Small Business Matters: Opportunity Zones: Money in motion or dead in the water?

  • Kona, left, and Hilo, right have been designated as Opportunity Zones.

Opinions about the current administration’s tax cuts vary and depend on where you sit in the economy and on your perspective.

For the wealthy, for corporations, and on a micro-economic level they look pretty good: the tax burden is lower. For the middle class and on a macro-economic level, not so much: trickle-down still doesn’t work, and the deficit is ballooning. Whatever perspective you take, there was one widely heralded economic nugget in the Tax Cuts and Jobs Act of 2017, and that was the creation of Opportunity Zones (OZs).


Opportunity Zones are specific census tracts in local communities in which business investment is incentivized via tax advantages. On the Big Island, there are six Opportunity Zones, four in Hilo and two in Kona. In Kona, these two tracts run from Makako Bay Drive at NELHA, up through Hina Lani to Mamalahoa Highway and then down the highway and in a jagged, crazy line overland to Hualalai Road and Kuakini Highway to the coast. So basically, most of Kona’s business area is eligible for Opportunity Zone investment.

The engine behind Opportunity Zone investment is capital gains, and what the government is doing with this tactic is providing an incentive for unrealized capital gains, however, they are gained, to be cashed out and used for subsequent investment in Opportunity Zones. OZ investment is treated preferentially, and a full 100% of the profit realized from OZ investment can be tax-free if held on to for at least 10 years. So, free money! Yikes, such a deal!

Surprisingly, this being the government, on the face of it this can all be accomplished quite simply. Either an investor establishes an Opportunity Fund him or herself with his or her own money and invests in a business in an OZ, or a commercial fund set up to invest in OZs can pool third-party investor money for such investments.

Not surprisingly, this being the government, the devils are in the details, and numerous stipulations about percentage of business activity, timing of investment, dealing with vacant property, etc. need to be satisfied for this all to work.

As of last month, there were 287 Opportunity Funds seeking third-party investment being tracked by Novogradac, an accounting firm that has staked out tax-favored programs as its bailiwick. These funds have a cumulative funding target of $23 billion, of which $3 billion has been raised to date. This total does not include proprietary or private Opportunity Funds owned and managed solely by their investors for investment in designated projects.

So, there is a lot of money for investment out there, but where is it?

We see a lot of interest locally in the potential for OZ investment but not a whole lot of OZ projects in the works. Part of the reason for that is that it is too soon in the life cycle of this investment vehicle for investment monies to be readily visible. It was only last year after all that these funds became active. The other part of the apparent lack of local activity is due to the learning curve that needs to be traveled by investors, business owners and lenders in understanding how to use these funds. And in fact, the IRS has still to issue final rules on these.

But, “I believe early adopters of OZ investment will benefit,” said Honolulu Financial Advisor Eric Fujimoto. “Think of it as an early bird gets the worm sort of mentality. Landowners have yet to catch up with the concept, and the optimist in me says there is currently $3 billion in play, with more to come, and the only gain is in the play. It’s money in motion.”

Fujimoto’s optimism aside, I have to think that the low visibility of local investment may also have something to do with the dearth of any local initiatives building on OZ leverage.

“It’s a federal benefit, but to make it work, you need a creative structure around it at the local level,” said Rachel Reilly of the Economic Innovation Group, a group headquartered in Washington, D.C. that championed the OZ concept. Almost half the states have piggybacked such creative local level business incentives on top of OZ’s to create jobs and accelerate investment.

Close to home on the county level, Honolulu recently passed a bill promoting affordable housing by offering real estate tax forgiveness, accelerated permitting, and no permitting fees for affordable housing in areas partially overlapping Opportunity Zones. Further exploration of similar local incentives on a statewide basis is sorely needed for all that money to stay in motion and to eventually come to roost in our local Opportunity Zones.


An SBDC workshop this Thursday in Kona (see the ad in today’s paper) can help you find out more about how to make Opportunity Zones work for you. Register at

Dennis Boyd is a regular contributor to West Hawaii Today. He is active in many aspects of the West Hawaii business community and is a resident of North Kohala.

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