FOLLOW THE MONEY

July 31, 2019

Kingston, NY – Here is we have been told about the financials.

The developers estimate the project’s cost at around $57.8 million, of which $6.8 million come from grants – $3.8 million from the DRI project, $2 million from the Empire State Development Fund, and $1 million from the Restore New York grants. In addition, the developers have asked for a $30 million tax break known as a PILOT (Payment in Lieu of Taxes). Their PILOT application to the IDA says they are taking out a $43 million mortgage, and the developers have been quoted as saying they have invested almost $10 million of their own cash.

Follow the Yellow Brick Road to OZ.

Another plum is the potential savings of millions of dollars if developers set up a project in a so-called Opportunity Zone and hang on for at least ten years.

Included in Donald Trump’s tax bill signed into law December 2017 was the bipartisan brainchild of Sens. Cory Booker (D-N.J.) and Tim Scott (R-S.C.) known as Federal Opportunity Zones, meant to spur investment in economically challenged census tracts. Investing in an OZ triggers two potential savings. The first is that payment of capital gains tax incurred by a sale of an asset in 2018-2019 can be delayed until 2026 and can even be reduced by up to 15%. The second is that if you reinvest that asset into a project in an OZ, and you hold on to it for 10 years, you never have to pay capital gains tax.

Consider this hypothetical example. A Silicon Valley entrepreneur sells $60 million in stock, of which $50 million is profit. He might owe $10 million in long term capital gains tax. If he invests in an OZ, he can delay payment of that tax until 2026, and if he’s still invested in his OZ project, he can get a 15% break, for a total payment of $8.5 million instead of $10 million. But that’s only the beginning. Say he invested his $50 million profit in a construction project, and held on to it for ten years, and then sold it for $80 million. Without taking into account depreciation and other tax-saving measures open to developers, the usual capital gains rate is still 20% on his $30 million profit, which means he would owe $6 million. But because he held on to the property for ten years, he owes nothing.

The Kingstonian is located in an Opportunity Zone census tract. (Ulster County has four opportunity zones, with three in Kingston and one in Ellenville.) As of now there is no obligation to announce publicly whether a project is structured as a so-called Qualified Opportunity Zone Fund, or QOF.

Phone calls to the developers and their attorney were not returned.

Skeptics note that the OZ program could be manipulated by savvy investors to rake in tax savings while ignoring the legislation’s intent to contribute to economically challenged areas.

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