Memorandum                    

City of Lawrence

TO:	Thomas M. Markus, City Manager
FROM:	Diane Stoddard, Assistant City Manager
Date:	April 26, 2019
CC:	Britt Crum-Cano, Economic Development Administrator
RE:	Opportunity Zones

As you are aware, the City of Lawrence has two Opportunity Zones. One is a large census tract that encompasses the East Lawrence Neighborhood, Brook Creek Neighborhood, a significant portion of the Barker Neighborhood and Lawrence Venture Park/East Hills Business Park.  The other census tract encompasses the KU campus, which includes the west campus Partnership Zone, as identified in the KU Master Plan.  Within these zones, an investor can take advantage of tax incentives (deferral, reduction or elimination of capital gains) offered under the federal government’s Opportunity Zone program by re-investing capital gains into a qualified Opportunity Fund. 

The first wave of guidance on the federal opportunity zones was released in October 2018.  The Lawrence Chamber sponsored a public meeting to discuss Opportunity Zones in February 2019. City staff participated in that meeting and the session was taped and is available online.  On April 17, 2019, the Treasury Department issued a second round of IRS guidelines for Opportunity Zones.  This release contains 169 pages of proposed regulations, answering several questions resulting from the first round of guidance provided last October. A key part of the newly released guidance clarifies the ”substantially all” requirements for the holding period and use of tangible business property.

Concurrent with the release, the Treasury Department issued a Request for Information to get input on methodologies for data collection and investment tracking in qualified opportunity funds for measuring the effectiveness of the policy in achieving its stated goals.

Lawrence Association of Neighborhood Request and Staff Response/Recommendations:

On April 19, 2019, the Lawrence Association of Neighborhoods forwarded a request to the City Commission regarding opportunity zones. Specifically, the LAN included six recommendations for consideration.  Staff shared these recommendations with National Development Council representative Jeff Jewell, who works with the City on its economic development programs.  Jeff provided a response about what the City may be able to do regarding this federal program, and its constraints.  It should be stressed that Opportunity Zones are a federal program and while the City’s zoning and building code regulations will apply to such projects, the City will have no role in approving the use of Opportunity Zone incentives for a project and in many cases may not even be aware of the use of Opportunity Zone incentive. 

Several of the LAN recommendations relate to the how Opportunity Zone investments are made within zones, or monitoring and outcomes about such investments. Again, because this is a federal program, the City has really no ability to influence these items based on the rules released to date. However, with regard to LAN’s recommendations, staff would suggest that the City could take advantage of the Treasury Department’s Request for Information process to request that outcome data include the number of jobs, wages, number of dedicated affordable housing units created or preserved (60 percent of area median income of less) and investments in minority/disadvantaged/women-owned businesses, as suggested by LAN.  Additionally, the City may wish to comment that cities should be notified when Opportunity Zone investments are made within its city limits and also be provided access to the outcome data collected.  Staff would recommend that input be prepared accordingly and provided to the City Commission for consideration at its May 14 meeting, which should enable the submittal of the comments prior to the Treasury Department deadline.  While the City’s ability to leverage information from an Opportunity Zone project is currently limited under the proposed rules, if a project also receives City incentives, the City’s performance requirements related to that incentive would apply as required in the City’s adopted Economic Development Policies and Procedures.    

Jeff Jewell also indicated in his response that several cities have created development prospectus for their Opportunity Zones. Staff has identified a suggested format for these documents that have been utilized by several cities. Such a format could be utilized to succinctly relay relevant information and goals for each of the Lawrence Opportunity Zones.  Staff would point out that there are already quite a few adopted City plans that already provide guidance for development within these areas, as shown on the attached map.  Additionally, the University of Kansas has adopted a 2014-2024 Campus Master Plan which guides its on-campus development, related to the Opportunity Zones that includes the University area. These adopted plans had extensive input during adoption. Staff would suggest engagement with the stakeholders associated with each of the two Lawrence Opportunity Zones to seek input into the development of the prospectus for each zones.  The prospectus should reflect the existing plans which have been adopted by the City and to the extent that input received does not match with these adopted plans, a process to consider changes should be considered.  Should the Commission wish to have staff develop these prospectus and hold stakeholder meetings, this work could be accomplished during the summer.