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From Site Selection magazine, July 2011

Special Opportunity Zones:
Creating Advantages for Business

Their job creation potential may outweigh government revenue pressures.

Vice President, Pollina Corporate Real Estate Inc.

pecial Opportunity Zones have been one of the best tools that states and communities have had in their economic development tool boxes for over two decades. These zones go by many names including: Renaissance Zones, Enterprise Zones, and Keystone Opportunity Zones.They can range in size from a few to hundreds of acres. In general, state legislatures create the opportunity for local governments to designate property in their area as Special Opportunity Zones.

These zones provide specific advantages for a business moving into an area for a specified time period and have proved incredibly popular with companies.For companies, these zones provide simplicity and clarity of benefits, along with various forms of legislated tax-related incentives. Communities often use these zones to develop office and/or industrial parks, thus providing shovel-ready sites or spec buildings.

With many states and communities under acute budget stress due to lower tax revenues due to falling real estate values, high unemployment, lower business income tax receipts, and higher demand on social services, some communities have begun to question the costs related to Special Opportunity Zones. With these communities under pressure to cut services and raise tax revenue, some mayors are considering allowing these zones to sunset as their time periods run out. They believe that there is no reason to allow companies coming into the community the opportunity to pay no or substantially decreased taxes when the community desperately needs revenue. They fall back on the assumption that companies will still pick their community for other reasons, and that these zones are not worth the loss of revenue.

Over the last few years I have heard this argument with increasing frequency from communities and states as the slump in the economy continues. There are some communities that have considered de-certifying their zones. Unfortunately, many do not seem to realize that getting rid of these zones removes an important tool that they need now more than ever to create jobs.

With the downturn in the economy, companies are under increasing pressure to maximize the amount of incentives received on any new project.With unemployment holding steady at 9-10%, states and communities are under increasing pressure to create new jobs. This has created a highly competitive environment where companies receive very lucrative offers from states and communities willing to compete for jobs. By not having the Special Opportunity Zones available, communities are often missing a key marketing element in their incentive packages and will, as a result, lose out on new opportunities. They may be passed up without being given any consideration.

Once a company has zeroed in on a specific region, they immediately want to focus on those communities that are most pro-business. Special Opportunity Zones are considered a strong indicator that the community understands business.Even if the zone ultimately does not work (e.g. not large enough, wrong location), the community often will stay in consideration based on other community sites.The economic development organization has at least had an opportunity to present itself and to offer alternative locations. The presence of these zones will often cause companies to consider locations that they may otherwise overlook.

For a company to be able to streamline the incentive negotiation process with a well-defined list of benefits assigned to the zone gives a community a significant advantage during the initial phase of the site selection process. Simply by meeting some basic requirements clearly defined and specific to the zone and locating in these zones, a company becomes entitled to these benefits. This makes the process much simpler, easier, and quicker, and removes much of the uncertainty a company may have about which incentives they may be eligible for in other non-zone locations.

Selection of a Special Opportunity Zone location eliminates one of the most frustrating parts of the site selection process — it removes the political element from incentive negotiations. By meeting pre-specified requirements identified early in the site selection process required by the zone, the company avoids the uncertainty of having to go before multiple city and other governmental board meetings. By streamlining the bureaucracy, it accelerates the time line for opening a facility and this makes a location more attractive and profitable sooner.

Simply by having a zone in a community, companies see that the community is willing to be an active participant in the economic development process and an active partner in job creation. Allowing these zones to sunset gives the opposite impression, as it can be perceived that at one time the community cared about economic development but now no longer places a priority on it.

Today more than ever, states and communities need to be more aggressive in their economic development efforts.The competition cannot be perceived simply as the community or state next door, but rather China, India, Brazil, Mexico or Vietnam. State and local incentives are important to help level the playing field — without them the nation would lose even more jobs than it has. States and communities can use these zones to overcome other handicaps they may have. For example, we recently completed a study for a state that is not "Right to Work," showing them how they could use their zones to overcome this serious handicap.

Special Opportunity Zones are one of the most effective tools for job creation that most states and communities have. In these difficult times their use should be expanding, not contracting.

Brent Pollina, vice president of Pollina Corporate Real Estate, Inc., represents corporations in all aspects of the companies' real estate transactions, including site and building evaluation, lease negotiations, purchase contracts, and lease administration.

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