Opportunity Zones: A powerful new investment incentive
Thursday, May 30, 2019
The Tax Cuts and Jobs Act of 2017 created a unique economic and community development initiative. The Opportunity Zone program aims to stimulate development in designated low-income urban and rural areas nationwide through a creative and powerful investment incentive.
Through the program, private investors who sell property or stocks can defer or reduce their capital gains tax burden — or eliminate it altogether — by investing in a project in an Opportunity Zone. Under the new tax law, the longer the investment, the lower the burden. If a new investment is made by the end of 2019 and is held for 10 years, all capital gains on the new investment are waived.
Opportunity Zones are being touted as a tool that can have a transformative effect on rural areas. The program could have a significant impact on communities served by Great River Energy’s member-owner cooperatives because many of the 128 census tracts in Minnesota that are certified as Opportunity Zones fall within their service territory.
Five of six of the major industrial parks in East Central Energy’s (ECE) service territory are located in Opportunity Zones in “fast-growing areas,” according to ECE Manager of Government and Business Relations Mark Nelson.
The co-op created an Opportunity Zone flyer as a point of reference for potential investors. Though a specific project hasn’t yet been initiated, Nelson said it can’t hurt to have more incentives for development.
“It’s another tool in the toolbox that can make it attractive to locate in one area versus another,” he said.
Karl Schuettler, director of research and marketing at Northspan in Duluth, agreed.
“We think it’s a tool to help with filling a gap for a potential project. It’s a bit of equity to help get a project off the ground,” he said, noting that such investments are an effective way for investors who have roots in an area to contribute to its economic growth. “The best people available to help might be in the community or nearby.”
Interstate Business Park in North Branch is a prime investment opportunity in ECE’s service area. It’s relatively close to the Metro Area and includes 250 acres — one of the largest shovel-ready sites around. Since the program began, North Branch has had several inquiries from people specifically looking to invest due to the Opportunity Zone designation.
“Ultimately, we hope it will inspire and motivate investment,” said City of North Branch Administrator Renae Fry, noting that the program “taps into a different community of people who are not necessarily interested in operating a business, but they’re more than happy to be land owner or a landlord.”
Northspan, which is a private, nonprofit consulting firm specializing in economic development, has been raising awareness about Opportunity Zones. Initially, it partnered with Duluth Local Initiative Support Corporation to create a pilot directory for projects in the Duluth area. It was so well received that Northspan and other organizations formed a larger partnership to bring statewide exposure to Opportunity Zones.
The Minnesota Opportunity Collaborative (MNOppCo) developed a statewide website to showcase Opportunity Zones that includes background information as well as details about the benefits of such investments. The website allows people to submit their projects to a directory for free.
The site is meant to highlight both existing projects and Opportunity Zone assets. Since the program is still new, Schuettler said the collaboration is a valuable opportunity to learn from one another and share experiences statewide about what’s working and what isn’t.
MNOppCo has been holding a series of events to help connect stakeholders.
“The idea is to get people talking about the potential for economic development in these zones,” Schuettler said. “The events are generating a lot of interest. The attendance has been huge. A lot of people are curious to learn more.”
Category: East Central Energy, economic development