By Steve Dwyer

There’s a love affair brewing in New Jersey—an atypical one but it’s authentic in its power and commitment. 

“Opportunity Zones” are popping up in the Garden State, an outgrowth of the Tax Cuts and Jobs Act of 2017. Gov. Phil Murphy simply loves this idea. How much so? His administration jumped on this golden opportunity, designating 75 communities in New Jersey as opportunity zones thus far, with perhaps more to come. “It’s the only part of the tax bill that we like,” Murphy said. “We are head-over-heels in love with this.”

The Opportunity Zone initiative holds the potential to attract billions of dollars in capital investment from the private sector, boosting the prospects of compelling business and economic growth and prosperity for New Jersey’s poorest communities. The program will be run by the New Jersey Department of Community Affairs. 

What’s not to like? Brownfields practitioners know the vital need for the private-public partnership to excel for projects to fly. 

“When it’s all said and done, I think the capital you are going to attract to New Jersey won’t be measured in the millions, or even in the hundreds of millions. I think your efforts will bring billions of dollars of new investment into our state, grow our tax base, and create more revenue for all,” said N.J. Sen. Cory Booker, in a statement.

Federal Opportunity Zones allow for investments to be made in certain communities in return for reduced taxes on the capital gains they earn. If the investments are kept going for 10 years or more, investors could reap even more benefits. 

Over 200 investors, economic developers and business and community leaders attended a recent symposium around economic development in New Jersey, according to the Governor’s office.   The idea is to get “parked” capital invested back into areas that are emerging economically.

The program provides opportunities for private investors to support investments in distressed communities through participation in Qualified Opportunity Funds (QOF). 

Brownfields stakeholders need to be incentivized to put the wheels in motion on project commitments. Here’s a biggie: Investors can defer paying federal taxes on capital gains reinvested in QOF that invest in low-income communities, under rules released by the U.S. Department of the Treasury. 

Reinvested capital gains are deferred from taxation until exit from a QOF or December 31, 2026, whichever comes first. However, gains from QOF investments held for the long term are taxed at reduced rates, with the rate reductions increasing at the 5, 7 and 10-year marks. Any gains from QOF investments held for at least 10 years will be permanently excluded from the capital gains tax.

The final rules and guidelines from the Opportunity Zone program are in the process of being released by the U.S. Department of the Treasury. However, the federal Tax Cuts and Jobs Act states that “Opportunity Funds must hold at least 90% of their assets in Qualified Opportunity Zone stock, partnership interests or business property.

To receive tax deferrals, capital gains must be reinvested in QOF within 180 days of the date of sale or exchange producing the gains. Tax deferrals last until December 31, 2026, after which the Opportunity Zone program will end absent reauthorization by Congress.

Gov. Murphy has been authorized to designate up to 25% of the state’s eligible low-income census tracts (up to 169 tracts) as Opportunity Zones. Those 169 tracts were nominated on March 20 and approved by the U.S. Department of the Treasury on April 9. In the name of equity, 75 municipalities, representing every county in the state, received at least one Opportunity Zone.

The Governor worked directly with Sen. Booker’s office, convened meetings and roundtables with mayors throughout the state to receive feedback and input, and met with the New Jersey Congressional delegation to ensure a fair and transparent selection process. Designated census tracts reflect key economic indicators (e.g. income, unemployment rate, property values) that also take into consideration geographic distribution, access to transit, and the value of existing investments, including those encouraged by state programs and incentives.

It will be interesting to document how other states in the BCONE membership network are optimizing this progressive federal program in the months and years to come.  We know from BCONE Board member Hannah Moore that Rhode Island is active in its Opportunity Zone process. 

The Opportunity Zone initiative is one with tremendous upside for reuse and redevelopment practitioners of all stripes. Now let’s get after it!