New program gives tools for economic development in distressed areas

A new federal program is giving states additional tools for economic development in distressed areas. The New Markets Tax Credit Program was signed into law as part of the federal Tax Cuts and Jobs Act in 2017, which established tax incentives for investing in projects that are within an Opportunity Zone. Since the law was enacted, Opportunity Funds have been established and projects are being developed across the nation. Now, the federal government has given additional guidance, which will help expand the nature of proposed projects.

According to John P. Bailey, Visiting Fellow at the American Enterprise Institute (AEI), the passage of the Opportunity Zones program is an example of a bipartisan agreement that can help local communities address challenges they face after the economic downturn.

“One of the challenges communities across the country have faced, if you’re not in a major metropolitan setting like San Francisco or New York or Philadelphia, is that available lines of credit and other types of financing are just not available to as many small-business owners as one might think,” Bailey said. “And we’ve seen that loans beneath a million dollars are being made at fewer and fewer rates each year.”

Bailey notes that most venture capital is concentrated in three cities — New York, Boston and San Francisco — and community finance banks are just not lending at rates they were pre-recession. “So, for many struggling communities around the country, they’re starved from capital,” Bailey said.  “And what we know is that capital is needed to restart Main Street, to help fuel new business growth as well as business expansion, and to help entrepreneurs with launching their own businesses. And if they don’t have access to that capital, it’s not that that community doesn’t have entrepreneurs or good small-business owners, it’s that they’re not given the chance and the opportunity.”

New regulations and guidance issued by the federal government last month are primarily geared at how you can use opportunity funds to invest in businesses — business expansion or small businesses and venture capital. Bailey believes there will be more funds created to start investing in businesses and other types of creative projects such as renewable energy, charter schools or affordable housing.

Although states and cities across the nation are looking at attracting projects and investors, Bailey notes how Arizona is well positioned to capitalize on the new program. The Arizona Commerce Authority established a pre-certification of opportunity zone sites to reduce the regulatory barrier for projects. “It doesn’t have to always be financial incentives that a state offers to make investments in their opportunity zones more attractive,” Bailey said. “They don’t have to just do more tax incentives. They can address a lot of the regulatory red tape that makes doing projects so challenging and actually discourages investors and developers. I just know that the precertification sites that Arizona has done is one example of a way of trying to go and could be very much extended.”

Bailey also noted the strengths and assets Arizona has including strong community leadership. “You have a governor there, with Gov. Ducey, that is pushing for a lot of pro-business and business-friendly regulations and policy that makes Arizona an exciting place to potentially set up new startups, whether that is the autonomous-driving vehicles … whether that’s new tech startups,” Bailey said. “But it’s a chance for Arizona to take advantage of the fact that San Francisco is pricing itself out of the next generation of entrepreneurs, and they’re going to be looking for a good place to go, and Arizona can be that.”

Lorna Romero

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