AUBURN — As an effort to get private investment flowing into low-income communities, New York state is participating in the new Opportunity Zone development program. New York has more than 500 Opportunity Zones, and one is in Cayuga County.
Opportunity Zones are census tracts with an individual poverty rate of at least 20 percent and a median family income no greater than 80 percent of the area median. Auburn's northwest quadrant qualifies as an Opportunity Zone.
Here's how the program works: An Opportunity Zone can receive funds from Opportunity Funds. Those Opportunity Funds provide investors a chance to put that money to work by rebuilding poorer communities. To invest in Opportunity Funds, investors must hold 90 percent of their assets on a property within a designated zone.
Why would investors do this?
There are two main incentives. Investors can defer taxes on any prior gains invested in an Opportunity Fund until it's eventually sold. If the investment is held for longer than five years, investors pay 10 percent less on those taxes. If the investment is held longer than seven years, that 10 percent becomes 15 percent.
As for the other incentive, investors can permanently exclude capital gains from the sale or exchange of an investment in an Opportunity Fund if held for more than 10 years.
The zones, according to the IRS website, are designed to "spur economic development and job creation in distressed communities." But there's a couple catches.
So far, the program's draft regulations have been promulgated, but final regulations were hung up due to the government shutdown.
Also, the program lacks a way to monitor its job creation.
Michael N'dolo, the vice president of Camoin Associates, provided an informational presentation on Opportunity Zones Monday at Auburn's city hall. He said that although there's nothing in place now, he does anticipate some way of monitoring the impact of these investments on poor communities will come about soon.
But even that could be questionable. Opportunity Funds are self-certified, meaning IRS approval isn't needed. For investors, this is one less step they have to worry about, but this could make tracking Opportunity Zone progress tricky.
"You don't have to go to the IRS and say 'Hey, I think I'm a fund, can you stamp me.' You just say 'I'm a fund,'" N'dolo said. "In fact, a lot of deals out there that will be done, no one will ever know that they're Opportunity Zone deals because this all happens internally."