Economic development officials in Clark and Champaign Counties are preparing to promote new Opportunity Zones designed to spur investment in low-income communities.
The Opportunity Zones were established as part of the 2017 Tax Cuts and Jobs Act, which allowed states to identify low-income, high-poverty census tracts for the program, according to information from the Ohio Development Services Agency. The program will provide federal tax advantages to investors who seek to reduce or refer their capital gains tax burden and who invest in funds that funnel money into economically distressed areas.
The U.S. Treasury Department has certified 320 total tracts in Ohio, including four in Springfield and one in Champaign County.
“The idea is essentially investors are able to defer a portion of their gains if they invest the proceeds from a sale into one of the opportunity zones,” said Devesh Kamal, a certified public accountant with Clark Schaefer Hackett, a Springfield accounting firm.
The program could lead to significant new investments into some of the region’s high-poverty neighborhoods, said Tom Franzen, assistant city manager and director of economic development for Springfield. There are a few limitations on the types of business that can qualify according to Clark Schaefer Hackett. For example, investment in a golf course or massage parlor is not allowed, but numerous other projects including housing and retail could qualify.
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“Now that we have the designated Opportunity Zones, the next step for us to is to analyze the area contained within the Opportunity Zone to ensure that we identify and address potential barriers to attracting investments, such as zoning, permitting, and any others,” Franzen said.
One challenge is some of the rules for the new program have not been finalized, said Marcia Bailey, economic development coordinator for the Champaign Economic District which focuses on economic development in Champaign County.
“We can market we have an opportunity zone and where it is,” Bailey said. “We just don’t know what the rules are as far as the (Internal Revenue Service) is concerned.
Clark County’s four tracts generally focus on an area that includes downtown Springfield. The rough borders include Snyder Park Road to the north and West Grand Avenue to the South. Norfolk Southern rail lines to near Snyder Park form a portion of the West border with East Street on the Eastern border.
Franzen said the next step will be for the city to work with partners including the Chamber of Greater Springfield to develop a long-term strategy for the area as well as opportunities to market the zone.
“The Opportunity Zone, combined with recent efforts by the city commission to expand Community Reinvestment Act tax abatement opportunities in these same areas, as well as the commission’s refocused efforts on improving our neighborhoods, downtown and major corridors, could prove to be a compelling draw for investors,” Franzen said.
Bailey said local economic development officials also need to work with area residents to determine what kinds of investments will be most beneficial.
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“Just because we have this Opportunity Zone, it’s still up to the property owner of do they want to sell their property for development to occur,” Bailey said.
Wendy Patton, a senior project director with Policy Matters Ohio, said one reason to be cautious about the new program is it’s left up to local communities to ensure the investments benefit current residents and businesses in the approved areas.
The idea behind the program is to provide a boost to areas that have some momentum, but historically Patton said tax incentives have a poor record in creating jobs. There’s also a concern expensive new developments could force up rents and make it tougher for some lower-income residents to remain in their neighborhoods.
A report from Policy Matters Ohio also pointed out the main beneficiaries will be the wealthiest tax filers who have the capital available to invest in the program.
“This program could help drive inequality or it could bring opportunity to these low-income people in these communities,” Patton said.
The report argues reporting requirements, transparency and enforceable community benefit agreements should be included in the program’s rules to prevent harm to residents.
“Our local elected officials and community leaders need to take it on themselves to ensure there’s some wealth that’s coming back to the community,” Patton said.