NEW HAVEN — On a busy afternoon at El Jibaro Hair Cut on Grand Avenue in the Fair Haven neighborhood, owners Wanda and Severiano Burgos took a few minutes to talk about the commercial strip where they’ve run the barbershop for 27 years.
“Much better than before,” he said in broken English. “Before, they had a lot of space empty.”
“All of a sudden now, everything is blooming,” she added, although, to be sure, all is not rosy in the low-income neighborhood starved for good, local jobs.
They didn’t know about a conference happening at the same moment less than two miles away at the Omni Hotel downtown, with 500 people talking about the new gold rush for investments in so-called opportunity zones — including Fair Haven. The gathering of investors, developers, economic development folks and state officials led by Gov. Ned Lamont, who hung around long after he spoke, was upbeat like the scene at El Jibaro.
And like the barbershop, it was a buzzy marketplace. Instead of haircuts amid chatter about the neighborhood, the hot commodity was cities looking to lure big money to distressed neighborhoods, backed by federal tax breaks and a state looking for something that will spark job creation.
“We can say clearly that if you invest in our zones, we will be right there with you,” said David Kooris, deputy commissioner of the state Department of Economic and Community Development, billed as the “OZ Czar.” The department rolled out a website with a searchable database of properties, www.ctopportunityzones.com, and a passel of add-on benefits for developers in the opportunity zone, such as enhanced historic tax credits.
New Haven was a well-named place for Wednesday’s conference, as the neighborhood census tract zones, some 8,800 across the United States, including 72 in Connecticut, represent a brand new tax haven for investors looking to re-deploy capital gains from the sale of securities, real estate or businesses.
The rules are complicated but basically, by buying into businesses and property in any of the opportunity zones, investors can defer taxes on those gains, or avoid the taxes altogether if they don’t cash out.
The zones, created in the 2017 federal tax reform act (yeah, the same sweeping reform that handed huge breaks to corporations and wealthy families and screwed blue states with limits on state and local tax deductions) present enough promise to make cities drool at the idea of huge new investments.
Caution is advised. Opportunity zones represent the latest in more than 50 years of state and federal efforts to revive poor neighborhoods. The way this program works, with investor-friendly rules, it could certainly pump new vitality into cities at little cost to them, or to the state.
But it could also drive out low-income residents with glitzy, “market rate” apartments if we’re not careful; it could back projects in neighborhoods that don’t need the help, enriching the rich developers at a cost to federal coffers. It could reward development that was destined to happen anyway.
And if the emphasis falls too heavily on housing, as we hear from many economic development officials, it could fall short of creating jobs, the thing this state needs most as population remains flat.
Still, the opportunity zones bring hope as a new tool. The finance community, including Goldman Sachs and many small firms, is busily amassing funds from investors looking for a home for their profits after a 10-year stock market run-up . “In my years on Wall Street, I’ve never seen an asset class form so quickly,” said Al Puchala, CEO of CapZone Impact Investments in Norwalk.
For good reason. Deals in these chosen zones that might not have made sense financially could now work. The managing principal of one fledgling fund said he figures a development project with opportunity-zone benefits adds 3 percent to 4 percent to the return on investment — a hefty premium at a time when bond investors grovel for fractions of a percent in a permanently low-interest environment.
Mayors and top municipal development officers touted their zones with projects already in the works, which may or may not be propelled by opportunity-zone tax breaks.
“We’re going to become the new Hardware City based on this project,” New Britain Mayor Erin Stewart crowed, using her city’s historic nickname as she showed pictures of the planned Energy and Innovation Park, a data center and fuel cell generator that has significant state support.
“In a word, I would say New Haven is Connecticut’s opportunity zone,” Toni Harp, mayor of the host city, said as she welcomed the crowd.
Clearly it’s a competition among cities and towns for investment dollars. In the back of the Omni ballroom, most of Connecticut’s largest municipalities set up shop with displays showing why they’re the place to be for opportunity zone investments.
But as Kooris made clear, it’s also a group effort. Looking out at the many cities and towns represented, Thomas Madden, the Stamford economic development chief, told investors, “When you talk to someone, think of it really as Team Connecticut.”
Stamford is teaming with a financial services firm to create its own opportunity zone fund, Madden said. And that city is already well ahead of the game, with more than 3,000 apartments in the redeveloped South End, and thousands more planned.
Apartments attract people if they’re well planned and that means economic gains, as David Lehman, the state economic development commissioner, noted when I showed skepticism. It’s a matter of balance, of course.
“They’re not mutually exclusive,” Lehman said of high-density urban housing and businesses that hire people. “The market is going to determine what works and what doesn’t work.”
Back at El Jibaro in Fair Haven, the Burgoses, too, said the neighborhood needs housing — and jobs.
“The city should try to get some big company to come here,” Wanda Burgos said. “That would help low-income people.”