2/7/2020 OZ - County Attys [email protected]1 Opportunity Zones and the Local Government Role Tyler Mulligan Professor of Public Law & Government County Attorney Conference February 7, 2020 Agenda • Basics of Opportunity Zones – How they work – What it means for investors – What it means for counties • Strategic approaches – General marketing not enough – “Investment ready” projects needed • Examine county “toolbox” in Opportunity Zones
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General marketing: See any projects ready for investment w/in 180 days?
Authority for General Marketing
• G.S. 158-7.1(a). “Each county and city … is authorized to make appropriations for economic development purposes. Those appropriations must be determined by the governing body … to increase the population, taxable property, agricultural industries, employment, industrial output, or business prospects of the city or county.”
• G.S. 158-7.2: “In the event funds appropriated for the purposes of this Article are turned over to any agency or organization other than the county or city for expenditure, no such expenditure shall be made until the county or city has approved the same, and all such expenditures shall be accounted for by the agency or organization at the end of the fiscal year.”
• Dennis v. City of Raleigh, 253 N.C. 400, 405 (1960) (expenditure for “advertising to promote the public interest and general welfare of the City” serves a public purpose)
but general marketing isn’t enough to attract OZ investment
Compare to “investment ready” project available at same time
Months of analysis by the School’s DFI. Current status: - MOU signed with market rate developer and affordable housing developer- Tax exempt bond and 4% LIHTC package submitted- Ready to receive OZ investment
Lawful county activities to attract private investment to OZs
(in addition to general marketing)
Organized into a logical framework
(or toolbox)
Toolbox framework explained in more detail in “Development Finance Toolbox” course (and CLE credit).
– Economic development: must hold hearing before acquiring property
– MSD – no power to sell property– In URA, eminent domain only for
blighted parcels
• Constitution prohibits gifts and generally requires “necessity” for assistance to private sector– Maready v. Winston-Salem (1996)– Martin v. N.C. Hous. Corp. (1970)
– Conveyed to charity for public purpose– Failed to include reverter back to municipality– Invalidated
• Bagwell v. Town of Brevard (1966)– Inadequate notice– Invalidated
• Barnes v. Nash County (2012) – Economic development acquisition– No public hearing in advance– Challenged by taxpayer– County cured procedural defect– Too late! Company went elsewhere….
• Wells v. City of Wilmington (2015)– Sale to hotel developer at fair market value (FMV)– City adjusted appraisal downward to reflect
conditions that appraiser failed to consider– City’s adjustment was more accurate FMV—upheld
Statutory Authority for Loans• G.S. 160A-503(19): “programs of
assistance and financing, including the making of loans, … in a redevelopment area.”
• G.S. 153A-376: programs “principally for the benefit of low and moderate incomepersons … including … loans, the subsidization of interest payments on loans, and the guaranty of loans….”
• G.S. 157-3(12): “Housing project” shall include “loans, interest supplements and other programs of financial assistance to public or private developers of housing for persons of low income….”
• G.S. 158-7.1(a): broad authority to make appropriations for economic development purposes, to include making “loans for the rehabilitation of commercial or noncommercial historic structures.”
• Keep bank in the deal!• Form loan committee and/or engage
experts to underwrite loan• Security/collateral: 2nd position lien• Risk-adjusted interest rate
– Loan with lien in 2nd position charges higher interest rate than 1st position loan
– Other terms can be flexible, though risk-taking (longer loan term, interest only) should result in higher interest rate
• Loan forgiveness is unconstitutional in real estate deals—cannot be “necessary”
Equity (partial ownership of private business or property)National rule Generally impermissible
N.C. case law “it is not the function of government to engage in private business”Mitchell v. North Carolina Ind. Dev. Fin. Auth., 273 N.C. 137, 156 (1968)
Not “necessary” for developers -hotels, office, retail, residential
Real Estate
Development• Cannot be “necessary” (to quote the N.C. Supreme Court). If one developer is interested based on local market conditions, then another can be found to take its place.
• Most developments are financed based on local market conditions and therefore cannot be “lost to other states” (to quote the N.C. Supreme Court).
• The School’s Development Finance Initiative (DFI) attracts interest from multiple developers frequently.
Statutes cannot be interpreted to mean that gifts may be given
Real Estate
Development• Canon of constitutional avoidance: “a statute . . . should be construed so as to avoid serious doubt as to its constitutionality.”
• Full knowledge of prior law. Legislature assumed to have full knowledge of prior and existing laws—all read together
• No surplusage. Allowing gifts would create end-runs and render irrelevant statutes related to lawful tax exemptions, expenditures, and property conveyances described earlier.