By Anayat Durrani

New legislation was introduced to reinstate and expand the reporting requirements and extend the Opportunity Zone incentive by two years, among other changes.

The bipartisan, bicameral bill reforming opportunity zones was introduced by U.S. Senators Cory Booker (D-NJ) and Tim Scott (R-SC) and U.S. Representatives Ron Kind (D-WI) and Mike Kelly (R-PA). Booker and Scott originally introduced the Investing in Opportunity Act in April 2016. A provision based on the bill was included in the 2017 tax bill.



“Since its passage as part of the TCJA in 2017, the Opportunity Zone investment incentive has proven extremely popular,” says Vince Brady, co-owner and principal, Buttonwood Due Diligence. “Through 2021, over $75 billion has been raised by various investment vehicles to fund Qualified Opportunity Zone (QOZ) projects.”

The Opportunity Zones Transparency, Extension, and Improvement Act

The legislation called the Opportunity Zones Transparency, Extension, and Improvement Act was co-sponsored by U.S. Senators Mark Warner (D-VA), Chris Van Hollen (D-MD), and Todd Young (R-IN) and Representatives Terri Sewell (D-AL-07), Dan Kildee (D-MI-05), and Jackie Walorski (R-IN-02).

Brady says much of the investment to date has been concentrated in few areas and, in some cases in projects that would have been developed anyway. He noted recent studies indicating that as of the end of 2019, of the 8,764 QOZs identified in the U.S., only 14% or 1,402 areas received QOZ investments and fully half of all QOZ investments had been made in only 1% of the QOZs.

“Thus, the legislation may provide the framework to expand investment into more QOZs. Our hope is that it does so without significantly diminishing the attractiveness of these investments,” says Brady. “From an investor perspective and aside from any tax incentives, QOZ projects must ultimately have the fundamentals in place to be successful. They must meet needed demand and provide an acceptable risk/reward structure.”

Impact of the proposed Opportunity Zone legislation

The bipartisan legislation would improve Opportunity Zones by reinstating and expanding the reporting requirements and end Opportunity Zones that are not impoverished. For example, the legislation seeks to sunset a small percentage of Opportunity Zone designations for tracts with a median family income at or above 130 percent of the national median family income. For every tract that is sunset, states would then designate a new tract in high-need communities.

“This bill is a thoughtful supplement to the Opportunity Zone tax incentive which is already attracting capital into low income communities and helping left residents out of poverty,” says Jill Homan, president, Javelin 19. “The bill addresses a number of the challenges investors and funds had with utilizing the OZ incentive.”

The legislation would also create pathways for smaller-dollar impact investments by allowing Qualified Opportunity Funds (QOFs) to be organized as a "fund of funds" that may invest in other QOFs, providing smaller communities and projects with the financing they need.

The legislation would also provide operating support and technical assistance to high-poverty and underserved communities through a State and Community Dynamism Fund, and extend the tax incentive for two years in order to facilitate continued investment.

“I’m very encouraged by the two-year extension. Given the complexity of incorporating the OZ provisions into the current tax code, the regulatory process took two years,” says Homan. “Three months later, we had a global pandemic. The addition of two years brings the OZ tax incentive timing back to its originally conceived schedule. This will encourage more investment in these communities.”

Impact of the legislation for the Opportunity Zone market

Senator Booker said, in a statement, that the legislation would “help restore the original promise of opportunity zones by steering private capital to reinvest in underserved communities that have been historically left behind and working to level the economic playing field.”

Homan says, overall, she is encouraged by the new bill and says it adds reporting requirements, “which will enable policy makers visibility into the outcome of the tax incentive attracting capital to low income communities.”

She says the Opportunity Zone tax incentive originally had support across the aisle and in the House and Senate.

“I’m encouraged that this thoughtful bill similarly has attracted broad support and is addressing some of the challenges of the original OZ tax incentive and subsequent regulations and amendments,” says Homan.


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