Now Is the Time to Look at Opportunity Zones

Is your municipality looking to attract investment and economic development? Last year, Washington’s governor announced that 139 places in 36 counties had been designated as places to funnel private investment dollars through a new federal Opportunity Zone incentive program. The goal of the program is to stimulate investment of money into designated opportunity zones that will result in construction of residential housing and new commercial/industrial development.

This post describes the program and looks at the types of projects in Opportunity Zones, how the zones work, what municipalities are doing to attract investment, and how to make sure investment is in the community’s interest.

What is the Opportunity Zone Program?

The program is a new nationwide economic development tool. In it, investors pool money into a Qualified Opportunity Fund which, in turn, is used to finance projects in Opportunity Zones that have been designated all over Washington State. Investors put money into these funds because they are incentivized with tax breaks on capital gains. The pooled funds will then be used to make medium- to long-term investments in real estate or local business within designated Opportunity Zones.

For Washington, this money is aimed at geographic areas that are not seeing the same prosperity levels as some high-growth, high-economic activity areas in the state. As mentioned above, a list of Washington State opportunity zones was released in April of 2018 and include urban, rural, and tribal areas in need of an economic boost. For more information, check out the IRS’ FAQ on Opportunity Zones webpage.

Designation as an Opportunity Zone does not mean investment will necessarily happen, however. Those decisions are made by investors, based on their own financial interests. The US Department of the Treasury (US Treasury) has high hopes for the program, estimating that at least one trillion dollars will be invested in Opportunity Zones over the next 10 years throughout the U.S. For Washington municipalities who want to attract Opportunity Zone investment, the program presents a chance for new housing options, business investment, and jobs.

The Opportunity Zone Program was included in the federal Tax Cuts and Jobs Act, which was signed into law in December 2017. The Internal Revenue Service (IRS) and US Treasury are in the final stages of completing legal guidance for this new program and, once released, the Opportunity Zone program will be in full operation. This is anticipated to happen in the next few months, so local governments should be considering the steps they may want to take to participate in the Opportunity Zone program.

Types of Projects within Opportunity Zones

Opportunity Zone projects are being proposed in diverse places, including parts of the Confederated Tribes of the Colville Reservation, Tacoma, South Seattle, and the Olympic Coast, which are highlighted in this linked presentation. The variety of partnerships and investment opportunities included in the presentation range from a rehabilitation center, fiber optic infrastructure, a new downtown center, and a mixed-used building to house nonprofits, apartments, educational organization, and a community space. A significant example of local business partnership is in King County, where Microsoft has already started a $475 million Qualified Opportunity Fund to finance affordable housing development.

Several municipalities in Washington have already developed proposals to take advantage of designated Opportunity Zones within their borders. Sequim has identified projects that are ready for development, including a new library, parts of its main street, and a 55-acre master planned community. Other communities are leveraging municipal resources and creating partnerships with existing businesses, nonprofits, and developers to attract investments.

How Can a Municipality Attract Investment?

Municipalities can inspire investor confidence by dedicating staff, amending zoning codes as needed, and adopting legislation to coordinate efforts and investment into desired development projects. One mid-sized community in Arkansas has already created a zoning ordinance directed specifically towards attracting Opportunity Zone funds.

How Can a Local Government Ensure Development In the Community’s Best Interest?

Some communities are cautious of an influx of private capital in Opportunity Zone investments since they fear displacement will follow close behind. Smart Growth America, a nonprofit dedicated to creating great neighborhoods, provides a comprehensive list of policy recommendations for communities courting Opportunity Zone investment. Tapping into the real opportunity of this new federal program will require a coordinated effort by community members, policy makers, and investors, and the first step to doing this is to engage the community members of your municipality so that the needs of residents can be balanced with the needs of investors.

Conclusion

What will all of this investment result in? The hopes are revitalized commercial areas, new construction, a variety of housing options, and new infrastructure, all of which will support employment and social equity. The Opportunity Zone program could be a game-changer for communities that have not traditionally attracted private investment.

Question? Comments

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