Smart for Enterprise, Erie, and the Earth

Submitted by: Guy McUmber, Northwest Regional Director, Green Building Alliance

2030 Districts make up a global network of high-performing and resilient cities that focus on urban commercial properties. These Districts are leading the way in conserving energy, transforming buildings and improving communities. Currently, Erie is one of only twenty-four 2030 Districts around the world, including nearby Pittsburgh and Cleveland. 

Each 2030 District works to commit buildings in their city to 50% reductions in energy, water, and transportation-related emissions by the year 2030. Erie achieved final, or “Established,” status last month, with 12 Property Partners committing to the reduction goals, representing 59 buildings and over 4 million square feet. 

The Erie 2030 District also helps organizations reduce their bottom line through becoming smarter about energy and water use. Joining the Erie 2030 District allows owners and building managers to access information on market trends, best practices, and local efficiency models, ultimately leading to new ideas on how to improve building performance. 

Founding Partner Erie County recently completed a major energy efficiency project with Erie 2030 District support. This included building benchmarking and grant-making assistance, the latter which funded professional audit work. Utility savings for upgraded county properties will be at least $240,000 annually. 

Better properties will also lead to a better and more marketable Erie. This would include creating local jobs in installing retrofits and clean energy systems. Reducing utility costs are not only good for owners but also create more desirable rental properties and happier tenants. 

In addition, efficiency programs reduce grid reliance and thereby make cities more resilient when facing extreme weather events. Clean and efficient energy and water use also helps ensure that we are passing on the best world possible for future generations. 

In summary, a 2030 District is an important tool for cities interested in efficiency and all its benefits. For Erie, its businesses and its future, it is just “plain smart”. 

To learn more about the Erie 2030 District, please join us for a webinar presented by Guy McUmber, on Wednesday, January 8th. The webinar will be available to view at 9 a.m., 12 noon, 3 p.m., 7 p.m., and 9 p.m. that day. Please visit this link – https://events.genndi.com/register/818720503324738179/0f8061ed7e – and sign up for the time that is most convenient for you. You will receive a link to access the content after you sign up.

Meet the Newest Members to the Erie Regional Chamber

Did You Catch These Segments on WICU/WSEE in December?

In partnership with Lilly Broadcasting, the Erie Regional Chamber sponsors Giving You the Business segments which air weekly on WICU12 during the 5 PM. Monday broadcast and Tuesday mornings in the 5 AM. hour. And in 2020 we've added additional exposure for our members with the segments airing on WICU-WSEE during the 6 PM newscast on Sunday evenings. Each of the segments takes viewers behind the scenes of a local business they may not have a chance to see.

Here are the members highlighted in December:

• A. J. Grack Business Interiors
• McBrier Properties Group
• 180 Physical Therapy
• Madeline's Dining and Events

submitted by Laurie Knoll, Marketing Communications Specialist NWIRC

Manufacturing companies are seeing an impact from their participation with NWIRC’s Lean Together programs. New cohorts for Lean Together 1.0 are starting soon throughout the region. It’s a 9-month collaborative learning program focused on developing true and lasting cultural changes, where everyone’s job is making small incremental improvements, every day. Sessions are facilitated by lean expert, Craig Corsi, and include facility tours, discussion focused on the book, 2 Second Lean, by Paul Akers, and company-specific onsite assistance. Below are the upcoming regional start dates:

Contact Molly Reichard for more information about getting started at (814) 217-6067. Find additional information at www.nwirc.org/lean-together.

Submitted by Colleen Campbell, ERCGP Intern

Part 1

Interest surrounding the Opportunity Zones tax incentive has been met with clarity as the U.S. Treasury Department and Internal Revenue Service released a set of final regulations on December 19, 2019. This update responded to a number of comments and questions that were made with regard to the proposed legislation and offered prospective beneficiaries a long-awaited, 544-page set of answers. The subsequent series of blogs will serve to outline some of the updates including those pertaining to Section 1231 Assets, Inclusion Events, Original Use, and Substantial Improvement. This post, however, will begin by outlining qualifying investments and general reporting requirements. (You can view the Tax Cuts and Jobs Act of 2017 here, and the second set of proposals here.)

What kind of gains may be invested in a Qualified Opportunity Fund?

• Revenue from the sale of business property may be invested in a QOF, provided that the investment is made within 180 days of the sale of the asset.
• Gains from partnerships, S Corps, trusts, and estates may also be invested in a QOF. The taxpayer must invest any gain within 180 days from the due date of the entity’s tax return. The due date shall not include any extensions.
• Taxpayers may also invest gains from an Investment of Regulated Investment Company (RIC) and Real Estate Investment Trust (REIT). The 180-day investment period may begin with the close of the shareholder’s tax year or when the shareholder receives the dividends from the RIC or REIT which they will invest in the QOF.
• Revenue from Installment Sales may be invested in a QOF, even if the initial sale occurred prior to 2018. The taxpayer may begin the 180-day investment period for each installment on the date when the payment is received or on the last day of the taxable year when the payment is received.
• Nonresident investments may also be made so long as they are “effectively connected to a U.S. business or trade.”

What are the reporting requirements for investing in a Qualified Opportunity Fund?

                Despite a number of comments requesting additional reporting requirements (and even some comments requesting fewer requirements), the final regulations did not alleviate or impose any additional burdens on investors. Rather, taxpayers must still complete Form 8996 and are required to annually report whether deferred gains remain deferred at the end of each tax year.

Submitted by Colleen Campbell, ERCGP Intern

Part 2

An inclusion event is an occurrence which breaks the chain of deferment and the benefit of investing in a Qualified Opportunity Fund (QOF). Once an inclusion event has occurred, capital gains that were once deferred as an investment in a QOF must then be included as the investing individual or entity’s taxable income. These occurrences may be as simple as an investor choosing to reduce the amount of their investment in a fund, however, the U.S. Treasury Department and Internal Revenue Service enumerated a number of specific events in their recent release of final regulations that will terminate an investor’s deferment of capital gains. The updates also clarify occurrences that do not qualify as inclusion events.

The update describes a number of circumstances which qualified as inclusion events in the proposed legislation, including “a transfer of a qualifying investment, to the extent the transfer reduces the taxpayer’s direct equity interest, the receipt of a distribution on or with respect to a qualifying investment, which constitutes an impermissible ‘‘cashing out’’ of the taxpayer’s qualifying investment, or the claim of a worthlessness deduction…in respect of a qualifying investment.”

Forbes lists occurrences that are not inclusion events, which include “liquidation of a corporate owner of a QOF if the liquidation is into a parent who owns 80 [percent] of the taxpayer, …transfer of an investment in a QOF at death, contribution of a QOF interest to a grantor trust, provided the taxpayer is the deemed owner of the trust, [and] …the making or revocation of an S election.”

The final regulations respond to a number of comments that were made on the proposed legislation pertaining to a number of specific inclusion events based on the kind of entity investing in the QOF and the nuances in numerous possible situations. The update also clarifies the U.S. Treasury Department and Internal Revenue’s positions on the following general provisions:

• Gains from inclusion events are eligible for deferment if the inclusion event is only related to a portion of the taxpayer’s investment and the gains are invested in a different QOF.
• The general rule for inclusion events is clarified; the rule was not meant to suggest that a taxpayer may avoid an inclusion event by maintaining an indirect interest in a QOF.
• Decertification of a QOF is an inclusion event that will terminate deferment of a taxpayer’s invested gains.
• A reduction in an investor’s shareholder interest in a QOF does not qualify as an exclusion event. In other words, if a QOF should choose to issue additional stock, an inclusion event does not occur simply because an investor’s proportionate share of the fund decreases.
• The gift of an interest in a QOF is an inclusion event. Transfers between spouses and transfers arising from divorce are also inclusion events.

Submitted by Colleen Campbell, ERCGP Intern

Part 3

To attain status as a Qualified Opportunity Zone (QOZ), tangible property must satisfy either the original use or substantial improvement requirement. As legislators released the proposed legislation for Opportunity Zones in May 2019, commenters were quick to question the meaning and boundaries of original use and substantial improvement.

To satisfy the original use requirement, a business property’s original use must commence with the Qualified Opportunity Fund (QOF). This occurs when structures on the property are first placed in service for purposes of depreciation, and that the continued depreciation of previously existing and depreciating structures will not satisfy the requirement. In other words, if a “taxpayer other than the QOF” has made prior use of the property which has resulted in depreciation or amortization, the property must be substantially improved to attain the benefits of a QOZ.

The final regulations clarify a number of issues surrounding the definition of original use:

• Certificates of occupancy may not be used to satisfy the original use requirement for existing structures.
• Properties that have been used previously for non-business activities do not satisfy the original use requirement.
• There is no “safe harbor” for taxpayers who purchase property, believing that it has not already been used.
• Newly constructed buildings that are purchased by a QOF satisfy the original use requirement.
• A special 1-year vacancy period allows a QOF to satisfy the original use requirement if a “property that was vacant prior to and on the date of publication of the QOZ designation notice that listed the designation of the QOZ in which the property is located, and through the date on which the property was purchased by an eligible entity.”
  • Property that was not vacant at the time of the QOZ designation must be vacant for a period of three years to satisfy the original use requirement.
• All real property, land, and structures which compose a brownfield site satisfy the original use requirement. The eligible QOF must however make investments in the land which benefit human health and safety.

If a property does not satisfy the original use requirement, the property must be substantially improved. A property has only been substantially improved only if, “during any 30-month period beginning after the date of acquisition of the property, the QOF or QOZB spends as much to improve the property (measured by additions to basis) as the QOF or QOZB’s original basis in the property at the beginning of the 30-month period.” Furthermore, at least 50 percent of the income of the business must be earned from activity within the QOZ, a substantial portion of the property in the QOZ must be actively used by the entity for business, and  “less than five percent of the average of the aggregate unadjusted bases of the property of such entity must be attributable to nonqualified financial property.”

Any cost added to the value of a property will be used in calculating whether a QOF has made a substantial improvement on property. This may include equipment installation, building demolition, permit fees, and remediation among many other possible expenses. However, commenters questioned the methodology for calculating whether a substantial improvement had been made. The final regulations provide the following clarifications:

• “A QOF or QOZ business may treat all buildings that compose an eligible building group and that are located entirely within the geographic borders of a parcel of land described in a single deed as a single property.”
• “A QOF or QOZ business may treat all buildings composing an eligible building group that are located entirely within the geographic borders of contiguous parcels of land described in separate deeds as a single property to the extent each building is operated as part of one or more trades or businesses that meet the following three requirements:
  • (1) the buildings must be operated exclusively by the QOF or by the qualified opportunity zone business;
  • (2) the buildings must share facilities or share significant centralized business elements, such as personnel, accounting, legal, manufacturing, purchasing, human resources, or information technology resources; and
  • (3) the buildings must be operated in coordination with, or reliance upon, one or more of the trades or businesses (for example, supply chain interdependencies or mixed-use facilities).”

Submitted by Colleen Campbell, ERCGP Intern

Part 4

Section 1231 Assets (defined in Section 1231 of the Internal Revenue Code) are depreciable property that is held and used in a trade or business for more than one year. Capital gains from the sale of this kind of asset are taxed at a lower rate than the traditional income tax rate. Capital gains from the sale of Section 1231 Assets may be invested in a Qualified Opportunity Fund (QOF).

A “netting” process is employed to determine the aggregate value of capital gains and losses resulting from the sale of Section 1231 Assets. The total capital gain from sales are taxed accordingly, and total losses from the sale of Section 1231 Assets are deducted from taxes as ordinary losses. The 2019 Proposed Opportunity Zone legislation permitted investors to defer only “capital gain net income” by investing in a QOF. In other words, the legislation required taxpayer’s to wait until the end of the tax year when total losses and gains had been aggregated before investing in a QOF.

However, after comments on the proposal expressed concern over this provision, the U.S. Treasury Department and Internal Revenue Service changed their position in the final regulations and withdrew this requirement. Under the updated legislation, taxpayers may immediately invest and defer Section 1231 gains after they are earned from the sale of a property. Each gain from the sale of a Section 1231 Asset is calculated independently, and is not impacted by losses on other sales. Taxpayers must invest within 180 days from the sale of the asset to qualify for deferment.  

Registration Open for this New Event

The Erie Regional Chamber and Growth Partnership is excited to offer a brand-new event convening business leaders, community advocates, and our local elected officials to discuss the collective vision for growth with the City of Erie and Erie County.

This first of many advocacy related events is set for Wednesday, February 26th at the Bayfront Convention Center.

Transformative change requires the public and private sectors to align. By working together, we can create unique policies that spark economic growth or enhance the quality of our community in a way that retains and attracts talent and businesses to Erie. Join us to learn more about the collaborative momentum across government entities and how you can get involved. Special guests include County Executive Kathy Dahlkemper, Mayor Joseph Schember from the City of Erie, and leaders from the economic development and business community.

During our panel discussion about the five core pillars for collective growth, there will be an opportunity for question and answers between attendees and panelists. Join us as we continue working together to create a vibrant community in Erie!

For complete details and to register, visit eriepa.com.

Applications Due February 14th

Submitted by Kristen Mild, Primary Health Network Charitable Foundation

Each year, Primary Health Network Charitable Foundation (PHNCF) provides $30,000 worth of scholarships to students pursuing a career in a healthcare field. PHNCF is based in Sharon, PA and is the supporting nonprofit organization of the Primary Health Network (the largest Federally Qualified Health Center in Pennsylvania). PHNCF offers various programs and services to the community and Primary Health Network Patients. With a Primary Health Network site in Erie, Erie County residents are eligible for this scholarship opportunity.

The scholarship program is offered to individuals (traditional and non-traditional students) pursuing a degree in healthcare. Applicants can be attending a technical school, a 4-year school, or even obtaining a certificate- as long as it is for a healthcare-related career. All of the guidelines/qualifications for the scholarships are listed at www.phnfoundation.net. Click on “How we Help” and go to “Healthcare Scholarships”.  There is a simple application and essay that must be completed and submitted online by February 14^th, 2020. 

The $30,000 is broken down into twelve scholarships varying from $2,000-$5,000 per award. Applicants can apply each year. 

For more information, contact Kristen Mild at kmild@primary-health.net or call (724) 981-2875 extension 1666.

Wm. T. Spaeder was awarded both the plumbing and fire protection for the EMTA's new 90,000 SF bus garage, administration building and parking ramp. Here is a short video talking about our work there. This video features project manager Elliot Spaeder and foreman Eric Bowman. 

Wm.T. Spaeder offers HVAC and piping for commercial, industrial, and residential applications throughout northern Pennsylvania, including the areas of Pittsburgh and Buffalo NY. 

Learn more about our services at https://wmtspaeder.com/ or by calling us at 814-456-7014 

1602 East 18th Street, Erie, PA 16510

 141 Rochester Road, Pittsburgh, PA 15229

 350 Orchard Park Road, Suite #2, West Seneca, NY 14224

Connect For Coffee Registration Open

On February 11th we will be at Coldwell Banker Select Realtors, 4664 West 12th Street, from 7:30 – 9:00 a.m making connections over coffee.  Attendees can expect good conversation, a lot of information, and the opportunity to make several business connections.

Our February host is the 2019 Erie’s Choice for Real Estate! Coldwell Banker Select, Realtors is a locally owned, family operated, 3rd generation full-service Real Estate company. They also have affiliated businesses with Select Mortgage and Select Settlement, making the process home buying and selling simple.

Attendees have the opportunity for a 2-minute informal presentation about their business or organization, what services are offered, events upcoming, even what they may be in need of for their business. We encourage attendees to bring business cards, event flyers, and other marketing materials to share, and there is the opportunity to spend quality time in a business-conducive environment making connections and engaging with other business professionals. Coffee and light breakfast food will be provided by Coldwell Banker.

Register Here