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HomeMy WebLinkAbout2025.09.08 CCP WORK/EDACOUNCIL/EDA WORK SESSION MEETING City Hall Council Chambers September 8, 2025 AGENDA 1. Active Discussion Items a. Opportunity Zone Legislative Pilot Initiatives EDA staff welcomes your questions and feedback on these tax incentives and credits to help determine whether they should be included in our official legislative agenda. 2. Adjournment Page 1 of 8 Council/EDA Work Session Meeting DATE: 9/8/2025 TO: Council/EDA Work Session FROM: Ian Alexander, Economic Development Manager, Amy Loegering, Economic Development Coordinator THROUGH: Jesse Anderson, Community Development Director BY: Amy Loegering, Economic Development Coordinator SUBJECT: Opportunity Zone Legislative Pilot Initiatives Requested Council Action: EDA staff welcomes your questions and feedback on these tax incentives and credits to help determine whether they should be included in our official legislative agenda. Background: The EDA is proposing using tax incentives and credits to attract businesses, create jobs, and boost growth in Brooklyn Center’s Opportunity Zones. These incentives aim to bring new stores, homes, and offices which could diversify our tax base. WHAT IS AN OPPORTUNITY ZONE? Opportunity Zones are designated low-income Census Tracts, where investors can receive federal tax benefits for investing in local development — such as businesses, real estate, or infrastructure. These zones were originally created by the Tax Cuts and Jobs Act of 2017, but were made permanent and updated under the 2025 Federal Tax Bill. States must now update and reselect eligible low-income Census Tracts every 10 years. Investors can still put money into these areas through Qualified Opportunity Funds (QOFs). Under the new rules, they can earn tax advantages such as: •Deferring taxes on capital gains for five years from when the investment is made •Reducing taxes owed with a 10% step-up in basis after five years •Paying no tax at all on new gains from the OZ investment if it’s held for at least 10 years •Getting a full step-up to fair market value after 30 years, reducing future taxes even further The 2025 Federal Tax Bill also adds extra benefits for rural areas, like a bigger tax break (30% step-up) and looser requirements for improving properties. Lastly, the updated law adds mandatory reporting and tighter rules to make sure investments actually help the communities they’re meant to support. SAMPLE SCENARIO: SELLING A $1 MILLION COMMERCIAL BUILDING A person sells a commercial property for $1,000,000, and profit (capital gain) is Page 2 of 8 $600,000. Instead of paying tax on that $600,000 right away, it can be reinvested into a Qualified Opportunity Fund (QOF) that invests in an Opportunity Zone. Benefit What It Means (With Example) 5-Year Deferral The investor doesn’t pay tax right now on the $600,000 gain. The investor gets a 5-year delay before taxes are due — giving the investment time to grow. 10% Step- Up After 5 years, the investor pays tax on $540,000, not the full $600,000. That’s due to the 10% reduction in the amount that’s taxed — saving tax on $60,000 of the original $600,000 gain. 10-Year Exclusion If an investment grows during the 10-year exclusion period, no tax is owned on the additional gain. For example, if the initial investment of $600,000 grows to $700,000, after 10 years, the $100,000 in gain is tax-free. 30-Year Full Step-Up If the investor holds the initial $600,000 investment for 30 years, and the investment grows to a value of $1.2 million during that 30 years, the investor’s "cost basis" resets to $1.2 million. This means the investor won’t owe additional taxes on this growth. 1. Tax Incentives and Credits Our plan uses targeted tax incentives and credits to encourage private investment in Brooklyn Center’s federally designated Opportunity Zones. Our plan is administered at the state level, not by the City of Brooklyn Center, so the city government’s funding and budgeting are not affected by this process and tax revenue is not reduced or deferred. Page 3 of 8 Moreover, the proposed state legislation focuses only on redeveloping the following property types: •Government-owned land •Privately owned land that meets at least one of the following criteria: o Vacant or undeveloped o Classified as substandard under Minnesota Statutes, section 469.174, subdivision 10 (as independently evaluated) o Commercial property with 50% or less occupancy for at least three years Since these properties currently generate little to no tax revenue, the impact on the state budget is minimal, while creating opportunities for meaningful community growth and investment. EDA staff are considering five PILOT projects at the State Legislature. These Include: IMPACT-MN Pilot Act The Investment & Market Participation in Aligned Credit Tracts – Minnesota (IMPACT- MN) Pilot Act is modeled after a federal program (26 U.S.C. § 1400Z-2) that offers tax incentives to investors who put money into Opportunity Zones. This Minnesota-specific program allows investors to defer paying state capital gains taxes until 2033 when they invest in designated Opportunity Zones. If investors keep their money invested for five years, they receive a 10% reduction in the taxes owed. After holding the investment for ten years, any new profits earned are tax-free at the state level. By offering these tax advantages, Brooklyn Center becomes a unique and competitive site within the State of Minnesota. It will be much more attractive to investors and developers looking to build new homes, businesses, and community projects, helping to drive economic growth and revitalization in the area—just like the federal program does nationwide. This pilot project helps the Opportunity Zones compete with other states that do not have state income or business taxes, leveling the playing field for investment. LIFT-MN Pilot Act The Leading Investment for Future Transformation – Minnesota (LIFT-MN) Pilot Act offers a 39% non-refundable New Markets Tax Credit (NMTC) over seven years to encourage investment in small businesses within our designated Opportunity Zone census tracts. This program provides up to $20 million in credits to support local businesses and foster wealth creation in Brooklyn Center’s pilot Opportunity Zone. The Federal New Markets Tax Credit program is designed to attract investment into low-income communities by offering investors tax credits over seven years, making it easier and more attractive to finance projects that generate jobs and economic growth. The LIFT-MN Pilot Act mirrors this federal program at the state level, amplifying these benefits for Minnesota communities. By providing these tax credits, the LIFT-MN Pilot Act helps make Brooklyn Center a stronger and more attractive location for entrepreneurs and investors committed to Page 4 of 8 building thriving businesses and generating economic opportunity in the community. BUILD-MN Pilot Act The Bolstering Underutilized Investments for Local Development – Minnesota (BUILD- MN) Pilot Act offers a 20% refundable tax credit (up to $2 million per project) to support the conversion of vacant, substandard, or underutilized properties into new residential or commercial spaces. This includes government-owned land or buildings with low occupancy within our pilot Opportunity Zone. By encouraging these transformations, the BUILD-MN Pilot Act helps increase housing options and strengthen the local tax base, making Brooklyn Center a more vibrant and economically resilient community. SPUR-MN Pilot Act The Stimulating Public-Private Urban Redevelopment – Minnesota (SPUR-MN) Pilot Act offers a 35% refundable tax credit (up to $15 million for high-impact projects) along with property tax abatements lasting up to 10 years. These incentives support infrastructure investments—such as roads, utilities, and community facilities—on municipally owned land, with a focus on Brooklyn Center’s large developable sites within our pilot Opportunity Zone. By providing these benefits, the SPUR-MN Pilot Act helps make Brooklyn Center a more attractive place for major redevelopment projects, encouraging partnerships that build the community’s foundation for long-term growth. GREEN-MN Pilot Act The Generating Renewable and Efficient Energy Networks – Minnesota (GREEN-MN) Pilot Act offers a permanent, refundable 25% tax credit (up to $5 million per project) for energy-efficient and sustainable design features—such as LEED certification or solar panels—in Qualified Opportunity Fund (QOF) projects on municipally owned property within the 20 designated census tracts, with priority given to Brooklyn Center. Aligned with federal Opportunity Zone laws and the 2025 Federal Tax Bill, this program promotes sustainability while complementing other tax credits without reducing their value. The GREEN-MN Pilot Act is administered by the Minnesota Department of Employment and Economic Development (DEED) and the Department of Commerce, with biennial reporting to track environmental and economic impacts. These exclusive tax incentives and credits, paired with federal benefits from the 2025 Federal Tax Bill make Brooklyn Center a great place for companies to invest. 2. Talking to State Lawmakers EDA staff reviewed our tax incentive proposals with Senator Susan Pha and Representative Samantha Vang to gather their feedback and discuss feasibility, but did not formally request their support at this stage. How We Engaged Lawmakers Page 5 of 8 •In a meeting during the summer, EDA staff outlined the concept to offer targeted tax incentives in designated Opportunity Zones, including nine in Brooklyn Center and Brooklyn Park. •Senator Pha and Representative Vang highlighted that smaller “pilot” programs are generally easier to advance through the legislature than broad statewide initiatives, mainly because they involve lower costs. •Both lawmakers emphasized that any related legislation must pass through the Tax Committee before becoming law. Next Steps from Legislators •Senator Pha and Representative Vang are willing to review our proposals in more depth. •However, they will wait for formal confirmation of support from the Brooklyn Center City Council before taking further action. 3. Collaboration with Brooklyn Park EDA staff met with Tim Gladhill, Brooklyn Parks Community Development Director, and Malcolm Hicks, Brooklyn Park's Economic Development & Housing Director, to explore ways to collaborate and review the pilot initiatives. Current Partnership •We already work together on programs like job training for teens. •Both cities collaborate through Minneapolis Northwest Tourism to promote regional growth. Future Collaboration Goals •If approved, Brooklyn Center and Brooklyn Park could coordinate efforts to use tax incentives jointly, attracting more businesses and housing to both cities. •If approved, we discussed the possibility of applying for the same tax credits and supporting each other’s development projects to strengthen our shared economic future. 4. Expanding Opportunity Zones EDA staff would advocate to expand Opportunity Zones to include a total of nine census tracts in Brooklyn Center and Brooklyn Park through the federal 2025 Federal Tax Bill. Purpose of Expansion •The goal is to increase the number of Opportunity Zones that overlap with New Page 6 of 8 Markets census tracts. •This overlap allows us to combine multiple tax incentives, creating stronger financial incentives for investment and development in these areas. Proposed New Zones •Brooklyn Center: 6 census tracts (27053020201, 27053020202, 27053020302, 27053020303, 27053020304, 27053020400) •Brooklyn Park: 3 census tracts (27053026819, 27053026827, 27053026828) Adding these census tracts expands the areas eligible for Opportunity Zone benefits, supporting efforts to redevelop vacant lots and encourage new projects by layering federal and state incentives. Process and Cost •The expansion is managed by the Minnesota Department of Employment and Economic Development (DEED) and comes at no cost to Brooklyn Center. Consultations •EDA staff shared these ideas with our lobbyist, Ann Lenczewski, and Nathan Ratner from DEED’s Government Relations office. •They agreed the expansion aligns well with federal and state tax incentive strategies. Requested Action EDA staff welcomes your questions and feedback on these tax incentives and credits to help determine whether they should be included in our official legislative agenda. If approved, we will collaborate with lawmakers—Senator Susan Pha and Representatives Samantha Vang and Huldah Momanyi-Hiltsley—who represent the nine census tracts in Brooklyn Center and Brooklyn Park, to advance these initiatives. Budget Issues: The proposed legislation would not affect Brooklyn Center's city budget as the proposed legislation affects state tax receipts. The proposed legislation would minimally affect the State of Minnesota's budget as the properties targeted by the proposed legislation are currently generating no revenue or minimal revenue and would not significantly increase value unless appropriate program dollars are invested. Page 7 of 8 Inclusive Community Engagement: Antiracist/Equity Policy Effect: Strategic Priorities and Values: ATTACHMENTS: None Page 8 of 8