State Chamber Business Roundtable: Cheryl Denney
The. State chamber of Oklahoma's, business roundtable presented, by Cox, Communications. And now, here's, your host red, Morgan. Hello. And welcome to the State Chamber of Oklahoma's, business roundtable, we have partnered, with Cox Communications, to tell stories about businesses. In Oklahoma and to, discuss business issues, and with. The recently. Completed. Federal. Tax cut. We. Have a lot of things to talk about for what opportunities, might be there for Oklahoma, this was the largest tax cut in history and. It. Could present a lot of opportunities, for Oklahoma business and we have as our guest today Cheryl, Denny who is with the law firm of McAfee and Taft she'll, welcome to the show thank you a pleasure to be here we've, known each other for a long time tell our viewers a little bit about you and and your, education. Where you got your law school where you went to law school and your family and all that absolutely, well I was raised in Durant or do rant if you want me to put the accent back on I, went, to the law I went to undergrad at Oklahoma Baptist University my, father's a Southern Baptist minister. So kept, it in the in the denomination. There and then, after, after undergrad, I worked for a few years at the State Capitol in. Politics, I didn't know that did you do there I was. On Senate, staff okay and then was, a legislative, secretary, in the house for. Jerry Askins and Debbie Blackburn, when they were freshmen legislators. I'll be done. So. Then I decided to go law school and. Went to law school at Georgetown Law in Washington, DC, ran. Up way too much law school debt and, so took a job out of law school in New York City made, some money paid back some debt worked away long hours, lost, a lot of sleep and then, in 2003. It's time to come home. Well. You. You. And I worked together both. I think as lawyers and as in, the political front but, did, you did, you start out with me what are your areas of practice let me just ask it that way yeah, it's been an interesting ride so, I started out when I was in New York City and it was general, corporate and mergers and acquisitions, I was never really interested in being a litigator so I never went down that path I, was always interested in the business side of law, and. Then when I came back to Oklahoma, I was. Hired by McAfee and Taft great, firm and when. They hired me they didn't really know what to do with me and, so I was like great I'm gonna be able to coast for a few months and kind of relax and recover from New, York City and. I walked in the first day and there was a stack of papers on my desk about this tall and. There. Was a note on it from one of the senior partners and it only had one word it said learn and. That. Was my introduction into tax credits because a new tax credit and tax incentive, had, been just, recently passed, and some of our clients had received an allocation it was called the new market tax credit, so, that was in 2003. So I learned very quickly, and. On December 31st of 2003. Closed first one of the first new. Market tax credit deals in the country, in. Durant know us and, I know you've done a lot of work specially, with the city of Oklahoma City and. Oklahoma. City Chamber on some. Of the big economic. Development. Deals in. In our history talk about a few of those things that you've worked on absolutely. Economic. Development is a great, area you get to be involved in some really exciting projects, and I love being. Involved locally because you know now with kids I get to drive around Oklahoma City and point to buildings, and businesses that I had a small part in and, one, of those that I think you're probably referring to was I had the pleasure of working with Oklahoma City Thunder, organization. When, they were relocating. To Oklahoma City and working. At the city, level in the state level to help get some of the incentives, that drew them to Oklahoma City so that was a great, experience once in a lifetime yeah, yeah, you mentioned kids you, have children I do I, have three kids I have a 17, year old stepdaughter, he lives in Milwaukee, and. We're just about through the teenage years with her so that's good and then I have a ten-year-old and eight-year-old daughter who live with us in Choctaw and got chucked out public schools and are anxiously, awaiting summertime. Okay. So let's. Let. Me talk about in your experience, and. Economic, development, how important. Are tax, incentives, and tax. Credits, to getting businesses, to expand, or relocate here. They're. Incredibly, important, I mean the, the breadth, and the number of projects, that I have worked on has. Really, exhibited that fact to me one, of the really great projects, and and very interesting, projects, we're working on now is with gary brooks in the first national center and, there are a lot of projects, like that one that, are really important, to a community but really couldn't go forward without, some help because, the, cost to rehabilitate, a historic, building the.
Skirvin, Hotel was the same situation and i worked on that project too. It's. Really just you need a little help and, the government steps in through historic, rehab credits and other incentives and. City incentives, to provide that help to accomplish things that are really important to the community, some. Other ones have been more business, oriented, or not-for-profits. I mean, a variety care is a great organization that, provides health care for low-income individuals, and. Others and. They've used tax credits and tax incentives to build two new clinics, in Oklahoma City to, really help expand, their service, and their footprint, and provide, those services and, then. Businesses. You, know that. A, couple of them recently were, looking, at relocating, to a different state we, were able to bring some incentives, to the table and keep those jobs here so incredibly, incredibly important, yeah you know. We. Have, to fight this battle at the state legislature mure, personal experience, there's. Always a lot of skepticism to giving. Tax credits or tax incentives, to a particular, business or to a particular industry. But. It sounds like from, your personal. Experience some. Of these deals would just not would not happen absolutely. I mean I have. The pleasure of reading hundred, page plus financial, projections, and and seeing, all the behind the curve and some, of the projects just don't make sense economically. You know you have an appraisal that says the, business in this facility is it going concern is going to be worth 30 million dollars well, it's going to cost 50 million dollars to rehabilitate, the building, and, so somebody's got to make up the difference and that's not first national center by the way those numbers are even larger. Well. And I know you know some of these things. Are there are two things that I always try to talk about one is you. Know it's important to preserve our culture like the Skirvin hotel. And. There's. A sense. Of community around some of those historic, tax, credits, programs, but there's also the, additional, private, investment, that comes once. The public commits, dollars there's also two other dollars. Absolutely. Absolutely. And one. Of the projects, we worked on last year, they were looking, to get. Some private equity investors, to come in to help expand, a business they needed to buy some more manufacturing. Equipment to. Be able to expand and produce more goods and they thought they had the market for it but. The private equity investors, weren't. So sure so doing some tax credits to the table to help offset some of the cost of that new equipment really, kind of put them over the top and allowed those private equity investors to come in and help, expand the business even further than we could have done with just the tax incentives, good, it's, good to hear from an expert we're, gonna take a break. Now and when. We come back we're gonna talk about the new federal, tax law yes yes, stay, tuned and we'll be right back with Cheryl Denny as our guest. Welcome. Back to our conversation with, Cheryl Denny and now, we're going to talk a little bit about the. New big, federal, tax law that was. A. My. Understanding, the largest tax cut in history United. States so, tell. Us a little bit about and tell us how you're. Involved with it absolutely well, I can tell you last. Fall I was really worried because, talk. Of the tax reform and there was a lot of discussion, about, terminating. Some of the programs that have been so helpful to Oklahoma, and that I work with a lot, I. Had. Conversations with my husband and what am I going to do do I need to find a new practice area, and and he, rightfully said you know calm down that takes a lot to change things in Washington so I did, calm down most, of the programs that we use here in Oklahoma, survived. The tax cuts. And the tax reform, and the, big surprise in January, after it passed was. That we got a new tax incentive, tool to use across. The country not just in Oklahoma but. It was very quietly, done you know as you can imagine being, a practitioner in this industry I listened, to a lot and read a lot within, the industry and and I'm kind of a nerd so I listened to the Tax Credit Tuesday, podcast, and, there was no discussion of this tax incentive, at all leading, up to tax reform and then, in January it was like here's a late Christmas present, you know another economic development, tool for the toolkit for, people like the, chamber and the, Commerce Department as to put, to use in Oklahoma.
Tax, Reform and DC. Happens. I mean true, tax reform, they're always tweaking, it but it really only happens, about once every, generation, doesn't let if, that if, that so it was very significant, and we're still trying to figure out a lot of the implications. Of the law that was passed and. Waiting on a lot of federal regulations. That, are still to come all right and the, new well, let me let me start by asking you what's, the difference for our viewers what's the difference, between a tax, incentive. And a. Tax. Incentive and a tax cut. And a tax cut yeah tax. Credit. Yeah both you. Know tax cut is is you know based on the rate that you have and then the rates come down and we all pay fewer taxes, and that's generally considered a good thing a Tax Credit. Typically. Allows you to offset your tax liabilities, so if you have $100. That you owe the federal government and you have. Through. Your efforts in rehabilitating. A historic building have a historic, tax credit, of $20.00, then, it decreases, your tax liability dollar-for-dollar. So instead of owing the federal government $100 you owe em $80, tax. Incentives, is a broader term, and in, the context, of this opportunity's own incentive, that we're going to talk about it, allows you to defer, gain from. Other. Activities, so if you own Microsoft, stock and you. Decide, to sell that stock and you have $100 gain on the stock that you would normally pay tax on if. You invested, in a low-income community, using, this opportunity zone, and the incentive, you're able to defer that tax, for up to nine years you. Know and, it's called an opportunity, opportunity zone. It's it's, a term that's led to some confusion because. It's it's a great term and there's lots of opportunity. Things in the federal government, and Opportunity. Zones are. Have been used in other programs, so it caused some confusion when it first came out this, is a brand-new program right I think there are already some opportunities, owns around. Enterprise, Zones empowerment. Zones and, and every kind of you know great phrase you can think of you know I learned a little bit about this and the US Chamber of Commerce, is actually. I think really taking, a strong. Look at this and are actually encouraging companies, but, let's talk about first of all what is an opportunity, zone and how many does Oklahoma have right so.
The Opportunity, zones are low-income communities, and they, are determined. On a census, tract by census, tract basis, so, there, are you know people in the government who have looked at every census tract in the United States and and what the poverty rate is and what the unemployment rate, is and the area median income, and come, up with this definition of a low-income census, tract so in Oklahoma, we have four hundred and sixty-five, low-income, census, tracts now, since these tracts is kind of, difficult. To understand, because in an urban area like Oklahoma, City a census, tract might be a block in, western, Oklahoma it, might be square, miles right so. It's a little bit difficult but there's four hundred and sixty-five in Oklahoma. Opportunity. Zones were. Created and basically. They said the governor of each state is allowed to designate, 25%. Of its low income census tracts as. Opportunity. Zones so, in Oklahoma, we have a hundred and seventeen, okay, so there are a total of four hundred and sixty something. Census. Tracts and. Yeah. We're eligible, for designations well how many tracks are there in the entire state. It's. A very small that's, a very small yeah. Across the country it's about 10% of, census tracts I don't know the Oklahoma, chamber okay but across the country about 10%, of census tracts are considered low income okay and about 30 million people in the United States live in a low income census, tract Wow Wow, okay, so, okay, tell us how it works so. It. Was passed as we said with tax reform and, the. Governor, of each state got to designate, 25%. Of their qualified, low income census tracts to be Opportunity, Zones the. Reason there was a big push and the test chambers and the and the mayoral, conferences, and stuff we're talking about it is that the governor's had to make that designation, by March 21st, so. There was a very big push to kind of get everyone around the table and I have to give a lot of credit to the Oklahoma Department of Commerce here and John Chafee and his team there they did a great job of. Getting the word out to, all. The the cities and and the mayor's to try to figure out within. Their. Jurisdictions. Which which, census, tracts would be, good to be designated, as. Opportunity, Zones okay, well, we need to take another break we're gonna come back and talk about how this will, actually work and how businesses, might take advance. Come. Back and join us as we continue our conversation with, Cheryl Denny of McAfee in town. Welcome. Back to our discussion about the new federal, tax law and the big changes, so. Cheryl. Wood. For. The break we're talking about the fact that the. Governor and the Department of Commerce, have to have designated, some, of these, opportunities. Zones, within the state of Oklahoma, okay. So now what do we do now yeah well you know so we met the March 21st, deadline, and, so now. Investors. Are starting to look at how we might use this new incentive, in Oklahoma, and it's going to take a while to figure out I mentioned earlier we're waiting on some federal regulations. To come down to help explain the program the. IRS, has said that they are hoping, to issue those by June 30, much. Of my experience, with, those regulations is probably not gonna be by June 30 but they're doing their best they've got a lot of work to do so. We know the bare bones of the program because that was included in the statute and so. How, it works is, we're gonna have opportunities. Own funds. Which. Will be kind of conduit investment, entities. That. Will make a. Conduit it means it's an entity, that someone makes an investment through, okay, so there this opportunity's, own fund is not yet really going to use its own money it's, gonna use somebody else's money to flow through the opportunity's, own fund to, then make an investment, in a low-income community, so I'll give you an example that's, probably the best way to enter to understand, it so, if I going back to my Microsoft, stock example, if I sold shares of Microsoft stock, and I, had $100, of gain and, a, normal scenario I'd pay tax on that gain and then take what's left over and go and invest that in the stock market probably and make money on that. However, if I wanted to now with the opportunity's, own fines I could take that hundred dollars before, I pay any tax on it and invest.
In An opportunities, own fund. The. Fund would then take my hundred dollars and make, an investment, into a low-income community, business. That's a business that's located in low-income community, or into, some property that might be located, in a low-income community and because, I've decided to do good with my money the. Result is I get three benefits from that so the first benefit, the immediate, benefit, is that hundred dollars rather than having to pay tax on it immediately I get, to defer that tax, for up to nine years so to December, 31st, of, 2027. If I yeah 2026 sorry I knew I had to write that down for some reason so, that's the first game that's the the first benefit that's the immediate, benefit, the. Second benefit is if I hold that investment, in the in the low-income community. For five years, then. 10%. Of, the gain that I would have paid is kind of wiped out so, ultimately when I pay that gain I paid less when I paid that tax on the gain I paid less if, I hold that investment, for seven years an additional 5% is wiped out so, if you hold a longer-term investment. You pay less on taxes when you ultimately pay 1% less, 15. Yeah. And. Then the third benefit, is that investment. In the opportunities, own fund if I hold it for more than ten years then. Ultimately when I do sell, it I don't pay tax on the gain from, that investment. Okay, so that for long term investors, and family, offices, and people who are looking at four generational, planning, can, be really, really significant. So who administers, these opportunities. Own funds so. It's. The IRS through, the Treasury Department, and, that's the first round of regulations, that we're expecting, is probably, going to tell us how you form, those funds they have to be certified by the federal government, so there's going to be a process that you go through but, there's no limit and this could be like a hedge. Fund or any but it's gonna be private, sector driven it could be private sector driven and we're anticipating a, lot of that it could be public sector driven I think Oklahoma City and Tulsa are, looking at potentially, having opportunities. Own funds that are city sponsored okay, not probably not for profits, who operate, in the new market tax credit space that I mentioned. Earlier they're looking, at being. Dually, certified as. An opportunity, zone fund so, potentially, investor, could. Get both the, opportunity, zone incentive, and the new market tax credit, on the same dollar I see and, you. Know another benefit, you mentioned the three benefits but the other benefit, is actually. Doing good for their community helping. Neighborhoods recover. Helping. People gain job opportunities, as well absolutely. Absolutely. That can't be understated. So what, else so. How do you see this working it's. Gonna be really interesting, I mean that the tax credits, that, we deal with here in Oklahoma there's three primary varieties. The new market tax credit, that I mentioned which is a business, oriented, tax credit. Low-income. Housing, tax credit, which has been around a long time and historic, rehab tax credits, now. The the, interesting thing about this opportunities own incentive, is that it can be combined, with any of those tax credits as I mentioned, to, get this saying it to get both benefits, on the same dollar so. You can imagine how that just leverages. The benefit, that you're getting so. I anticipate, that. People. Who are active, in those markets are going to try to to, do.
Projects, More it's going to drive more investment, into the opportunity, zones because it, just it helps make up that gap that we were talking about earlier a lot, more easily and, I know we have in Oklahoma City and Tulsa, I'm sure as well that there are areas, where private. Sector investors just have not invested. Whether. Its high crime whether, its decrepit, infrastructure. They, just have an investigate are you hoping this will spur, economic development those, areas absolutely. And you know one of the tools that local. Cities. Like Oklahoma City and Tulsa and, others use to help address some of those problems for tax increment finance, districts, and so. In looking at, where we wanted to designate opportunities zones I know both Oklahoma City and Tulsa looked at where their TIF districts, are to. Try to. Designate. Those areas, as opportunity. Zones and be able to drive even more investment, into those areas Wow, sounds exciting it's gonna be fun we need to take a final, break and then we'll come back with a few thoughts from. Cheryl Denney of Mack being tapped on. The new federal tax law come back to join us. Welcome. Back to our discussion on the new tax law the, federal tax law Cheryl, the are. There any limits, on this new opportunity, zone, that's. One of the really exciting things about this incentive and the way it's designed you, know nor market, tax credits, low-income housing, tax credits those are appropriated, by Congress every. Year so. There is a limit to how many of those come into the market and you know Oklahoma, being a lower population state, than some of the others sometimes doesn't get as money of, those types of incentives and this, one's not limited, you know the people. Who are out there say that there's six trillion dollars, worth of capital gain that, if it were sold you know the Microsoft, stock example, could. Be put to work in low-income communities, and that's exciting Wow where, are some of the, opportunities. Owns in Tulsa, and Oklahoma City, metros. Sure, so. We worked with Oklahoma City and a little bit with Tulsa and, as I said Commerce Department, did a great job coordinating. With all the cities in Oklahoma, City they focused, on the. TIF districts like I mentioned so northeast, Oklahoma, City a lot. Of that is designated as an opportunity, zone they. Also focused, a lot on other. In other. Projects. That the city has ongoing like, the innovation, district, is there now going to be an opportunities, on the a aiccm, the American Indian Cultural Center is going to be an opportunities, owner is has been designated, in. Tulsa, you know they're doing a lot of development along the river so. They use that and. Then the out by the Tulsa airport and then both cities of course they're their central business districts, are significantly.
Now Also designated. As opportunity zones do, you think that more of these, opportunities. Will be seized by the private, sector or by, as you said like economic, development of the Oklahoma. City or the Oklahoma State Chamber I'm, hoping, that a lot of these will be seized by the private, sector and because, they're the ones that you know are gonna be realizing, the capital gains and. Hopefully can decide, to put those back into the. Low-income communities, I also think the not-for-profit, sector is, gonna really benefit, from these because they might have donors that are gonna, have gains that we realized and already, have a relationship with, a not-for-profit, and would be happy to put the gains into the specific. Not-for-profit. And and, do you think that the public, sector, is I, know, you said you've been speaking a lot on this topic I assume there's that's one of the reasons is because a lot of people don't know much about it that's, right and you know the mayors and the Chamber's and the really the local officials, are carrying. The flag you know. One. Of the key people who helped pass this was Senator Booker and he was quoted an article just this week saying this was the best-kept secret in Washington because. It's really the local people across the country who were carrying the flat engine have. You started visiting, with interested. Parties absolutely. My phone's ringing off the hook oh that's, great so it's gonna it's gonna be interesting and, some of the projects I might, have been reading in the paper about the armory and, some of the the plans that have been put on the table to redevelop. That and that's, within an opportunity zone and we're hoping that might be the first the first project, well Cheryl thanks for being here today this is an exciting new time. Well. Thank you for being here with us today and, we. May want to bring you back and and talk about how this all develops, over the future so be great all right hope, you will come back and join us the next time for our next show as we, continue to talk about business, businesses. Around the state thank, you. Thank. You for watching the state chamber of Oklahoma's, Business, Roundtable, presented, by Cox, Communications. If, you have questions, about this program email. The chamber at okay state chamber comm. Set. Furnishings, provided, by scott rice creating. Effective workspace, from the floor to the ceiling and everything, in between.