U.S. Sen. Bill Cassidy expects the Treasury Department to release regulations later this month on the use of Opportunity Zones, a new tax incentive program aimed at promoting private, long-term investments in underserved areas.
In the Capital Region, there are 33 designated Opportunity Zones—22 of which are in East Baton Rouge. The region has the second-highest number of zones, ranking only behind a southeast region that includes New Orleans, which has 44.
In evaluating the census tract areas for possible designation, key factors were proximity to regional assets—such as airports and universities—as well as economic and community development opportunities.
“The Opportunity Zones program is envisioned as a tool to spur private investment in low-income rural and urban communities across the country and it truly does have the potential to be transformational,” says Mandi Mitchell, with Louisiana Economic Development. “What LED recommends for locals at this time, partner with community economic development organizations to aggressively and creatively market Opportunity Zones to private investors.”
The program’s flagship benefit includes the deferment and lowering of federal taxes on capital gains, according to LED. For a qualified investment, capital gains taxes may be deferred for five years, and then may be canceled on 10% of the original investment. The credit can also be stacked on other tax credits, says Cassidy, who spoke at BRAC’s Designated Speaker event this morning.
The program, while open to any tax-paying entity, may be useful in opening the door for people getting involved in affordable housing investments, says Michael Kressig, partner in the St. Louis office of Novogradac & Company LLP, who has been researching the program.
The bulk of questions Kressig has received have been from tax-exempt entities, such as towns and community development organizations.
“(Municipalities) can’t benefit directly because (they’re) not a taxpayer, but there are many ways in which (they) can partner with investors to share the benefits,” Kressig says.
Steven LeBlanc, vice president of Stonehenge Capital Company, stressed the program is meant to attract additional private capital, but wouldn’t automatically make any deal work.
Even if it makes a good deal great, warns LeBlanc, it won’t seal the deal. “You still have to work with lenders,” he says, “(the program) is going to be attractive in bringing those folks to the table.”
Beyond the capital returns for private investors, the larger benefit is the social impacts that will benefit the community, such as jobs, economic development and additional tax revenues from blighted properties.
“The public-private partnership is no joke,” LeBlanc says. “The public sector has sort of done its job by giving us areas in which we can invest. Now as the private sector, it’s our job, to basically put together a strategy and then say, ‘Hey, come to Baton Rouge. Invest in us.’”
In March, Gov. John Bel Edwards nominated the 150 census tracts to be eligible for the Opportunity Zone program, which were approved in May. Eligible census tracts are required to have poverty rates of at least 20% or median family incomes not more than 80% of statewide or metro area income.
“It’s one thing to say we’re going to gentrify,” Cassidy says. “But you can’t gentrify justly if you isolate the people who already live there because as we address the issue of poverty in our community … you have to elevate the opportunity of those who are poor.”
Regulations for new Opportunity Zones should be released this month
Sign up for the free Daily Report email – local news about the people, companies and issues that impact business impact business in Baton Rouge and beyond.
