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Opportunity Zones: Why now is the time for a new Rays stadium, on either side of the Bay

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New federal Opportunity Zones make 2019 an easier time for investment than it was before, whether in Ybor City or St. Pete.

The Tampa Bay Rays are facing a December 31, 2018 deadline to decide whether they will leave Tropicana Field for Hillsborough County, where only one site is being put forward for their consideration: the southwest corner of Ybor City.

If the Rays choose to stay in Pinellas County, the likely location for a new Rays stadium will become the parking lot of Tropicana Field. That is, if the team chooses to stay in Florida beyond 2027 at all.

But the dominating question as we consider a Rays move to Ybor City is financial. How will the Rays (and/or their public sector partners) pay for a stadium likely to cost over $800 million?

The answer may lay in part with newly designated Opportunity Zones in Tampa Bay.

What are Opportunity Zones?

Low tax “Opportunity Zones” are a new concept, established in the federal Tax Cut and Jobs Act of 2017. These zones are designed, via federal policy, to encourage long-term investment and job creation in targeted communities by reducing taxes on potential job creators.

The law encourages these new investments by allowing investors to delay capital gains taxes they would have owed the government until December 31, 2026 by investing those gains in targeted areas, and allows the investor to not pay additional capital gains taxes if they hold the new investment for ten years. You can read more on the genesis of Opportunity Zones here.

This type of policy is a new iteration of an idea that goes back to Ronald Reagan and Margaret Thatcher, whose administrations designed similar sounding Enterprise Zones, but even if that rings a bell, the details of this law have specific application worth understanding.

Typically, when a individuals sell an investment such as stock, they owe the government taxes on any profits from the sale. This law allows investors to delay the need to pay that tax for eight years if the investor puts that amount gained into a fund (called a Qualified Opportunity Fund), designed to invest in an Opportunity Zone, which targets low income or underdeveloped areas.

If investors only place part of their capital gain in a Qualified Opportunity Fund, they can elect to defer tax on only the part of the gain which was invested.

And here’s the real kicker: if the Qualified Opportunity Fund holds its investment for ten years, the government will eliminate any taxable gain on the eventual sale of the investment down the road.

So even though the deferred capital gain will still be added to the investor’s income on December 31, 2026, any appreciation of the Qualified Opportunity Investment will not be taxed. And it’s worth noting that the deferred taxes will have the benefit of eight years of inflation discounting the amount owed from today’s dollars.

Where are these Opportunity Zones located?

After the Tax Cut and Jobs Act was signed into law, each state was given an allotment of census tracts to nominate as Opportunity Zones. Counties could recommend sites to the Governor, whose office made the final decision on which to designate.

Governor Rick Scott nominated 108 census tracts in the Tampa Bay area due to the high population in Hillsborough and Pinellas Counties. By comparison, 72 were nominated in Orlando, and only 35 in West Palm Beach.

To the Rays advantage, both possible stadium locations are designated as Opportunity Zones. In Hillsborough County, that includes the low income area dividing downtown Ybor City from the Government and Financial districts of downtown Tampa, but also includes those districts already developed:

In St. Petersburg, the historic Gas Plant district that now houses Tropicana Field (which was also the city’s proposed new stadium location as part of a Braves-style new business development area) were included — but not much else in the downtown core:

Both possible stadium locations are indicated by the red dot, and the green shaded areas represent the Qualified Opportunity Zones. You can view the map for yourself here.

It is interesting to note that nearly all of downtown Tampa and Ybor City were selected as Opportunity Zones, while the downtown region of St. Petersburg was not. This could be because downtown St. Pete is already seeing a fair amount of new development and does not need incentives, but the Hillsborough stadium site did require some lobbying.

In fact, per Charlie Frago of the Tampa Bay Times, Ybor City was not initially selected by Governor Scott’s Department of Economic Opportunity, and it took some effort from Tampa Mayor Bob Buckhorn for the region to be included:

Buckhorn propose[d] swapping the Ybor City parcel for another property around Armenia and Hillsborough Avenues that was added to the state’s list of economic opportunity zone proposals.

City and county officials agree the Ybor City site has greater economic potential and could generate as many as 9,633 jobs compared to 341 from the Armenia/Hillsborough site, according to estimates.

The city discussed its appeal to the state with county officials but didn’t consult the Rays before it emailed Gov. Scott and other state officials [...]

The appeal by the Mayor’s office was successful, as the map reflects above. Florida’s map was finalized in June of this year, and the Rays announced their intention to move to Ybor City in July.

What does this tax law mean for a new Rays stadium?

For one, it means the Rays will not be alone in having incentives to invest in the area surrounding the Ybor City location, should that be the team’s ultimate destination. It also means that the Rays will have an easier path to raising private investment capital for a successful stadium launch, in either location.

The new stadium itself likely will not appreciate in value, but the land it rests on will — as will the land surrounding the location, whether that be Ferg’s or Tampa Park. It’s a rich person’s game, and savvy investors will be able to throw around money in the millions of dollars, providing incentive for dollars to move now rather than later.

Through this law and these Opportunity Zones, we see there is some incentive for the Rays ownership group to defer existing or would-be capital gains taxes for eight years by investing cash from those capital gains into the stadium (possibly even more cash than they might have previously committed), as well as a mechanism for the Rays to avoid taxes on the appreciation of that property should it be purchased by the team.

Perhaps this is, in part, why the Rays have thrown their weight behind a move to Ybor City, which is folded into a broader Opportunity Zone map.

Nevertheless, the real benefit from this law will be for the developers who may consider joining the Rays in this construction project. These incentives and Opportunity Zones are open to all investors, not just Rays ownership, and should grease the wheels no matter which side of the bay the Rays choose for a new ballpark.

You can find our previous reporting on the Rays Stadium Saga here.