A handful of state Governors across the U.S. submitted their Opportunity Zone census tracts to the U.S. Treasury Department as required by federal law on March 21, 2018. Many states were granted a 30 day extension by Treasury and will submit their recommendations in April. The federal Opportunity Zone Program creates substantial capital gains tax deferral benefits for up to 25% of eligibility high-poverty census tracts and 5% of census tracts adjacent to these high poverty census tracts. State Governors are charged with the responsibility to recommend which of these census tracts should be certified as Opportunity Zones by the US Treasury Department. Based upon early results, Governors have provided geographic diversity with a focus on low-wealth neighborhoods and based their decisions on substantial local government and community input.
The Economic Innovation Group confirmed with 19 states that they did not request an extension, 23 states did request an extension and 9 states are underdetermined. Recently, Alabama, California, Michigan, Ohio, Texas, and Wisconsin have released their recommendations publicly, and South Carolina, Colorado and Illinois are coming soon.
Status of Governor’s Opportunity Zone Recommendations
California Governor Jerry Brown recommended the maximum number of census tracts to become Opportunity Zones he was permitted. There are 3,516 census tracts in 54 California counties that would qualify under one or both of the mandatory criteria, allowing the Governor to designate up to 879 tracts. As census tracts are designed to capture geographic areas of around 4,000 people, more than 3 million Californians would potentially be located in one of these areas. In early March, the Administration put a preliminary recommendation of tracts out for public comment. It included 798 tracts based upon high poverty areas with business activity and geographic diversity. Over the course of nearly two weeks of a public comment period, Finance received robust public comment: 2,684 comments regarding 1,518 individual census tracts, and comments from a total of 221 individuals, cities, counties, legislators, and organizations. Based upon public comment from California’s preliminary recommendations, Governor Brown recommended 879 census tracts based upon the following criteria:
- Adjust for High Median Incomes. Limit selection to only those tracts that have a median income below $100,000 which eliminated a number of university campuses that were initially captured due to low student incomes but received a number of comments about not being appropriate for the program.
- Follow Local Guidance When Possible. Accept recommendations of local cities and counties to swap preliminary designations for alternative tracts.
- Remove Tracts when Critiqued. Remove the 183 tracts that received negative comments.
- Focus on Overlap with Existing Programs. The selected tracts are heavily consistent with the designation of the Legislature and Governor for disadvantaged communities for Cap and Trade purposes.
- Add Tracts When Requested. Designate those tracts that were specifically requested to the extent feasible within the overall cap.
- Geographic Distribution. Using the above criteria and the ability to designate contiguous tracts, the designations include 57 of the state’s 58 counties.
Texas Governor Greg Abbott released his recommendations to the Treasury Department for the Lone Star state’s opportunity zone program. After an extensive analysis of Texas’ eligible tracts, and, using a multi-step process to identify eligible areas in particular need due to chronic unemployment, lower population density, and significant economic disruptors such as natural disasters within the past two years, Texas designated 628 census tracts in 145 counties as Opportunity Zones. Texas is home to 254 counties and 37 urban counties represent 80% of the state’s population. Houston’s Harris County dominated the state’s Opportunity Zone designation receiving over 100 of the state’s recommended census tracts. In fact, the urban counties in Texas received 355 of the state’s recommendations to become Opportunity Zones but this is far less than 80% of the funding that these counties would receive on a population based formula. Thus, Governor Abbott, like others, focused on geographic diversity to cover a wide swath of one of America’s largest states.
Ohio recommended 320 census tracts, its full allocation, to the U. S. Treasury for its consideration. The Ohio Development Services Agency recommendation was based upon a review of the 73 of Ohio’s 88 counties in which eligible census tracts were submitted and final recommendations were based on local/regional cooperation and prioritization, multiple submissions of a single tract, planned job creation and capital investment in the census tract.
Alabama Governor Kay Ivey submitted 158 census tract nominations for Opportunity Zones to the U.S. Department of the Treasury. The Governor’s Office, with the help of the Alabama Department of Economic and Community Affairs, identified and selected 158 Opportunity Zones from the qualifying tracts using an objective methodology that involved input from a variety of resources to determine areas where the program could be most effective. Governor Ivey’s directive was to include at least one Opportunity Zone in each of Alabama’s 67 counties. In Alabama, 629 of the state’s 1,181 census tracts qualified as low-income community tracts. Of those 629 eligible tracts, the Governor was authorized to select 158 as Opportunity Zones. Methods used in the selection process, which began in January, included a county-by-county examination of previous designation as advantage sites or industrial sites, a review of aerial imagery for development activities by ADECA’s Geographical Information Systems Unit and data and research compiled by federal, state and local organizations.
South Carolina nominated 135 census tracts to become federal Opportunity Zones. South Carolina has 538 eligible census tracts and could chose 25% of those tracts (135) for the Federal Opportunity Zone Program. Of the 135, 128 were low income and 7 census tracts are contiguous to a low income tract, 111 are within a five mile radius of the boundary of a Census Designated Place with a 2015 population of greater than or equal to 5,000 persons. 96 of the nominated census tracts were nominated that are in a Metropolitan Area as Designated by the Office of Management and Budget in their 2017 update, and 54 have their centroid within the boundary of a Census Designated Place greater than or equal to 5,000 persons. South Carolina set out criteria for their Opportunity Zone selection process, including:
- Promoting economic vitality parts of the state that have not shared in the general prosperity over the past few years;
- Funding the development of workforce and affordable housing in areas with escalating prices and inventory shortages;
- Funding new infrastructure to support population and economic growth;
- Investing in startup businesses who have potential for rapid increases in scale; and
- Upgrading the capability of existing underutilized assets through capital improvement investments.
The South Carolina sites represent a mix of poorer rural areas across the state and, in some cases, prime business real estate. Included in the listing are properties around the Volvo plant/Interstate 26 corridor outside Charleston, and the abandoned nuclear plant site in Fairfield County. Each of the state’s 46 counties has at least one proposed Opportunity Zone.
Colorado chose to recommend 126 census tracts to the US Treasury to become federal opportunity zones. 45 of the state’s 64 counties made the Colorado Governor’s list of recommended census tracts. Colorado worked closely with local economic development partners, like the State’s local Enterprise Zone program administrators, to evaluate census tracts for Opportunity Zones. The process took input from the public and other stakeholders through a form, letters, and phone calls. They conducted a rigorous and transparent process that provided extensive information to our local partners in the form of need and opportunity indexes, and coupled this information with a wealth of human intelligence of the happenings and opportunities within their regions. Colorado has nominated areas that comprise a portfolio of investment opportunities from urban to rural, and business starts to infrastructure. A majority of the census tracts nominated are outside of the Front Range and touch much of the state with the goal of raising up our rural economies. Colorado has 1,249 census tracts; 531 are eligible for OZ designation. The law allows for the designation of 126 census tracts in Colorado. Of the 126, we may select up to 7 that do not meet the basic eligibility criteria, but are adjacent to an eligible designated tract and the median family income of the tract does not exceed 125 percent of the median family income of the adjacent qualified tract.