Land Banks
Opportunity Zones and Land Banks on One Map: What to Know About OZ 2.0
The Opportunity Zone (OZ) program has attracted nearly $85 billion in private investment to economically distressed census tracts. Created by the Tax Cuts and Jobs Act of 2017, the OZ program is the largest federally funded place-based economic development subsidy.
Without Congressional action to reauthorize it, the OZ program will expire at the end of 2026. However, it will likely be reauthorized through an “OZ 2.0” component to the massive tax package anticipated in the 119th Congress. Proposals for OZ program changes are presently circulating.
Many Opportunity Zones overlap with land bank service areas; land banks and other local stakeholders should know what neighborhoods in their communities are eligible for OZ investments, and be aware of and engaged about possible changes ahead.
How does the OZ tax incentive work?
The OZ program creates incentives for investors to reinvest capital gains into businesses and real estate projects located in OZ-designated census tracts, known as Qualified Opportunity Zones (QOZs). An investor who would otherwise owe taxes on capital gains can instead reinvest those gains into a Qualified Opportunity Fund (QOF), which then pursues development or business projects in a QOZ.
A QOF confers the following tax benefits:
- Deferral on paying taxes on capital gains
- Reduction of the tax liability on original, reinvested gains, depending on how long they remain invested in the QOF—a 10 percent reduction if held for at least five years; a 15 percent reduction if held for at least seven
- 100 percent tax forgiveness on any gains accrued from the QOF so long as the investment is held in the fund for 10 years or more
For investments involving real property, the OZ statute sets a “substantial improvement” requirement that an existing property must be improved by at least 100 percent of the property’s acquisition cost to qualify for the incentive.
How are Qualified Opportunity Zones designated?
Governors in each state and territory designated Opportunity Zone census tracts in April 2018. They selected QOZs from the almost 57 percent of all existing US census tracts already designated as (or adjacent to) “low-income communities” that were eligible to receive the New Markets Tax Credit.
Governors could designate a minimum of 25 OZ tracts and up to 25 percent of a state’s eligible census tracts. Over 8,700 tracts were designated QOZs (approximately 12 percent of eligible tracts). Eligibility data was drawn from the 2010 decennial census.
How do land bank service areas overlap with Opportunity Zones?
Land banks, public entities with unique powers to put vacant, abandoned, and deteriorated properties back to productive use, exist in 32 US states and territories and play a vital role in repurposing and revitalizing properties rejected by the private market.
There is a significant overlap between Opportunity Zone census tracts and the disinvested areas land banks serve. This is unsurprising given the goal of the OZ program to drive private investment into economically distressed census tracts.
BY THE NUMBERS
- 294 out of 343 land banks (86 percent) have at least one OZ tract within their operation area.
- In the 32 states and territories with land banks, 2,569 out of 6,256 OZ tracts (41 percent) intersect with land bank operation areas.
- In Ohio, 298 of 320 OZ tracts (93 percent) are in land bank service areas.
- In Pennsylvania, 255 of 300 OZ tracts (85 percent) are in land bank service areas.
- In Michigan, 288 of 288 OZ tracts (100 percent) are in land bank service areas, due to the State Land Bank servicing the whole state.
- Without factoring in the State Land Bank, 211 of 288 OZ tracts in Michigan are in land bank operation areas (73 percent).
- In Georgia, 166 of 260 OZ tracts (64 percent) are in land bank service areas.
The interactive map below shows the overlap between OZ-designated census tracts and land bank service areas.
Use this tool to inform local discussions around which disinvested neighborhoods have—or haven’t—received OZ investments. As the federal government considers the next iteration of the OZ program, it will be crucial for communities to examine what efforts, if any, have been made to attract and drive QOFs to invest in their neighborhoods to date.
What’s next for OZ 2.0?
The future of the OZ program will remain unclear until the tax package goes through the legislative process in the House and Senate, including the Senate’s budget reconciliation process. At a minimum, we expect a reauthorized OZ program will require a new round of OZ tract designations based on 2020 census data and be subject to the state-by-state process of governors designating these new OZ tracts.
Now is the time to start thinking about what role you can play within your state or territory to influence decision-making around future OZ census tract designation. Community Progress and the National Land Bank Network will keep you informed about new developments and what OZ 2.0 will mean for land banks and communities working to build thriving local economies.
We are engaged at the federal level alongside nonprofit partners like SmartGrowth America, LISC, the Housing Assistance Council, and Habitat for Humanity International to advocate for amendments to the OZ program that makes it more transparent, flexible, and drives investment into underinvested communities.
If the OZ program has impacted your community or organization’s operations, please reach out to Rob Finn, Vice President Policy and Research, to share your story and help inform our advocacy.
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