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Alrighty, #TeamPete. My contribution to our #LearnAboutDOT efforts is a breakdown on some of the more complex financing options of privately-developed infrastructure projects under federal programs. This particular thread will focus on Opportunity Zones. @nerdypursuit https://twitter.com/nerdypursuit/status/1341415940794306560
Since these are complicated issues, Iâll create a separate thread w/other financing options for green infrastructure like solar tax credits and C-PACE loans. But for now, letâs talk OZâs (Opportunity Zones).
QOZs (Qualified Opportunity Zones) were added to the IRS tax code by Trumpâs Tax Cuts and Jobs Act on December 22, 2017. As such, the administration of this program occurs through the IRS (which makes sense bc of the tax benefits of OZs).
Though the program is broadly overseen by the IRS, the Treasury - specially the CDFI arm of the Treasury - are the folks who approve which nominated QOZs are approved for private investment under this program. This is important for reasons we will get to later.
So. What exactly is an QOZ? QOZs are communities or census tracts with historical divestment or economic distress (fleeing jobs/dilapidated infrastructure) that are nominated by their state to qualify for PRIVATE investment dollars under the program.
So where are all these OZs? Well, the short answer is: Everywhere, including HI, AK, & PR.
Is there a handy list? Yes, here!: https://www.cdfifund.gov/Documents/Designated%20QOZs.12.14.18.xlsx
Is there a mapping tool to drill down by neighborhood? Yes, hereâs a guide!: Community Information Mapping System: https://www.cdfifund.gov/Documents/Visualizing%20Designated%20QOZs+figure%20captions%20for%20508%20compliance.pdf
What does private investment mean in the case of QOZs? That means dollars from rich folks who invest in building/revitalizing projects in exchange for some sort of federal tax break/incentive. The vehicle for those dollars is called a QOF (Qualified Opportunity Fund).
QOFs have very specific requirements for investment around amount and timing. I wonât get into the weeds on the investor qualification/management piece, but I did want to expand upon the tax incentives to private investors once theyâre in a QOF.
The aforementioned tax incentive to private investors to invest capital gains dollars into divested communities is essentially a capital gains deferral â and possible 100% abatement if the investment is held in place long enough (10 yrs for the 100% abatement on gains).
Hereâs a breakdown on parameters around investment longevity and benefits. They have the right idea here with dangling the carrot of higher gains deferral for longer term investments, but needs tweaking. Itâs creates more community stability but the ROI isnât there for investors.
So hopefully youâre starting to get the hang of this now. Itâs a public-private partnership, to recap: Federal public program under the Treasury providing capital gains deferrals/abatements for private dollars invested thru QOFs into QOZ infrastructure projects & businesses.
Now letâs talk about some of the issues with QOZs. @CityLab wrote up a good synopsis here of some of the challenges around this revitalization program. Some of the ideas are great but we need some restructuring of the program: https://www.bloomberg.com/news/articles/2020-06-25/opportunity-zones-don-t-work-can-they-be-fixed
One of the biggest issues that has been circulating around QOZs is the nomination and approval process. Essentially, to qualify to become a QOZ, choose most of these zones from localities that qualify as âlow-income communities,â
meaning that they have either a poverty rate of at least 20 percent or a median income thatâs no greater than 80 percent of the median income in their metropolitan area. These reqs allow areas that donât need investment as badly to be included in the selection process.
You can read about that issue and others here: https://www.cbpp.org/research/federal-tax/potential-flaws-of-opportunity-zones-loom-as-do-risks-of-large-scale-tax
The overarching theme of issues around QOZs is that the IRS/Treasury regulations need to be clarified and revised if necessary to ensure these dollars are being targeted to communities who need them most.
How does any of this apply to the DOT?? Well, the DOT puts out infrastructure projects in and around QOZs: https://www.ttnews.com/articles/dot-unveils-interactive-map-promote-infrastructure-investment
The idea being that DOT can link these QOZs together thru transpo, creating jobs and nearby opportunities to underserved and rural communities.
Thatâs all I have for now, folks! But if you have questions, please feel free to ask or comment. Always here if you need someone w/finance in their background. #TeamPeteForever
