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Proposed beach express toll road is in an Opportunity Zone

Brandon Moseley

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Baldwin County voters are going to be able to go to the polls to vote on whether to approve a constitutional amendment allowing the construction of a toll road extending the Baldwin Beach Express from Interstate 10 to Interstate 65.

The new 24 miles of road will go from Loxley where the existing Beach Express dumps its traffic on I-10 now north to a point on I-65 just to the northeast of Bay Minette.

If Baldwin County voters approve the amendment, it will create a toll authority to pay for it.

The Baldwin Beach Express is 28 miles long, but to get there from I-65 presently takes a 29 mile journey through the towns of Bay Minette and Spanish Fort on Rabun Road, AL-287, AL-59, and I-10 E. This would shave five miles off a trip to the beach as well as more time by making it a much more direct shot. It could save 15 minutes time for light traffic, but it would be especially helpful during the peak times in the vacation season when tourists flocking to the Gulf Beaches can make the existing roads through Baldwin County to the beach congested.

An analysis of the proposed route also revealed that the entire route, as well as thousands of acres on both sides of the new highway, is in an opportunity zone.

Opportunity zones were created by Congress in the Tax Cuts and Jobs Act of 2017.

According to the IRS, an “Opportunity Zone is an economically-distressed community where new investments, under certain conditions, may be eligible for preferential tax treatment. Localities qualify as Opportunity Zones if they have been nominated for that designation by the state and that nomination has been certified by the Secretary of the U.S. Treasury via his delegation of authority to the Internal Revenue Service.”

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Alabama Governor Kay Ivey studied all of the census tracts in the state and elected a portion of Baldwin County from the current AL-287/AL-59 route east to the Florida line and bounded by I-65 to the North and I-10 to the South as one large Opportunity Zone.

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The IRS explains that: “Opportunity Zones are designed to spur economic development by providing tax benefits to investors. First, investors can defer tax on any prior gains invested in a Qualified Opportunity Fund (QOF) until the earlier of the date on which the investment in a QOF is sold or exchanged, or December 31, 2026. If the QOF investment is held for longer than 5 years, there is a 10% exclusion of the deferred gain. If held for more than 7 years, the 10% becomes 15%. Second, if the investor holds the investment in the Opportunity Fund for at least ten years, the investor is eligible for an increase in basis of the QOF investment equal to its fair market value on the date that the QOF investment is sold or exchanged.”

Investment firms have created opportunity funds to take advantage of these tax savings.

According to their website, the Fundrise Opportunity Zones find it could be possible to pay as little as $0 in capital gains taxes on your next decade of investment returns.

Using the calculator on the website, if you had $250,000 in capital gains to invest today and expected 8 percent annual returns after five years that money would have grown to $285,856 after taxes versus just $258,628 if the money were invested in a conventional stock portfolio that produced the same annual return of 8 percent. If the money was held for seven years the after tax value of the Opportunity fund would climb to $335,408 versus just $294,119 in a conventional stock portfolio, IF both were producing 8 percent annual returns. If you hold the money in the fund for ten years that jumps to $489,156 versus only $358,730 for a traditional stock portfolio. If the returns are the same, the tax advantages of the Opportunity Zone fund means that that investor has $130,426 more net worth at the end of ten years from the same investment.

The calculator allows you to input any amount and select from a menu of interest rate options. For a more aggressive investor who is expecting 12 percent annual returns the advantage for investing in the Opportunity Funds swells to $229,700 over the decade.

The tax code changes in 2017 are what makes this work.

An investor who has triggered a capital gain by selling an asset like stocks or real estate receives special tax benefits if they roll that gain into an Opportunity Fund within 180 days. There are three primary advantages to rolling over a capital gain into an Opportunity fund. First, that investor is able to defer the payment of their capital gains taxes until Dec 31, 2026. Second, by investing in an Opportunity Zone fund the IRS reduces the tax you owe by up to 15 percent after 7 years. Third, the investor pays zero tax on gains earned from the Opportunity Fund itself.

This allows investors to avoid paying high taxes, while they are helping to improve the lives of people in economically distressed communities like rural Baldwin County.

How this translates to the toll road is if the toll road project were done as a for-profit corporation instead of as a government entity the toll road itself could qualify as an Opportunity Zone project if approved by ADECA and the U.S. Treasury.

The Alabama State Legislature has further sweetened the pot by targeting state economic incentives to the Opportunity Zones.

Perhaps coincidentally, the massive I-10 toll bridge project over the Mobile River is also located in an Opportunity Zone, potentially giving those investors enormous tax advantages, if the toll bridge is approved as an Opportunity Zone project.

If the Mobile River toll bridge were done as an opportunity zone project, anticipating an 8 percent annual return on investment, the investors could receive $521,702,000 over the next ten years in tax advantages versus building it without the bridge qualifying as an Opportunity Zone project.

There is also an Opportunity Zone declared along a portion of the already existing Beach Express in South Baldwin County.

The Baldwin County Commission has asked for $11 million in RESTORE money from the BP oil spill settlement in order to purchase land for the toll road. Construction on this is likely still years away even if it is approved by voters.

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