March 8, 2018

California Publishes Initial Selection of New Opportunity Zones

By Sarah Brundage and KeAndra Dodds

Congress created a new community investment vehicle – Opportunity Zones – in the Tax Cuts and Jobs Act of 2017. Stakeholders are now invited to submit comments by March 15 as a way to shape which distressed census tracts the state includes in its final nominations on March 21.

What are Opportunity Zones and Opportunity Funds?
Congress authorized governors to nominate eligible low-income census tracts as Opportunity Zones. Private investments made in Opportunity Zones will be eligible for federal tax incentives designed to bring long-term capital in these distressed communities. To be eligible, investments must be made through Opportunity Funds, new private sector vehicles that pool investors’ capital and invest at least 90 percent of their assets in Opportunity Zones. For more information, visit opportunityzonesinfo.org.

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How are the Opportunity Zones being selected?
Gov. Brown can nominate up to 25 percent of qualifying census tracts as Opportunity Zones. Learn more about which census tracts can be nominated as an Opportunity Zone.

According to the California Department of Finance (DOF), there are 3,516 census tracts in 54 California counties that would qualify, allowing the governor to nominate up to 879 tracts. As census tracts are designed to capture areas of around 4,000 people, more than 3 million Californians would potentially be located in one of these areas.

Last Friday, the DOF published a preliminary selection of recommended Opportunity Zones. Learn more about the criteria used to make the preliminary selection and view an interactive map.

What is important to know about Opportunity Zones?

  • The guidelines for these investments are being developed by Treasury and the IRS, and have not yet been released. Therefore, we have limited knowledge on the nature and intent of future Opportunity Funds and investments. What we do know is that the Opportunity Funds do not currently have a statutory duty or commitment to provide direct community benefits to the targeted low-income communities.
  • Opportunity Zone designations will be held for 10 years, regardless of changes in poverty rates. We have seen in California that the poverty level and affordability of a neighborhood can change dramatically in far less time.
  • Without thoughtful implementation focused on equitable and intentional investments, large amounts of private capital injected in low-income communities could lead to undesired results. We encourage partners to consider where localities have policies in place that could prevent unintended consequences from these investments, such as the displacement of low-income households and local businesses, and could help capture employment benefits for the targeted low-income community.

What are the next steps in this process of implementing Opportunity Zones and Opportunity Funds?

  • Enterprise is pleased to see that the DOF is facilitating a public comment process. We urge our partners to review the preliminary recommended tracts in your area and consider providing public comments before the March 15 deadline.
  • Once the governor finalizes the selection of recommended tracts, he must submit the list to the Treasury for approval by March 21, unless a 30-day extension is requested.
  • Treasury must approve or provide feedback within 30 days of the governor’s submission. Once approved by Treasury, Opportunity Zone designations will remain in place for a period of 10 years.
  • The Tax Cuts and Jobs Act provided statutory authority for the Treasury Department to structure and implement Opportunity Zones. Before investments can be made, Treasury must first propose a structure for the tax incentive and then publish a Notice of Proposed Rulemaking. The public will then have 30 to 60 days to provide public comments on the proposed rule, after which Treasury will finalize the rule and investments may begin.
  • We do not know the exact date that the rule will be finalized.

TAKE ACTION: Review California’s preliminary selected tracts and consider providing public comments.

  • Public comments should be submitted as soon as possible, and before 5 p.m. on March 15. Review the details and instructions to follow.
  • There are two types of public comments that can be submitted:
    • Type 1: Keep or reject a tract currently recommended for designation. Including a justification is encouraged, but optional.
    • Type 2: Suggest qualified tracts not currently recommended. Suggestions of replacements, rather than additions, are strongly encouraged. Providing a short justification, including why a replacement is warranted, is required.
  • We recommend that partners review California’s selected census tracts and then use the excel workbook OZ Input to format your comments.
  • Only comments sent to OZcomments@dof.ca.gov using the OZ Input sheet correctly will be considered.