The Council of Development Finance Agencies (CDFA) has a new report describing steps states are taking to make the most of their Opportunity Zones. One common strategy is assessing how other incentive programs can be combined with Opportunity Zones to maximize investor interest.

According to the report, 33% of states indicated they are considering creating incentives for Opportunity Fund investments, including Colorado, Illinois, Kentucky, Michigan and Oregon. In Colorado, the Office of Economic Development and International Trade specifically hopes that additional incentives will help its more highly distressed communities compete for investment.

Elsewhere:

  • Illinois is also considering creating a state-operated Opportunity Fund, as are 18% of all states.
  • Missouri is reserving $30 million of the state’s Historic Preservation Tax Credits allocation for projects in Opportunity Zones.
  • New Jersey is examining Opportunity Zones’ potential eligibility for additional incentives.

Best practices are also starting to emerge among states. Among CDFA’s suggested state actions:

  • Convene local stakeholders to share information and offer planning guidance
  • Provide ongoing education, information and updates
  • Map and identify investable assets within Opportunity Zones on a dedicated website
  • Incorporate Opportunity Zones into ongoing economic and community development strategic planning efforts
  • Coordinate other development finance tools and incentives that may be combined with Opportunity Funds
  • Encourage Opportunity Funds to report activity and outcomes at the local level.

Offering additional incentives may provide a lever to either require or encourage Opportunity Funds to coordinate with local governments and provide data on investments being made. This is important because reporting on investments or outcomes in the community is not otherwise required.

For more information, please download the full report: CDFA Opportunity Zones Report. State of the States and check out CDFA’s Opportunity Zone resource page.

As a reminder, Opportunity Zones are low-income census tracts that offer tax incentives to investors who invest and hold their capital gains in Opportunity Funds. Investors in Opportunity Funds receive a temporary deferral on their capital gains taxes if they hold their investments for at least 5 years, and any earnings in the fund are exempted from capital gains taxes if the investment is held for 10 years. Opportunity Funds must invest at least 90% of their assets in qualified investments (businesses or real estate projects) in Opportunity Zones. Over 8,700 Opportunity Zones have been designated across the US and its territories.

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