When Brewbakers Cafe moved from Main Street in Keene last year, the business took advantage of a nascent federal program to fund structural improvements on its new Emerald Street space, according to owner Jeff Murphy.
That building is in a part of the city that state officials have tapped as an Opportunity Zone — a designation that offers a slew of tax breaks on private funding for new development. Murphy said those perks helped Brewbakers attract investors in its rehabilitation effort.
“It’s a nice program to incentivize investments in areas that need to be developed,” he said.
But local business leaders, including Keene’s economic development director, Med Kopczynski, know of few, if any, other investments so far in the city’s Opportunity Zone.
Officials at the N.H. Division of Economic Development and the N.H. Community Development Finance Authority are similarly unaware of any developers using the state’s other 26 federal Opportunity Zones, according to spokespeople from those agencies.
While that may indicate sluggish growth, Kopczynski said it also reflects a lack of transparency in the program. Anyone investing in a Qualified Opportunity Fund — which relays that money to an eligible development — reports that activity in a federal tax filing, he noted. It means that local officials often know of those investments only if they are directly involved in the project.
Intended to spur economic development in low-income communities, Opportunity Zones were created in 2017 as part of a large overhaul of the federal tax code. Each state was allowed to designate certain “economically distressed” census tracts as eligible for the tax relief on new development.
Investors who put their capital gains — the profits from selling something that increased in value over time — into those projects can defer paying taxes on those gains until 2026 and, for those who did so before last year, can reduce their eventual tax liability by up to 15 percent. Investors in a Qualified Opportunity Fund also don’t have to pay any capital gains tax on that investment if they hold it for a decade.
Keene’s Opportunity Zone — a tract along the southern edge of the city, mostly south of Routes 9 and 101, but also includes parts of downtown — was among those that Gov. Chris Sununu established in 2018. That area had a median household income of $39,392 and a 27 percent poverty rate the next year, according to the U.S. Census Bureau.
“These local neighborhoods deserve an economic boost, and that is what we are going to give them,” Sununu said in a news release at the time. “The goal is simple: to create jobs, to increase wages, and to revitalize communities across the state.”
State officials consulted area business leaders before creating the Opportunity Zones, according to Keene Mayor George Hansel, who said he recommended choosing places with “growth potential” because investors exempt from paying capital gains tax would find that particularly attractive.
Among the projects that local advocates hoped would get a boost from the program was a Gilbo Avenue “arts corridor” that the nonprofit Monadnock Economic Development Corp. said could include performance venues, artist studios and public art installations and also help revitalize downtown Keene. In addition to investments from a Qualified Opportunity Fund, MEDC planned to use several other financing mechanisms for the $30 million project, then-President Jack Dugan told The Sentinel in July 2019.
“So why we think we can come up with the $30 million is there’s like this perfect storm of funding sources available in the corridor,” he said. “I mean, it’s amazing,”
The arts corridor has failed to materialize, however, with MEDC now dealing with a financial squeeze due largely to outstanding debt — though local arts organizers are working on plans for a similar project. Dugan, who left MEDC last year, said that effort didn’t get any money from a Qualified Opportunity Fund during his time there.
Investment in Opportunity Zones statewide also appears lacking, though at least a couple developments have received that funding.
Tru by Hilton, a hotel in downtown Manchester that opened last October, had drawn $10 million as of December 2019, according to reporting by N.H. Business Review.
In Berlin, where the city’s lone Opportunity Zone has a poverty rate of 28 percent, work began this month on a large greenhouse complex that has also been funded through the federal program, Richard Rosen, CEO of the Boston-based firm that owns the facility said Wednesday. The project — which preceded the Opportunity Zone program’s creation — attracted investments, he said, because it had support from state and city officials, an eager local workforce and “an ideal location, horticulturally.”
Rosen warned, however, that other Opportunity Zones may struggle to draw investment because they may not have potential for substantial economic growth and because obtaining those funds can be logistically tricky.
“There are very few people who have really had a chance to figure this all out,” he said.
That makes the program especially problematic for small business owners, Kopczynski said, since many have a limited knowledge of federal tax rules. While acknowledging that there could be investment in Keene’s Opportunity Zone unknown to local officials, he said simplifying the funding process would help encourage more activity.
“The way the law’s written, it provides an awful lot of advantages,” he said. “… You probably need a tax attorney to figure it out.”
Besides being overly complex, Opportunity Zones may simply not be a good fit for the region, according to Bill Shanahan, president of the Maine-based Northern New England Housing Investment Fund.
Shanahan, whose organization briefly helped New Hampshire officials run a Qualified Opportunity Fund, said the federal program “really never got traction” in the Granite State. Much of that was due to lagging guidance from the Internal Revenue Service about how to manage those investments, he said, as well as an economic slump caused by the COVID-19 pandemic.
Shanahan added, however, that many local communities also don’t have the growth potential that many investors want — capping their possible tax savings, even on a successful development.
“This whole concept behind Opportunity Zones probably works better in markets that are going to see some discernible appreciation,” he said. “Those are hard to find in northern New England.”
Some business advocates in the Monadnock Region are still bullish on the program’s potential to spur economic growth, though.
Winchester Economic Development Corp. Chairman Mark Tigan said multiple out-of-state investors have shown interest in joining Stone Mountain Business Park — a 63-acre industrial complex being built in that town — if they can get Opportunity Zone tax breaks.
Winchester and Hinsdale were among the communities eligible for those zones, but neither was selected, according to Tigan. Arguing for more transparency on local investments, he also suggested that any Opportunity Zones not drawing investments should be moved to other disadvantaged areas.
“Why not give some opportunities to communities that need it more and are prepared to move the investment? … There’s an appetite out there for them, but I’m not sure the conduit’s working.”
Hansel urged patience, however, noting that the federal program is still young.
“We see it as a selling point for Keene,” he said. “… On paper, it has incredible potential. We just have to unlock that potential.”
The city’s Opportunity Zone is one of several ways it can encourage growth, Hansel said, adding that he hopes to increase awareness of that program among developers and potential investors. Acknowledging that investors are drawn to places where their assets could become much more valuable over time, he said rising demand and prices for real estate in Keene are positive signs.
“I think word is getting out that we’re a good place to invest. All of those things come into play, and they require a lot of coordination and work. There isn’t one thing that’s going to create a real estate bonanza.”