Enterprise: States Have Less Than 90 Days to Designate Opportunity Zones

The 90-day determination period for designating Opportunity Zones began in late December when the Opportunity Zones Program was created in the Tax Cuts and Jobs Act.

Governors in each state and U.S. territory (and the Mayor of Washington, D.C.) are now tasked with identifying a certain number of census tracts which will be eligible to receive private investment through the Opportunity Zones Program over the next decade. Every state or territory can designate up to 25% of its census tracts that meet qualification requirements as Opportunity Zones, and the enacting legislation outlines criterion, exemptions, and considerations for identifying those census tracts.

Which Census Tracts can be Designated as Opportunity Zones?

• Low-income community census tracts are the basis for determining eligibility. The definition is the same as that used for the New Markets Tax Credit (NMTC) Program - a low-income community census tract has an individual poverty rate of at least 20% and median family income up to 80% percent of the area median [Section 45D(e)].
  
• Up to 5% of census tracts that do not meet the definition of a low-income community can be designated under an exemption. Exempt census tracts must be contiguous with low-income community census tracts that are designated as Opportunity Zones, and the median family income of the exempt tract must not exceed 125% of the median family income of the designated low-income community census tract with which it is contiguous.

Timeline for Designating Opportunity Zones

The Economic Innovation Group (EIG) is currently working with the National Governors Association and Conference of Mayors on outreach, raising awareness and providing information about the new Opportunity Zones Program.

Governors have 90 days (Determination Period) from the date of enactment to submit a list of designated census tracts for approval. Treasury must approve or provide feedback within 30 days of the Governor's submission (Consideration Period). The Determination Period and Consideration Period can both be extended by 30 days. Once approved by Treasury, Opportunity Zone designations will remain in place for a period of 10 years (Designation Period).

If this timeline follows without extension, Governors will submit recommendations prior to March 31, and designations will be finalized no later than April 30.

Currently, Governors are awaiting guidance from Treasury regarding the process for submitting recommended designations. It's anticipated that this guidance will be delivered in the coming weeks (late January/early February 2018).

What States Should Consider When Designating Opportunity Zones

Requiring states to nominate Opportunity Zones for approval was intended to help ensure local needs and opportunities are being met as well as to encourage concentration of capital in targeted, geographically contiguous areas in each state.

As Governors begin to consider which census tracts are primed to receive private investment over the next decade, there are a great number of factors they will need to consider. To maximize the benefits of this program and protect against unintended negative consequences, Governors should keep the following in mind.

The capital that will flow from Opportunity Funds will never replace subsidy or act as credit enhancement, but the nature of investing in rural and low-income urban communities almost necessitates these types of resources. Opportunity Zones should align with mutually reinforcing state resources or federal programs such as promise zones, empowerment zones and renewal communities, as well as local economic development initiatives in order to maximize the benefit of this new source of capital.

• There should also be intentional policies and strategies to proactively guard against displacement, and ensure that the benefits of economic development are available to all. Equitable investment should be a cornerstone of this program. States and localities need to begin planning now; ensuring that the proper policies and resources are in place to steward responsible economic development and community revitalization.