proposals from Kansas cities last month and will ultimately decide the 70 low-income census tracts that will be designated as opportunity zones. The governor’s office sent cities a call for designation requests on Feb. 20, with a deadline of March 1. A memo from the city manager’s office to the City Commission states that the short timeframe did not allow for formal consideration, but the city’s submission was provided to the commission as part of its meeting Tuesday.
City staff submitted four tracts total for consideration, with the top priority being the eastern Lawrence tract, according to the submission. The eastern census tract includes the eastern side of downtown, the Warehouse Arts District, the East Lawrence neighborhood as well as the VenturePark and East Hills business parks.
Stoddard said the state indicated that it preferred that cities propose opportunity zones that have upcoming or potential projects, in addition to being low-income. Stoddard noted that the proposed downtown grocery store project and a speculative industrial project planned for VenturePark both fall within the bounds of the census tract.
The other three tracts are the west side of downtown, north of Ninth Street; the west side of downtown, south of Ninth Street; and the University of Kansas main and west campus. Stoddard said she thinks it’s probably unlikely that the state will go beyond each city’s first priority tract, but that the city wanted to provide additional options in the event of that possibility.
To be eligible for submission, census tracts must meet certain population thresholds and have a poverty rate of at least 20 percent, according to the Kansas Department of Commerce. The eastern Lawrence census tract includes about 7,000 people, and about 30 percent of that population is in poverty, according to census data.
If the eastern Lawrence census tract or other tracts are designated opportunity zones, Stoddard said local and outside developers would be able to use the federal tax breaks provided under the Tax Cuts and Jobs Act. The designation provides a tax incentive for the reinvestment of unrealized capital gains into development-related investments within an opportunity zone, according to a city staff memo to the commission. Specifically, the program enables deferral and reduction of capital gains taxes when the gain is invested in the zones.
The city will know in coming weeks whether the state moves forward with its proposed opportunity zones. Kansas has until March 21 to submit the recommendations to the U.S. Department of Treasury, according to the Kansas Department of Commerce.