Investors offered tax incentives, opportunity to help Niagara Falls economic development

Posted at 12:06 PM, Mar 13, 2019

BUFFALO, N.Y. (WKBW) — A new partnership between the City of Niagara Falls and a Buffalo-based private equity firm could make the Cataract City the poster child for a federal program designed to spur economic development in distressed cities across America.

“We think that this is going to be one of the most important opportunities for distressed urban areas in the next decade,” Niagara Falls Mayor Paul Dyster told 7 Eyewitness News.

The Opportunity Zones (OZ) program, part of President Trump's Tax Cuts and Jobs Act, slid into the tax code in December 2017 with little-to-no public fanfare. Since then, behind the scenes, leaders from various levels of government have been working with federal bureaucrats to figure out how to ensure this program is a success for communities.

Likewise, because the program offers investors a tax deferral and new investment strategy, banks have been figuring out how they can take advantage of Opportunity Zones too.

“There’s a tremendous amount of interest because you can delay the taxes that you have to pay and eventually save on some of those taxes, and re-position your portfolio, re-position your investments away from stocks and bonds and more towards real estate, and also do something good for your community,” said Bob Richardson, founder and managing partner of Blue Cardinal Capital.

Here’s how it works: Investors who put profits from their prior investments into an OZ fund will have the tax on those profits deferred. As long as the money stays in the OZ fund, the tax will not be due for up to seven years at which time the tax owed will receive a 15% discount. If the investor keeps the money in the OZ fund for ten years, their profits in the OZ fund will be free from tax; a notable feature. The investment money in the OZ fund will be put towards development projects in qualified Opportunity Zones.

Blue Cardinal Capital and Niagara Falls have set up an investment fund that will be specifically used for OZ projects in Niagara Falls. They say it’s one of the first partnerships of its kind in the country.

“[Blue Cardinal Capital] is taking a bullish attitude about the future of Niagara Falls,” Dyster said.

“There’s an inherent business value in Niagara Falls that’s untapped. And then you put the Opportunity Zone benefits on top of that and it makes it a very interesting, unique, compelling opportunity for investors,” Richardson said.

Richardson acknowledges that to date, development projects in Niagara Falls have not shown investors a return on their investment. However, Blue Cardinal is already finalizing one Opportunity Zone project that is expected to be announced in the next two months.

Other Western New York-based banks are also looking at this program closely, but are taking a less bullish approach to setting up an OZ investment fund.

M&T Bank is “still looking at options but no plans right now,” according to its spokesman Mike Zabel.

Congressman Brian Higgins (D-NY-26), who’s district is home to 30 OZs and 90,000 residents within them, wants to ensure the program does not favor thriving communities that may be more attractive to investors than, say, a community like Niagara Falls.

“The Congressman is more concerned that the final OZ rules issued by Treasury offer the greatest benefit to communities of need,” said Theresa Kennedy, Higgins's Communications Director.

“There is concern from the local working group about a proposed rule that says 50% of sales must come from OZ - if that stays, then it will kill manufacturing investment as well as present significant challenges for start-ups and companies that would sell products online,” Kennedy wrote in an email.

Still, Richardson and Dyster believe the nuances will not have a major impact on the development projects currently being evaluated.

“Five years from now, everyone’s going to be talking about Opportunity Zones. We wanted to get out front,” Dyster said.