By Brice Wallace
Utah state officials are wading into a new federal program that could put parts of the state in a nationwide competition for $6 trillion to benefit low-income communities.
The Opportunity Zone program sprang from federal tax reform legislation passed in December and calls for a fund created as a tax incentive for private investors.
“It allows investors to take unrealized capital gains, [and] invest it into a fund to defer their capital gains taxes,” Ginger Chinn, managing director for urban and rural business services at the Governor’s Office of Economic Development, told the GOED board at its April meeting. “The idea is that these funds will be invested back into low-income communities to spur economic development and growth.”
The Economic Innovation Group, a bipartisan public policy organization, pegs the potential fund amount at over $6 trillion.
With input from counties, cities and others, state officials passed along a list of possible Opportunity Zones in Utah to Gov. Gary Herbert, who will submit his nominations to the U.S. Treasury. Utah has 181 eligible zones, but the program limits states to nominating 25 percent — that’s 46 in Utah, although three zones can abut low-income zones. Of the 46, 17 are in rural locations and 29 are in urban areas, Chinn said.
The US. Department of the Treasury and the Internal Revenue Service on April 9 designated zones in 18 states. Once it receives submissions from states, the Treasury has 30 days to designate the nominated zones.
“I am very excited about the prospects for Opportunity Zones,” Treasury Secretary Steven Mnuchin said at the time. “Attracting needed private investment into these low-income communities will lead to their economic revitalization, and ensure economic growth is experienced throughout the nation. The administration will continue working with states and the private sector to encourage investment and development in Opportunity Zones and other economically disadvantaged areas and boost economic growth and job creation.”
Qualified zones would retain their designation for 10 years. Investors can defer tax on any prior gains until no later than Dec. 31, 2026, so long as the gain is reinvested in a qualified Opportunity Fund, an investment vehicle organized to make investments in qualified Opportunity Zones. If the investor holds the investment in the Opportunity Fund for at least 10 years, the investor would be eligible for an increase in its basis equal to the fair market value of the investment on the date that it is sold.
Thomas Wadsworth, business development and corporate incentives manager at GOED, said the program has been driven by “the Bill Gates of the world,” saying they have “funds that they’d love to invest in social projects, but the returns just aren’t there. So, this vehicle allows them to put their billions of dollars that’s been on the sidelines, basically, into these types of projects.”
Still, many questions about the program remain to be answered, said Chinn and Ben Hart, GOED’s deputy director. Hart said the federal government pushed out the program “with no guidelines and no technical assistance. … So, there’s a lot of TDB on this.”
“We’re kind of shooting in the dark here a little bit,” Chinn said. “The interesting piece about this is we don’t know how this fund is going to work, and I think that when you identify the zones and you don’t know all the rules and all of the end game, it’s been kind of fascinating a little bit.”