Daniel Hintz knows about revitalizing a city’s downtown area and believes a new federal tax program could be just the ticket for Springdale’s budding efforts.
Hintz was executive director of Fayetteville Downtown Partners for 2½ years before running Downtown Bentonville Inc. for six years. Hintz is now CEO of Velocity Group in Bentonville, a consultancy group, and was part of the team that researched and devised the Springdale Master Plan for its downtown in 2015.
Shoot, even his Twitter handle is @DowntownDaniel.
In the Tax Cuts & Jobs Act of 2017, best known for its corporate tax cut, there was authorization for Opportunity Zones that would have tax benefits for investments in struggling economic areas. Arkansas Gov. Asa Hutchinson designated 85 such areas across the state and Springdale managed to snag four.
“This is that tool that can help fuel the private market investment side,” Hintz said. “When you have municipalities and the nonprofit sector and the private market all aspiring in the same direction, that is when great things happen.”
The four areas are adjacent to each other, appearing as one large blob on a map, and they encompass much of east and central Springdale, including the downtown area. Among other cities in northwest Arkansas, Fayetteville was awarded two zones, while Siloam Springs and Rogers received one each.
“I’m excited about the potential investment that will be encouraged in low-economic areas of our state,” Hutchinson said last April when announcing the zones. “One of my goals as governor from day one has been to increase economic opportunities for all Arkansans. By investing in these high-potential areas, we will be able to breathe new life into communities and ensure our state remains economically diverse and healthy.”
Springdale Chamber of Commerce CEO Perry Webb was an early proponent of the Opportunity Zones after the passage of the Jobs Act in 2017. The city of Springdale pushed for five zones — one of which would have included the headquarters of Tyson Foods Inc. — but Webb was more than satisfied with the location of Springdale’s zones.
“It gives us more mass, a bigger geographic definition,” Webb said. “We have a very unique scenario in the fact that our downtown redevelopment plan has a geographic boundary that actually touched three of these zones.”
The theory behind the Opportunity Zones designations is that creating a capital gains tax break will encourage investments in struggling economic areas.
The breaks are structured so that longer investments are more beneficial so areas will see long-term plans put into place. Private investors who put their money in a certified Opportunity Fund can defer a portion of their accrued taxes; an Opportunity Fund is one in which at least 90% of the capital is invested in a qualified zone.
Here’s an example of how it works: An investor sells an asset and makes $100,000. Instead of paying $15,000 in capital gains tax, the investor, within 180 days, can put the money in a qualified Opportunity Fund and defer the tax bill until that investment is sold or until Dec. 31, 2026.
If the Opportunity Fund investment is held for at least five years, the tax liability is lowered, eventually as much as 15% for seven years. If the investment is held for at least 10 years, then any capital gains made after the original investment are tax exempt.
“That is where the real magic of the law is, on the exit side on an appreciated property,” Webb said. “That basically gives the same as a 38% return on an investment, assuming you are at a high tax rate.”
The Opportunity Zone tool is more beneficial to heavyweight investors such as Tyson Foods, Walmart Inc., the Walton Family Foundation and George’s Inc. Hintz is putting together a Catalytic Opportunity Fund for use in zones statewide and hopes to raise $100 million.
Hintz said the 10-year benefit makes the policy a “placemaker,” in that investors will be more inclined to create something lasting rather than just buying and flipping for a short-term profit.
“The structures of the Opportunity Zone and the fact that you are thinking in 10-year increments to get maximum benefits is also part of the power of the tool as a placemaker tool,” Hintz said. “Doing this type of work is not ‘I’m going to get in and develop it and then flip it and leave.’ That’s not placemaking. The very nature of its structure means it is a very powerful placemaking tool.”
Webb said the city of Springdale and the chamber held a meeting in January with some of the area’s heavy hitters to discuss the impending policy; he said he is already aware of several projects moving forward because of the zone tax implications and there are many more projects being prepared to enter the pipeline.
An important caveat is that the program isn’t a free-money, fail-safe investment. Paul Esterer, co-founder and president of Newmark Moses Tucker Partners’ northwest Arkansas division, said a capital gains deferment won’t magically create good investments.
“It is spurring interest because it is a very attractive tax benefit that will help attract national, regional and local capital to be deployed faster and really take projects in development to get accelerated,” Esterer said. “I think it can be misconstrued. This makes good deals great, but it doesn’t make bad deals good. The deal still needs to make sense, but it may accelerate and focus that capital. This gives them a focus area where they get extra benefits.”
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The nonprofit Tax Foundation in Washington, D.C., said the effectiveness of such location-based investment plans hasn’t been proved statistically. The argument against them is that major investment in economically stressed areas brings in workers from the outside and causes property values to displace poor workers already in the zones.
Esterer said Springdale is a great investment area, both inside the zones and outside in west Springdale. The downtown area has a huge upside if it gets the proper investments, which the program is designed to spur.
“Springdale downtown is really one of the best Opportunity Zones there is in the whole region,” Esterer said. “They are going to see the fruits of that benefit in the short term.”
Hintz said Bentonville’s downtown resurgence wasn’t because of a tax policy but because of a coordinated effort — helped immensely by Crystal Bridges Museum of American Art — between big-money investors, the restaurant industry and the city. The Opportunity Zone in Springdale could have the same effect.
“What is happening in downtown Springdale is a perfect storm of all these things spinning together to craft an amazing future for downtown Springdale,” Hintz said. “All the energy created momentum in downtown Bentonville. That is what we were trying to stimulate.”