Opportunity Zones Look Promising For California
- Josh Stephens
- Aug 27, 2018
- 7 min read
The election of Donald Trump incited near-panic among city officials nationwide on the assumption that, in appealing to his conservative and largely rural voter base, his administration would show little love for urban America. That goes double for California, which has been a repeated subject of Trump’s derision.
But, the federal Opportunity Zone program promises, according to supporters, to direct tens — and possibly hundreds — of billions of dollars of private investment capital into some of the nation’s most needy communities, including over 800 Census tracts in California.
Unlike relatively small-scale and heavily regulated programs like Enterprise Zones, Opportunity Zones essentially administer themselves. Passed as part of the 2017 tax bill, the program confers tax benefits on investors by deferring capital gains taxes on proceeds from prior investments that are put into either real estate or businesses located within Opportunity Zones. They do so by investing in a Qualified Opportunity Fund. Funds can be broad-based or can be single-purpose entities.
The Opportunity Zone program allows investors to contribute the entirety of a liquidated prior investment — not just the gains themselves — into an Opportunity Fund. And, while the program is defined geographically, investors need not have any connection to the places where they invest.
It could amount to an enormous windfall of investment in distressed communities. Early reviews are startlingly positive compared to those for other economic development strategies.
“The Opportunity Zone program has potential to be the greatest economic development tool in the last century,” said Christopher Coes, vice president of Real Estate Policy and External Affairs at Smart Growth America. He estimates that between $3 trillion and $6 trillion worth of capital could be eligible for the program.
“Even if we can get $1 trillion or half-trillion….that would be larger than any public program ever created,” said Coes.
The U.S. Treasury has certified about 8,700 Opportunity Zones nationwide covering roughly 12 percent of the nation’s Census tracts and nearly 35 million residents. Based on data from the 2011-2015 American Community Survey, the designated tracts had an average poverty rate of over 32 percent, compared with a rate of 17 percent for the average U.S. census tract.
