To the honorable Gavin Newsom, governor of the state of California:
In your 2019-20 proposed budget, you included language addressing the issue of federal conformity related to Qualified Opportunity Zones in California that stated, “To make Opportunity Zones more effective, the state will conform to federal law allowing for deferred and reduced taxes on capital gains in Opportunity Zones for investments in green technology or in affordable housing, and for exclusion of gains on such investments in Opportunity Zones held for 10 years or more.” While I applaud this decision, I strongly encourage you to comply with full conformance of the guidelines.
While planned affordable housing provisions sound good, they don’t apply to other capital gain investments in the areas where local governments are trying to spur growth, making it seems like purely a political maneuver to look good at the expense of the exact people these programs are attempting to help.
California is one of only eight states that doesn’t conform with federal policy or offer a break on state capital gains tax. This puts California Opportunity Funds at a disadvantage from others across the country. By removing this piece of the Opportunity Zone program, an important incentive for private equity to invest in low-income communities has been eliminated.