KAILUA-KONA — A federal program designed to boost investment in low-income communities could unlock a windfall for businesses in some of the nation’s poorest regions, but without much oversight written into the law, it’ll take those communities’ residents, stakeholders and policymakers working together and with investors to make it work.
Even with the potential challenges, supporters of the Opportunity Zones program, created as part of the federal Tax Cuts and Jobs Act signed into law at the end of 2017, say they have “an incredible enthusiasm” for the opportunity it offers.
“This is the biggest opportunity for community development that I’ve seen,” Maurice Jones, president and chief executive officer at the Local Initiatives Support Corp., said of the Opportunity Zones program at a presentation Thursday at the West Hawaii Civic Center. “Does that mean that people are going to have to really work hard to figure it out? Yep. But I’d rather have that than not.”
Opportunity Zones are intended to encourage investment in low-income communities across the country by offering tax incentives to investors, who could use capital gains made off selling an investment and reinvesting them into an Opportunity Fund.
Those funds would invest in businesses located in Opportunity Zones, opening up streams of capital for local business owners to use to grow. Investors in return get a number of incentives, including a temporary deferral on taxes on their initial gains, a reduction of the amount on which they can be taxed and an exclusion of some gains from being taxed entirely.
Of the 25 census tracts in Hawaii designated as Opportunity Zones six are on this island — two in West Hawaii and four in East Hawaii.
The West Hawaii zone is made up of two side-by-side tracts, identified as Kealakehe (considered a low-income community) and Kailua. Together the two tracts cover a region that runs north-south from Hina Lani Street and part of NELHA to Palani Road. The zone runs mauka-makai from approximately the Palani Junction to the coast.
In outlining how the program works and the incentives for investors to the crowd that packed the Council Chambers, Jones also spoke to the potential boon the Opportunity Zones program represents, calling it “potentially the largest incentive for helping communities develop that we’ve seen come down from the federal government ever.”
“The question is how we use it,” he added.
And it’s a big question.
While the tax incentives offer financial gain for the investor, the program’s goal is to benefit the community, and to do that it’s going to take collaborative, persistent teamwork with communities and investors.
“Otherwise,” Jones said, “you’re just going to get someone who wants that financial return and nothing else, or at least very little regard to anything else.”
Among the risks with the system is a lack of oversight written into the program, meaning it’s up to the community to work with those who want to do good and connect with investors with an interest in supporting the community.
“You’ve got to find investors who want to be good,” he said. “Same thing on the gentrification piece, you’ve got to make sure that anti-displacement is part of the way you judge the success of this incentive and you judge the success of the projects.”
In response to a question from county planning director Michael Yee about how to ensure communities are building the capacity to take advantage of the program and maximize its social impact, Jones offered several suggestions, starting with setting some guiding principles the community is trying to incentivize, such as community impact, transparency and preventing displacement.
Jones’ suggestions also included thinking about a reporting framework — particularly given the lack of any reporting requirement right now — as well as how the community would be included in efforts to develop and manage its zones and finally how the community can create a project pipeline it wants investors to fund.
Community members too had questions about the county’s commitment to creating an attractive environment for investors and one not burdened by bureaucratic red tape.
In response to a question from an audience member about what commitment the county can offer to make sure projects can move forward in a timely way so developers can deliver on their promises to potential investors, Ron Whitmore, deputy director at the Hawaii County Department of Research and Development said the best opportunities will be in areas already zoned for whatever type of project is being pursued, adding the county could also consider expediting permitting or planning review for projects situated in Opportunity Zones.
After the workshop, Jones said a key part of success will be the community’s involvement in the economic development plans and strategies that will be developed by the county.
“I think the biggest thing that a person who is just a Joe and Jill Citizen can do is to insist on the folks who influence economic development in the county, business, philanthropy, government, to actually come together and form a consortium to be purposeful about how to leverage the incentive,” he said. “I think the real risk is if people remain hands off or agnostic, then anything can happen. That’s where the real risk is, and so this needs to be, as they say, a contact sport.”