NEWARK, NJ - A new federal tax incentive intends to put an estimated $6 trillion in capital gains being sat on by investors to good use through Opportunity Zones, but how will the public know if the program is working or who is taking advantage of those tax breaks?
It’s an important question to ask as Gov. Phil Murphy begins to scrutinize tax incentives that were handed out from the state’s Economic Development Authority (EDA) to so-called "growth zones." Opportunity Zones are different from the EDA's programs since it is a private investment reported on a person or company's taxes rather than incentives that are publicly approved.
Opportunity Zones are supposed to spur private investment into designated areas that are identified as low-income by offering tax incentives.
The program was created under 2017 federal legislation co-sponsored by U.S. Sen. Cory Booker, and the state made the final nominations of each zone. The state's Department of Community Affairs (DCA) is handling the program in New Jersey.
Right now, the DCA does not have information on which development projects - if any - are using the Opportunity Zone incentives, who the investors involved are or how much they are investing. There are currently no federal reporting requirements for projects that use the federal incentives either, said DCA Chief Data Officer Christopher Wheeler.
“However in the fall, DCA will be surveying municipalities for [Opportunity Zone] projects known to them as of 2019,” Wheeler said. “The results of that will eventually become available on our interactive community asset map.”
Investors will get to pay reduced capital gains tax on appreciated stock or real estate if they quickly reinvest into a project within an Opportunity Zone. The longer an investor keeps their money in a project within a designated zone, the more they reduce their tax liability.
Investors won’t have to pay any taxes on appreciation gained while in an Opportunity Zone if they keep their money within the area for at least 10 years.
Newark has been the poster child of Opportunity Zones. The state’s official website for the program dons the Newark skyline and a national summit that brought together lawmakers and business leaders across the country was held here about a week ago.
Prudential Financial and the Rockefeller Foundation also gave Newark a $920,000 grant to help the city responsibly manage its Opportunity Zones. Five other cities in the nation will receive a similar grant too.
There are 13 Opportunity Zones in Newark, which include areas along South 12th Street in the West Ward, Weequahic and North Broadway neighborhoods. The East Ferry and Ironbound industrial area are also included.
But for all the talk of low-income investment, a majority of redevelopment projects currently sit in three zones nearby Broad Street in the Central Ward. The area is home to the Prudential Center, office spaces, NJPAC and high-rise luxury apartment complexes.
State data show that 37 redevelopment projects sit in those three zones alone. Twenty-one projects currently sit in eight of the city’s zones and two have no redevelopment projects at all right now, according to the state’s asset map for the program.
The Newark Alliance, a nonprofit that works to boost the city's economic revitalization, is currently looking for development projects that would be seeking investment from the program.
Opportunity Zones are based on private investment, so it may be tricky to track and report which projects are utilizing the program. Newark Alliance CEO and President Aisha Glover said the nonprofit is trying to figure out how to better identify zone investment too.
“We like to believe because we have our finger on the pulse of what’s going on around the city, we’re working under the assumption that we will know when there is Opportunity Zone investment in a project,” Glover said.
While some projects around the city are seeking investment from Opportunity Zones, Glover said she didn't know of funding that has come into the city yet as a result of the program.
But there are a number of reasons why the investors are seemingly slow to take advantage of the tax incentive.
The 2017 legislation that created Opportunity Zones helped guide tax reform for the following year. Final guidelines from the U.S. Department of Treasury on the program have been slow to come. New rules were just released about a month ago, Glover said.
It also takes time for investors to identify projects they would want to pour their money into.
“That kind of shopping around is coming around,” Glover added.