Summary. On Thursday, June 6, Governor Kay Ivey signed the Alabama Incentives Modernization Act (the AIM Act) into law. At the heart of the Act is a first-of-its-kind framework designed to provide the best and most impact-oriented Opportunity Zone investments with (1) aligned state-level capital gains tax breaks, (2) potential state investment dollars, and (3) new impact investment tax credits to de-risk investments.
What It Means for Our Stakeholders. Every stakeholder in the Opportunity Alabama ecosystem can benefit from the new set of OZ incentives introduced by the AIM Act.
- For Investors – Investors in high impact OZ projects will get the same state-level capital gains tax benefits that they get at the federal level. More importantly, the AIM Act de- risks high impact OZ funds by using tax credits to guarantee investor returns. Read “STEP 3” below to find out how.
- For Communities, Developers, and Businesses – The AIM Act is designed to make investment opportunities with the highest level of community impact more attractive to investors. For rural areas aiming to attract more investor interest, the Act offers significant incentives for investment in high-impact projects. For urban areas addressing challenges from growing a tech ecosystem to blight remediation, the Act offers a way to make transformational investment opportunities much more compelling.
- For the State – The AIM Act provides Alabama with an unparalleled suite of OZ incentives. Because the state retains the ability to control who gets the incentives through a rigorous application process, it can steer the flow of Opportunity Fund equity into the most distressed places with the highest potential for community-aligned growth and investor return. And, thanks to Opportunity Alabama, we are one of the only states in the country that has already assembled a statewide pipeline of high-impact Opportunity Zone projects – so we will be ready to leverage this incentive quickly.
How the AIM Act OZ Incentives Work.
Whether you are a project sponsor recruiting investors for your deal or a fund manager building a pipeline, you must complete the same series of interlocking steps to access the three AIM Act incentives described above. Each of these steps is explained in our full analysis of the new law.
- STEP 1 – Fund Approval and State Conformity. Sponsors or managers must apply to the Alabama Department of Economic and Community Affairs (ADECA) to become an “approved Opportunity Fund.” This requires a solid, stable, and return-producing pipeline of high-impact projects – all of which have strong community support and will produce strong societal returns. Once approved, fund investors will get the same OZ-based capital gains tax treatment on state income taxes that they get on their federal income taxes.
- STEP 2 – Access to State Capital. Once “approved,” sponsors and managers can seek investment from one (or more) of the ten state-controlled funds enumerated in the AIM Act, which are now permitted (but not required) to invest at least 3% of their principal in approved Opportunity Funds. Because fund managers must get at least a dollar of state investment in order to access impact investment tax credits, this optional step becomes mandatory if approved funds want to move on to Step 3.
- STEP 3 – Tax Credit Guaranteed Returns. The AIM Act creates a $50 million pool of state “impact investment tax credits,” which can only be accessed through a project agreement with ADECA. Under those agreements, credits can only be claimed if an investment underperforms expectations – meaning that they make investing in high-need projects safer by insuring against downside risk. In exchange, the state gets regular reports on project-level impact and a share of the upside if a fund outperforms expectations.
Looking for more details? Read our complete analysis of the AIM Act incentives here.