An Update on Opportunity Zones, June 2018
Earlier this week, the Treasury Department shared the final round of Opportunity Zone designations, effectively completing the map of communities that are eligible to receive investment under the policy in the next decade, the Economic Innovation Group (EIG) reported.
"In one of the country’s boldest recent experiments in federalism, Congress called on the chief executives of every state and territory to nominate up to a quarter of the low-income communities in their jurisdictions as Opportunity Zones," EIG reported. "The challenge was for governors to identify places with clear needs, but also clear capacity to attract and absorb new investment—places where an incentive for private capital could catalyze a broader economic turnaround if combined with the right local strategies."
The Federal Tax Cuts and Jobs Act of 2017 that passed last December included provisions for a new revitalization tool, the Opportunity Zone and Opportunity Fund. The zones and funds allow investors to receive tax benefits on currently unrealized capital gains that are invested through Opportunity Funds in eligible census tracts designated as Qualified Opportunity Zones. The rules associated with qualification of Opportunity Investment Funds and Qualified Opportunity Investments must be written at the federal level and are expected to be formalized later this calendar year.
This past May, Governor Northam announced that the Treasury Department officially designated 212 Virginia Qualified Opportunity Zones. Governor Northam submitted 212 nominations in April, which represented the maximum number of zones the Governor was able to nominate under the new federal tax tool that targets low-income census tracts.
“I am pleased that all of the 212 nominated Opportunity Zones have been accepted,” said Governor Northam. “We focused on local, regional, and state priorities, as well as Virginia’s diverse geography and economic opportunities, to strategically select a balance of zones that align with other state and local economic development and revitalization efforts. My administration is committed to maximizing this important federal tool to strengthen our local and state economic development efforts and ensure Virginia is at the forefront of attracting new Opportunity fund investments.”
EIG conducted and released their analysis this week of Opportunity Zones and the designation process.
"The results show that governors embraced the task, adapting the selection process to their own unique circumstances in order to strike a delicate balance between need and opportunity at the local level," EIG said in an email to subscribers this week.
Key takeaways from their analysis included the following:
Governors tailored their selections to the needs and potential of their communities, placing priority on higher-need places.
The selection process "relied heavily on public and local government engagement, rigorous analytics, peer-learning, and interagency collaboration to determine their zones."
Three-quarters of zones are located in zip codes that experienced at least some level of post-recession employment growth from 2011 to 2015.
Less than 4 percent of zones have recently experienced high levels of socioeconomic change, a proxy for gentrification and displacement risk.
The average Opportunity Zone’s housing stock has a median age of 50 years, more than ten years older than the U.S. median—a sign that many of these neighborhoods urgently need reinvestment.
Want to read EIG's full analysis? Go here.