CDFA Opportunity Zone Report: State of the States
With opportunity zones now operating nationwide, the Council of Development Finance Agencies has produced a first-look report at how the new investment catalysts are coming on.
Last month, the Council of Development Finance Agencies (CDFA) published a timely report assessing the recent flurry of state activity to establish the new Opportunity Zones made possible in recent tax reform. With the passage of the Tax Cuts and Jobs Act, now low-income census tracts are eligible to use tax incentives to encourage long-term investments in assets and property within an Opportunity Zone.
Following the Tax Cuts and Jobs Act, the governor of every state was able to nominate up to 25% of their qualified low-income census tracts to become Opportunity Zones. In the spring, the United States Department of the Treasury officially designated more than 8,700 Opportunity Zones in the U.S.
To receive investment in local businesses or real estate projects, an Opportunity Zone must attract equity investments from Opportunity Funds, which are capitalized by investors who have realized gains on a recent transaction. Those investors can defer their federal capital gains taxes from that transaction for up to 10 years as long as 90% of the assets in an Opportunity Fund are directly invested in qualified projects in Opportunity Zones. If the Opportunity Fund experiences any gains during that 10-year period, then they are fully exempted from federal capital gains tax.
“Recognizing that Opportunity Zones have the potential to be a transformative economic development tool in distressed areas around the country,” the report notes, “CDFA members are actively developing Opportunity Zone strategies to attract investment, identify additional development finance tools to work alongside Opportunity Fund investments, and to align local economic development priorities with their financing capacity.”
CDFA’s report compiles the results of its survey of 41 states completed in July. State approaches from Arizona, Colorado, Illinois, Kentucky, Michigan, Missouri, New Jersey and Oregon are described. And the report goes on to provide several examples of strategies that states are implementing to maximize the potential in the new Opportunity Zone vehicle.
Emerging best practices CDFA highlights include: convening local stakeholders to inform, educate, offer planning guidance and act “as a support structure” (a role CDFA emphasizes states to play); mapping and identifying investable assets within Opportunity Zones online (including a dedicated website); incorporate Opportunity Zones into ongoing economic and community development projects and planning projects; review other development finance tools and incentives that may be utilized in combination with Opportunity Funds; and, to encourage Opportunity Funds to collect data and report activity as to when, where, and how investments are being made (because there is no requirement for such disclosures).
Download and read the entire report: CDFA Opportunity Zones Report. State of the States
And visit CDFA’s Opportunity Zone resource page.