State Incentives Reset

The Alabama Incentives Modernization Act aims to keep the state competitive in a rapidly changing economy.

One of the most widely welcomed achievements of the Alabama Legislature in recent years came with the passage in 2019 of the Alabama Incentives Modernization Act, which tailored existing incentives.

The pillars of state economic incentives are the Growing Alabama Act incentives and the Alabama Jobs Act, and the 2019 AIM Act “loosened up eligibility related to those by opening them to more rural areas and also by opening them to more qualifying industry areas, in core technology areas,” explains Rep. Bill Poole (R-Tuscaloosa), sponsor of the AIM Act in the House.

To accommodate startup companies, job requirements were dropped from 50 to five, Growing Alabama Credit was made available to tech accelerators and research parks, and some capital gains taxes were eliminated for tech companies moving to Alabama.

“We had a lot of discussion of this in the last session, and there was very significant support for it across the board. People recognize that we are in a very competitive environment and have to be aggressive and innovative,” says Sen. Greg Reed (R-Jasper), who sponsored the AIM Act in the Senate.

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Representing a district that includes Fayette, Walker and Winston counties, Reed says he was eager to increase incentives for rural development.

The AIM Act raised the qualifying population ceiling from 25,000 to 50,000, reduced the job creation threshold from 25 to 10, provided for transfer of Jobs Act investment credits and extended Growing Alabama credit to industrial parks, inland ports, intermodal facilities and the Alabama Farm Center.

“The AIM Act offers added benefits to companies willing to locate in rural areas. One thing is that it makes the number of jobs eligible to qualify as low as 10 jobs and $10 million in capital,” says Reed.

“In the last couple of weeks, some significant tech companies and recruiters have taken notice of the Alabama AIM Act and have begun to see that as a real reason for recruiting companies that want to come to Alabama. For companies as small as five employees, these incentives are still applicable. They could end up with 500 employees in three to four years from now.

“Much of what they do is defined by the internet, so they can be located in a rural area of our state and it allows them to have success. They don’t have to be next door to Airbus or Marshall Space Flight Center or Mercedes,” says Reed.

“Defined by the internet” certainly is a company such as Shipt, the rapidly growing grocery delivery via internet company that grew up in Birmingham and chose to stay headquartered here after being bought by Minneapolis-based Target Corp.

Britney Summerville

“There is a great opportunity for cities like Birmingham to gain ground in the tech industry, because the cost to do business in traditional technology hubs can be so high,” says Britney Summerville, vice president of community engagement at Shipt. “Entrepreneurs see that opportunity, and they’re taking advantage of it, and it’s exciting to see support for the growth of the technology industry in our state. The creation of tech jobs in Alabama is a win for our business community and a win for taxpayers as well.”

Making those internet-based jobs an equal opportunity for rural areas of the state, notes, Reed, will require further legislative action.

“We’ve made rural broadband a top priority. There will be some other legislation this session looking at how we can expand broadband in rural areas of Alabama,” says Reed.

Piloting the tools of the AIM Act, Alabama Department of Commerce Secretary Greg Canfield says, “We have been focused on growing the number of knowledge-based jobs in Alabama for a couple of years now, and the Incentives Modernization Act will serve to accelerate those efforts.”

As for the rural initiative, “We’re coming off a record year for economic development projects in rural areas — $1.1 billion in new investment, with 1,100 jobs,” says Canfield. “These rural areas are the backbone of the state, and the act will help us to elevate our strategic focus on making these areas more competitive for new investment and jobs.”

And just as important in balancing opportunities, says Canfield, were the provisions in the AIM Act that add extended state incentives to federal incentives for “opportunity zones,” provided for in the federal Tax Cuts and Jobs Act of 2017.

Alex Flachsbart, center, CEO of Opportunity Alabama, has spearheaded a series of opportunity zone workshops across Alabama.

Opportunity Zones Quick Start

Opportunity zones are a feature of the federal 2017 Tax Cuts and Jobs Act, and Alabama seems to have a quick start on taking advantage of these opportunities.

One Alabama advantage is the AIM Act, which added some state incentive fuel.

“The Alabama law makes sure that our zones are competitive in attempting to draw in those investments,” says state Sen. Greg Reed, who cosponsored the AIM Act along with Rep. Bill Poole (R-Tuscaloosa).

“For certain projects, we provide for additional state tax credits. And it is under the condition that they would be unavailable except for the opportunity zone program.”

Opportunity Zones are defined as “economically-distressed communities where new investments, under certain conditions, may be eligible for preferential tax treatment.”

There are almost 9,000 nationwide, projected to attract $100 billion in private investments. Alabama has 158 opportunity zones located across all 67 counties. In those areas, there are already around 200 projects qualified in the state, with projected investments totaling $1 billion.

Those estimates are from Alex Flachsbart, CEO of Opportunity Alabama, the nonprofit agency that promotes opportunity zone investments. The group is funded by Alabama Power, Regions Financial and Protective Life and is overseen by the Alabama Department of Economic and Community Affairs.

“Opportunity zones require private investors to identify private projects,” says Flachsbart. “There needs to be a group to be the central connector point, but there is no centralized instruction manual, so as to give credit to the local policy makers and decentralize the federal incentives.”

With a few exceptions —  country clubs, massage parlors, racetracks — all types of projects and property qualify for an opportunity zone investment.

At Stillman College, in west Tuscaloosa, a fund for investors in historically black colleges is building a hotel on campus. In Birmingham, a vacant office building is being converted into worker housing by The Dannon Project, a Birmingham nonprofit that provides workforce development. A Mobile construction company is building an assisted living facility in Cleburne County. And most recently an LLC in Opelika broke ground on the first business park to become an Alabama qualified opportunity zone project.

Investor funds like the one involved with the Stillman project, says Flachsbart, are often one major component, and they are usually what are called “impact investors,” funds that focus on societal issues.

Also involved, says Flachsbart, are local groups such as economic development agencies or chambers of commerce, project sponsors such as developers, landowners or entrepreneurs, and institutional parties like banks, lawyers and accountants.

“You will find a mix of programs that are both rural and urban, downtown revitalization,” says Flachsbart. What they have in common is “They produce substantial returns over the 10-year period of the program. It is not a program designed for the short-term, flip-style investment. It’s the kind of growth in which companies can take a technology and commercialize it over a 10-year period, or a redevelopment that takes a decade to matriculate out and become awesome within a 10-year period.”

The 10-year limitation is also a program asset, says Reed, “a closed cycle. The credit opportunities will expire. The program will wind down unless it is taken advantage of. This is capital in search of a project.”

Chris McFadyen is the editorial director of Business Alabama.

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