2017 Tax Cuts and Jobs Act Establishes “Opportunity Zones” Program to Invest in Low-Income Communities

By Aaron Clapper, GOPC Project Manager

The Opportunity Zones program was created through the Tax Cuts and Jobs Act of 2017, and is designed to be an economic tool that brings long-term investments in low-income communities. GOPC has put together a Q&A to shed light on this newly established program.

**UPDATED 3/22/2018: ODSA has announced the nominated census tracts sent to Treasury for certification. Ohio's submitted tracts and an explanation for the process can be found on ODSA's website. Treasury now has 30 days to certify the census tracts. Information for Opportunity Funds, the investment vehicles that will invest in Opportunity Zones, has not been released by Treasury. 

What are Opportunity Zones?

The Governor of each state has until March 21, 2018 to nominate up to 25% of qualified census tracts in their state as Opportunity Zones.  Opportunity Zones are comprised of census tracts in a low-income community (LIC), which meets the definition as laid out in Section 45D(e) of the IRS (New Markets Tax Credits Program) code: a poverty rate of at least 20% or one that has a median income that does not exceed the higher of 80% of the median income of the metropolitan area or the statewide median income. The Governor may also choose to nominate up to 5% of non-LIC census tracts. The non-LIC tracts must be contiguous to an LIC-tract and median income cannot exceed 125% of the contiguous low income community.

To determine a qualified census tract, Treasury is utilizing data from the 2011-2015 American Community Survey (ACS), which includes 5-year data from the Census Bureau.  Data from Treasury can be accessed here.

What process does the state of Ohio have for the nomination of Opportunity Zones?

Ohio has 320 census tracts that can be nominated. Governor Kasich may nominate up to 16 non-LIC contiguous tracts.

Ohio Development Services Agency (ODSA) will be handling the solicitation of Opportunity Zone suggestions to share with the Governor’s office. ODSA has provided a map of eligible tracts that have been identified in the state of Ohio. This map only includes LIC tracts, but ODSA is open to non-LIC tract suggestions as well. 

An online portal was opened through ODSA for interested parties to make recommendations for which census tracts should be considered for the Opportunity Zones selection.

**Update: Ohio has submitted census tracts to Treasury, per the March 21st deadline. The process utilized by the state and the submitted census tracts can be found on ODSA's website. Treasury should certify the nominated census tracts within 30 days.  

Where has investment occurred in the past?

GOPC has put together a map that highlights Ohio’s eligible census tracts that includes overlay data for various CDFI-financed projects.  

What are Opportunity Funds and how are Opportunity Funds funded?

Opportunity Funds are investment vehicles (i.e. CDEs, CDFIS, banks/lending institutions who partake in the New Markets Tax Credit) who invest in the Opportunity Zones. Opportunity Funds must be entities that invest at least 90% of its assets into the Opportunity Zone businesses, either directly or through qualifying corporations or partnerships. These Opportunity Zone Businesses must have all tangible assets in the Opportunity Zone and at least 50% of their gross income earned in the Opportunity Zone.

Opportunity Funds will likely be funded through venture firms, large corporations, CDFIs, state/local governments, and private philanthropy. It is likely that funding will occur through private equity within each Opportunity Zone. To encourage investment, the IRS code states a temporary deferral of taxable income through investment in a qualified opportunity fund, a step-up in basis for capital gains reinvested in Opportunity Funds, and a permanent exclusion from taxable income of capital gains from investments in an Opportunity Fund if the investment is held for at least 10 years.

Treasury is currently in the process of establishing rules and regulations regarding the funding structure and the tax codes for Opportunity Funds, such as the entities who can participate in the tax incentives and how the funding will occur.

What are the next steps for this program?

Treasury has 30 days to approve these census tracts that were submitted by the state on March 21st, 2018. Treasury will continue establishing tax code/regulations for this program. Current language established through Treasury can be found online through the CDFI Fund page.

As policies within this program continue to develop, GOPC will provide additional resources and information as they become relevant.

Are there additional resources?

GOPC created a map to include eligible census tracts (which has been updated to include Treasury's 2/27 update) with an overlay of CDFI-financed projects.

Enterprise Communities has resources available on their website, which includes a map of eligible census tracts and an overlay feature using their Outcome360 tool to highlight opportunity outcomes using five indices. 

The Kirwan Institute has created a tool to map out census tracts across the state, which includes an overlay tool for the Composite Investment Index.