City Council discusses Lynnwood’s opportunity zone, reviews CARES Act amendments

City of Lynnwood Economic Development Director David Kleitsch (center right) explains the benefits of the city’s opportunity zone. (Image courtesy of Youtube)

Taking its first steps back into business unrelated to the coronavirus pandemic, the Lynnwood City Council earlier this week discussed the future of the city’s South Lynnwood/City Center opportunity zone and affordable housing initiatives.

At its June 15 meeting, the council received a briefing from city staff regarding the city’s opportunity zone. The briefing had been postponed when local governments were directed by the state to only discuss matters related to the pandemic or business that was “routine and necessary” in response to the pandemic.

The opportunity zone program was created through the federal 2017 Tax Cuts and Jobs Act to combat racial inequity by offering tax incentives to developers who invest in low-income areas. Investments allowed under the program include commercial real estate development and renovation, opening new businesses, and expansion of existing businesses. The program has attracted more than $10 billion in investments. There are 139 opportunity zones in Washington, five of which are in Snohomish County.

Typically, after reselling an asset, investors would include their earnings as a taxable income and owe 15-20% on their profits. However, if developers invest in an opportunity zone within 180 days of the sale, the tax bill is delayed until the investor takes the money out of the fund or at the latest, by December 2026.

According to the briefing provided by city project manager Christy Murray, if a developer invests funds for five years, 10% of the original gain can be excluded from being taxed. For funds held longer than seven years, 15% is excluded from taxation. However, the deadline to receive that benefit expired at the end of last year. Funds held for 10 years or more are exempt from any capital gains tax upon its sale or exchange.

“This provision applies to any investment made prior through the end of 2026 and does not expire until 2047,” Murray said. “So, we still have a lot of time for investors to take advantage of this in Lynnwood.”

In 2018, the city partnered with the Economic Alliance Snohomish County to find areas in Lynnwood that would qualify for a designation.

Lynnwood’s opportunity zone overlaps with a large portion of Lynnwood’s City Center — a designated regional growth district that according to the City Center Sub-Area plan will be “a central business district with pedestrian friendly streets in a park-like environment” — and the South Lynnwood neighborhood. Through the opportunity zone, the city aims to bring more affordable housing options like the City Center Apartments and Destinations Lynnwood (formerly SHAG).

The area has already sparked interest in other developers, like the Bellevue-based firm American Property Development, which received the council’s approval earlier this year to develop Kinect@Lynnwood — a multifamily residential project proposed for 4100 Alderwood Boulevard (former location of Speed Trap Espresso and Hertz Car Rental). Murray said another developer is currently preparing an application for a project in City Center and intends to use the program.

Though opportunity zones are a good way to incentivize developers with tax breaks, Councilmember Ruth Ross asked what the city stands to gain, aside from its standard development fees.

In response, Economic Development Director David Kleitsch said the city stands to gain secondary benefits that could stimulate the city’s economy and create more jobs.

“There isn’t a direct funding to the city, but the return to the city received is through additional jobs, additional property tax, additional economic vitality and removal of conditions that may be blighted,” he said.

Councilmember George Hurst — who has been advocating for affordable housing — cautioned that the city should not bring in developers who will drive low-income residents out of the city with high housing costs. He also said he had concerns about Kleitsch’s remarks about removing a “blight” in the city.

“To me that’s relocation of low-income people and I’m hoping…that we’re protecting those people that are there because that is a low-income area,” he said.

Also during the meeting, the council reviewed proposed amendments to the city’s 2019-21 biennium budget to accommodate two grants the city received to cover costs incurred in response to the coronavirus pandemic.

This is the third time the city’s budget has been amended, which city Finance Director Sonja Springer said is required when something “significant and unexpected” happens to the city’s finances.

“It’s basically an amendment to recognize the revenues and recognize the expenditures that will be coming from these grants,” she said.

The city also received $1.188 million in CARES Act funds from the Washington State Department of Commerce, which will go into the city’s general fund and non-department fund. Of that, $488,000 is reimbursement to the city for the cost expenditures including technology costs, payroll costs, and personal protective equipment (PPE) for employees and face coverings for customers.

The other $700,000 will be used for community and business relief funds, with $500,000 going toward grants or local business owners and $200,000 for a community relief fund to help residents impacted by the pandemic.

In April, the city received a grant for $37,845 from the Department of Justice to cover the cost of the city’s response to the coronavirus.

During the discussion, Council President Christine Frizzell asked if the city would be authorized to use any remaining balance of the city’s $488,000 reimbursement to fund the city’s relief initiatives.

“If the city doesn’t need the entire $488,000 to cover necessary expenditures, there could be more additional funds freed up to cover community relief or business relief funds,” Springer replied. 

The council is scheduled to approve the amendment at its June 22 business meeting.

Also during the meeting, the council discussed its plans to move the start time for its regular Monday night business meetings and work sessions ahead an hour, from 7 p.m. to 6 p.m. The proposal was previously discussed during the council’s annual summit meeting in February and aims to make meetings more accessible to the public.

Before making any changes to the council’s start time, the council is required to adopt an ordinance amending the city’s municipal codes which set the dates and times for council meetings.

The council also discussed amending the end time for meetings, which is currently scheduled for 10 p.m. with the option to extend if need be. The council agreed to also move the meeting end time up as well, to 9 p.m.

During the discussion, Councilmember Jim Smith suggested the council eliminate its work sessions held on the third Wednesday of every month. According to Smith, it would be more efficient for the council to submit written memos and save the city from having to involve city staff and extra night.

However, Council Vice President Shannon Sessions said it was important to continue holding the work sessions, because they allow the council to hold necessary discussions.

“I’m not quite ready to get rid of (the Wednesday meetings) yet,” she said.

The council is scheduled to vote at its June 22 business meeting to adopt the meeting time change ordinance, which will go into effect at its July 6 business meeting.

–By Cody Sexton

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