May 20, 2019
SACRAMENTO, CA - CalOZ welcomed positive developments for the future of opportunity zones in California reflected in Governor Gavin Newsom’s revised budget summary released yesterday.
"Opportunity Zones are a big part of the budget," said California Governor Gavin Newsom during his press conference highlighting the budget revisions. "We are going to continue our conformity strategies with federal tax code as it relates to Opportunity Zones."
“California can and must be a leader on how the new opportunity zone incentive can further goals for job creation, economic mobility, and community development in areas of our state that need it most,” said CalOZ President and Co-Founder Kunal Merchant. “The revised budget summary represents a positive step in the right direction, but we have more work to do.”
In recent weeks, CalOZ has focused efforts on building support for three specific policy strategies:
1. Establishing clear reporting and transparency requirements for OZ funds and investments so that all parties can track, understand, and analyze the impacts of opportunity zone investments. Senate Bill 315, sponsored by Senate Majority Leader Robert Hertzberg, represents a promising effort in this area.
2. Community sponsorship for tax conformance to empower localities with discretion to offer state tax benefit as an additional incentive for high-impact, high-priority opportunity zone investments.
3. State support for regional economic development capacity in the form of grants, loans, technical assistance, fellowships, and other strategies to help regional leaders build a steady pipeline of high-quality opportunity zone projects.
The revised budget summary represents progress towards these goals in a few notable ways:
1. Affordable Housing. The May Revision provides $800 million to boost infrastructure development and housing production, intended to leverage additional investment for projects located within federal Opportunity Zones through state and federal tax benefits.
2. Clean Energy. The May Revision supports conforming California’s tax code so that clean energy projects in Opportunity Zones will receive the same state and federal tax incentives.
3. Tax Conformance. The May Revision proposes to partially conform to the federal provisions on deferred and reduced capital gains for investments in designated California Opportunity Zones. Eligible investments include green technology and affordable housing, with criteria chosen to allow incentives to be layered with Infill Infrastructure Grants to incentivize housing.
4. State funds for regional capacity building. The May Revision includes $750 million to partner with local governments to increase housing production through technical assistance and general-purpose funding. These funds can better prepare local communities to attract private investment into Opportunity Zones to spur local economic development and shared prosperity.
The budget summary reflects the growing bipartisan recognition by leaders across the state in the power and potential of the opportunity zone incentive.
Earlier this week, the Big City Mayors Coalition, led by Sacramento Mayor Darrell Steinberg and comprised of Mayors of the 13 largest California cities, submitted a letter of support.
In addition, CalOZ's Green Coalition also submitted a letter of support highlighting the value of opportunity zone investment in promoting the clean economy.
Building on this momentum, CalOZ continues to make the case for a broader tax conformance to accommodate several additional categories of impact investments, including workforce housing; transit-oriented housing; rural broadband; enterprises within Promise Zone neighborhoods; co-working and co-living spaces; incubators and accelerators; businesses founded, run by historically underrepresented communities; enterprises with significant employee ownership structures; and projects with strong community sponsorship as outlined in the Big 13 Mayors support letter.
A recent analysis by California Forward and Golden State Opportunity showed that there is tremendous upside for low-income communities in encouraging Opportunity Zone investments in California – potentially hundreds of millions in additional investments in these local economies.
Additional details on the Governor’s budget are expected shortly. The Senate and Assembly Budget Subcommittees are expected to discuss state policy on opportunity zones in the coming weeks in the lead up to final passage of the budget in June.
For more information, please visit www.caloz.org.
About Cal OZ
CalOZ is dedicated to maximizing the transformative potential of Opportunity Zones (OZs) in California. By uniting and mobilizing top voices from across California’s investment, development, entrepreneurial, regulatory, philanthropic, and nonprofit communities, CalOZ shapes practices, policies, and platforms essential to the success of this once-in-a-generation community investment tool. Guided by a “triple bottom line mindset,” CalOZ supports policy solutions focused on competitiveness, sustainability, and equity.
About Opportunity Zones
The Qualified Opportunity Zones ("QOZs") program is the largest new community development tax incentive program created in a generation, established by the U.S. Congress in December 2017 through the Tax Cuts and Jobs Act.
QOZs were designed to encourage patient, long-term investments in low-income urban and rural communities throughout America by providing a powerful new tax incentive for investors with capital gains in the stock market, real estate, and in other assets to reinvest those dollars into special private investment vehicles called Opportunity Zone Funds. Funds can be corporations or partnerships, self-certified with the IRS, that are committed to investing at least 90% of their capital into OZs.
Qualified Opportunity Zones were conceptualized in the bipartisan Investing in Opportunity Act, developed through the leadership of Senators Tim Scott (R-SC) and Cory Booker (D-NJ) and Representatives Pat Tiberi (R-OH) and Ron Kind (D-WI), and ultimately including nearly 100 Democratic and Republican congressional cosponsors.
In June 2018, the U.S. Department of the Treasury certified over 8,700 census tracts as QOZs in every U.S. state and territory, designations that will last over a decade through the end of 2028. Per the Economic Innovation Group, QOZs have an average poverty rate of nearly 31%, an average median family income of only 59% of its area median, contain 1.6 million places of business, 24 million jobs, and 35 million Americans. According to the Urban Institute, less than 4% of QOZs are at high risk of rapid socioeconomic change, displacement, or gentrification.