Bakersfield has been given a glowing, if possibly underreported, opportunity. A large portion of Bakersfield has received a special designation by the federal government allowing private investors to take advantage of reductions in capital gains taxes. We should seize this opportunity.
Geographic inequality is a hot term these days. I’ve heard it referenced everywhere lately. It’s a real thing, too. Research shows that residential sorting by income has significantly increased over the past 45 years. This sorting has resulted in more Americans living in communities that represent the poles of the income distribution rather than the middle.
The federal Tax Cuts and Jobs Act of 2017 created an economic development tool known as “opportunity zones.” The program is designed to encourage long-term investments in low-income areas. The goal is to get capital to these struggling census tracts. The program gives patient investors and developers significant tax incentives in exchange for long-term investment in distressed or low-income areas.
This opportunity zone program has the potential to be the largest community investment program in the country, by tapping into trillions of dollars in capital gains held by private investors to create a new source of economic growth for hundreds of lower-income communities around the nation.
Under this first round, opportunity zones have been designated in 18 states, including California. The list of designations includes 57 counties in California and 35 areas in Kern County. Large portions of downtown Bakersfield and the east side have been designated as opportunity zones.
This is exactly the type of incentive needed to spur investment in the revitalizing urban core of our own city. When the State of California ended community redevelopment agencies in 2012, our city lost the tax increment financing that enabled some great projects downtown, such as Rabobank Arena and Mill Creek Linear Park. Urban revitalization in California now relies solely on the private sector. In coastal California, where most of the state lives, private individuals and groups are clamoring for opportunities to invest; private investment in commercial real estate for these areas is at an all-time high. The time has come for the federal government to help incentivize private investment in distressed areas throughout the country.
My hope is that the newly designated opportunity zones will help to better attract capital to areas in Bakersfield that need it. This, in turn, will spur our local economy.
More Information on the Opportunity Zone Program:
Federal law has authorized governors to nominate a certain number of census tracts as “opportunity zones.” An opportunity zone is an economically distressed community where new investments may be eligible for preferential tax treatment. Localities qualify if they have been nominated for that designation by the state, and that nomination is certified by the Secretary of the U.S. Treasury via his delegation authority to the Internal Revenue Service.
This is a federal program, and opportunity zones were added to the tax code late last year and went into effect this year. The first set of opportunity zones, covering parts of 18 states, were designated April 9.
Under the program, investors in opportunity zones (via a fund or direct investment in real estate or companies located there) get temporary deferral of accumulated capital gains, up to a 15 percent basis step-up on capital gains invested, and the big windfall 一 a capital gains bill of zero on new gains for investments held 10 years. Under this scheme, taxpayers have the option to defer tax on a capital gain by investing the gain in an Opportunity Zone Fund. The Opportunity Zone Fund is a fund set up as either a corporation or partnership to invest in eligible property located in an opportunity zone.
Taxpayers who invest in an Opportunity Zone Fund do not need to live or work in the qualifying zone in order to invest in the funds.
The idea of the program is that it will incentivize investment in communities that have had trouble attracting investment, thereby spurring economic growth.
For further details, visit: https://eig.org/opportunityzones