SAVANNAH, Ga. (WTOC) - A federal initiative meant to transform poor communities by offering lucrative tax breaks is expected to give certain areas of Savannah an economic boost not seen in years.
While it’s too early to say if the program is working as intended, experts say there are investors eager to make a difference, and score a tax advantage.
"Many of them have a desire to improve a certain area where they grew up or have other connections,” said Joey Strength, real estate attorney for Hunter MacClean Exley & Dunn. “So they see the opportunity zones program to provide incentive for development."
The idea works like this: investors can build a development or business in these designated zones and receive either a deferment or avoid capital gains tax, all together. In return, those investments would spur more development and bring jobs to the people living in those “distressed” communities.
If you want to read more about what the state of Georgia said when the Federal Opportunity Zones were announced, please click here.
Already, the program has received criticism. It’s been described as another tax shelter for the wealthy, and the program does not require investors to report the number of jobs created.
In some cities, the economically disadvantaged areas also include desirable and upscale neighborhoods that stand to benefit.
In Savannah, there are three distinct zones: eastside, westside and southside. In each, an analysis by WTOC Investigates found pockets of affluence on the fringe of the zones.
The most glaring example is part of the westside zone that picks up some of the Savannah’s poorest neighborhoods, including Carver Village near where the city broke ground on a new $165 million arena. That opportunity zone also includes a slice of an upscale hotel area known as the Plant Riverside District where a J.W. Marriott hotel is under construction. And one block over on Indian Street, it includes a 7-story apartment complex called The Baxly, which is expected to open in the coming months with sweeping views of the Talmadge Bridge and the Savannah River.
There’s another opportunity zone east of the Historic District. It runs along East Broad Street and includes mostly public housing projects, affordable housing complexes and blighted neighborhoods along the Water Street corridor, north of Daffin Park. But it also includes Eastern Wharf – a 43-acre, $500 million neighborhood with extended Savannah Riverfront access. It’s expected to open in phases with the starting price of a townhome at $600,000.
There’s an easy explanation for why the “economically disadvantaged” zones in Savannah include pockets of affluence, Strength said.
“They're basing it on the 2010 Census tract data, and so from 2010 to 2016 in Savannah you saw significant investment that wasn't recognized. The local area benefited from that, I think."
The southside zone includes the Savannah Mall area, which has become a pocket of suburban abandonment as more and more tenants move out, neighborhoods west of Middleground Road and a waterfront community off Rio Road – that doesn’t quite fit the profile.
Savannah’s poised transformation in those zones is what attracted a White House visit a couple weeks ago.
"It's not an opportunity just for the rich. This is an opportunity for anyone that wants to be a part of investing in their own community or in communities that have been distressed. You could do it. I could do it. Anybody could do it who has a capital gain they have realized or they just want to invest,” said Scott Turner, in response to criticism of the program. He’s the executive director of the White House Opportunity and Revitalization Council.
Bi-partisan legislation in 2017 is what pushed the act to become law in 2017 under President Donald Trump. The tax benefits took effect, beginning in 2018. But the reason the program’s success remains to be seen is the tax rules have not been finalized, Strength said. Most of the plans so far have been for real estate developments. He has clients who are interested in reaping the business rewards if they relocate or build a new business in an opportunity zone.
"They might be able to take advantage of the program, so that they could restructure their business so that if they sold that business after 10 years they could sell the business without paying any capital gains tax,” Strength said. There is a lot of pressure get the rules finished this year so people can take full advantage before the end of 2019, he added.