Tax bill may hold economic windfall
Provision could bring private investment dollars to Pottstown
POTTSTOWN » While the main focus during debate on the tax reform bill adopted last year focused on how it would affect paychecks and corporate taxes, a little-discussed provision could help drive private redevelopment dollars to Pottstown.
Contained in the tax reform bill was a program called federal Opportunity Zones, aimed at making use of dormant private capital by offering tax breaks for private investment in low-income rural and urban areas.
In Southeast Pennsylvania, it has led Gov. Tom Wolf to nominate 20 Census tracts in Berks, Chester, Montgomery and Delaware counties to be eligible for the benefit.
Pottstown landed three of the four nominations in Montgomery
County, with another tract along the Schuylkill River in Norristown also being nominated.
Peggy Lee-Clark is executive director of the Pottstown Area Industrial Development, or PAID, the borough’s lead economic development official and as such, took the lead in getting Pottstown’s tracts nominated.
The first priority was to include the tract that is home to several vacant tracts of land along Keystone Boulevard, an area the borough is developing in partnership with West Pottsgrove Township, she said.
The partnership has already led to a special kind of project lays some of the groundwork for developers, as well as reduce some of the land development procedures. LeeClark said she hopes the new Opportunity Zone program will sweeten the pot to attract developers.
But not only was the Keystone Boulevard tract included, so were two more meaning that not only is the Airport Business Campus along the Circle of Progress also poised to benefit, but so is a large portion of the borough’s downtown area, from Beech Street to the Schuylkill River and east to Washington Street.
“The problem was the line between two Census tracts runs right down High Street,” Lee-Clark explained. “We made a case to DCED how problematic it would be for the borough to have our main business district split, to have one side of our downtown benefitting from this stimulus and the other side left out,” she said.
“I guess they agreed. We were very lucky that all of the tracts we submitted were approved,” said Lee-Clark.
Interim Borough Manager Justin Keller, who praised Lee-Clark’s efforts, thinks more than just luck was involved.
“There was al lot of coordination before the application with (Department of Community and Economic Development) to determine which census tracts would receive the most favorable consideration,” Keller wrote in an email to The Mercury.
“As we understood it, it was probably unlikely that more than one census tract would be selected, so we were thrilled that all three tracts for which we applied were selected,” Keller wrote.
“Some of the feedback we received from DCED was that they felt confident about Pottstown’s vision and plans for redevelopment and ultimately our capacity to administer this program,” according to Keller.
As a new program, the details are not all worked out.
The concept behind the program is to encourage investors to take dormant capital and invest it in specially designated “Opportunity Funds,” the creation of which is not yet fully outlined.
The benefit for the investors is it allows them to defer and, in some cases eliminate, income taxes on the capital gains earned from the investments those funds make in projects in the low-income Census tracts designated as “Opportunity Zones.”
The Wolf administration announced those designations on April 20 and they will be reviewed and, presumably, confirmed by the U.S. Treasury Department by mid May.
In Berks County, five of six tracts are in the City of Reading, with one in West Reading.
In Chester County, all four tracts are in the City of Coatesville.
Delaware County has six tracts nominated, two along Route 13 in Lansdowne and Clifton Heights and another four along the Delaware River in and around the City of Chester.
The nominated tracts need to meet certain lowincome guidelines and governors in every participating state were permitted to nominate up to 25 percent of the qualifying Census tracts to be designated as Opportunity Zones.
By June, guidance from the Internal Revenue Service is scheduled to be released, clearing the
for the Opportunity Funds to be created.
Final implementation of the program is not expected until the fourth quarter of this year, or the first quarter of the next.
A minimum of 90 percent of an Opportunity Fund’s assets must be invested in an opportunity zone, according to an overview of the program published by the Pennsylvania Department of Community and Economic Development.
In terms of incentives, investors can roll existing capital gains into Opportunity Funds with no up-front tax bill.
If they keep their capital in those funds for five years, they will only have to pay 90 percent of the tax on any of the original gains, and if they keep the capital in for seven years, they pay only 85 percent of the tax bill.
Further, the original tax bill can be deferred until Dec. 31, 2026, or until they sell their Opportunity Fun investments. And if they keep their investment in the Opportunity Fund for 10 years, after settling their original tax bill, they will face no capital gains tax on Opportunity Fund investment gains.
“It’s certainly a wonderful opportunity for us. I look at this as another tool in the toolbox for developers and investors to consider Pottstown,” LeeClark said.
“Hopefully it will encourage economic growth. The way we see it, the more tools we can offer to make the risk of investing here less critical, the more chance we have of attracting the right kind of development,” Lee-Clark said.