Arkansas: the land of OZ

A top White House official on Monday (Aug. 5) said that policymakers in Little Rock and across Arkansas already have a “green light” to seek private investment for distressed, low-income areas across the state to take advantage of so-called federal Opportunity Zones (OZs) approved by Congress in late 2017.

Ben Hobbs, a top domestic policy advisor to President Donald Trump, and other top White House officials were part of an all-day roundtable event at the downtown Robinson Center organized by Little Rock Mayor Frank Scott Jr. and U.S. Rep. French Hill, R-Little Rock, to discuss the little known federal tax incentive program aimed at spurring private investment in targeted low-income communities across the U.S.

In explaining Trump’s aim for the nearly 9,000 OZs in all 50 states, Hobbs said the administration has already promulgated the first round of rules that provide guidance on what type of investments would qualify for the new federal tax break. Those initial rules, announced by the IRS in late 2018, also offer flexibility for how and when such investments must be deployed into development and business projects.

Hobbs said the administration is now working on a final round of proposed rules that will provide further clarity on reporting requirements for OZs and how the IRS will handle penalties for noncompliance.

The White House advisor said although investors have been slow to deploy the expected hundreds of millions of dollars of new capital into the new federal program, he told the more than 120 people attending the Little Rock summit that they can still move forward to seek investment and close new business deals in “qualified OZs” before proposed rules are finalized or at least significantly clarified later this year.

“Where we are now, and we put a clause in the proposed rules, that businesses and investors may go out and execute deals in accordance with the current rules … will be held accountable to those rules if you go out and do deals now,” said Hobbs. “So, the light is green, and I encourage everyone in this room, whether you are an entrepreneur, business owner, developer or investor, then you now have all the rules necessary to execute deals. We will be making some tweaks, but no rules are perfect, and no one is going to pull the rug out from under you.”

Earlier, Mayor Scott and Rep. Hill kicked off a morning roundtable by sharing that they have been looking to bring the OZ discussion to the forefront since early 2019. Scott traveled to Washington, D.C. to meet with Hill shortly after he took office in February as the city’s first duly-elected black mayor.

“In (my) role as ‘chief growth officer’ for the city of Little Rock, we have to understand and take advantage of the resources that come available to us, specifically when it comes to our federal and state partners. Opportunity zones (are) a great example of that right now,” said Scott. ”Every area of the city deserves investment and development, but we have to make sure we have the infrastructure to even have development in the first place.”

Hill said his meeting with the Little Rock mayor at the nation’s capital in early 2019 laid the ground for bringing Hobbs and other White House officials to the city to seek ways to help Little Rock catch up with other OZ communities across the U.S. that already have projects in the pipeline, especially on the East and West coasts.

“This is one of the ideas that the mayor and I germinated when he came up to Washington, D.C., … and we had a chance to talk about some of his priorities for the city,” said Hill.

THE ARKANSAS OZ PLAN
The Republican congressman later explained to the business-friendly audience that OZ legislation was one of the hidden priorities inserted into President Donald Trump’s landmark Tax Cut and Jobs Act of 2017, the omnibus legislation that is widely known for $1.8 trillion in corporate tax cuts.

He also commended Gov. Asa Hutchinson and the Arkansas General Assembly for approving the enabling legislation in 2019 that mirrors the capital gains incentives in the new federal law. “This is not a new idea,” Hill said, noting that the OZ idea has been tossed around in Congress for nearly 50 years.

In April 2018, Hutchinson approved 85 Opportunity Zones in Arkansas to provide tax incentives for private investment in low-income communities across the state. Out of the 337 qualified tracts, the state Economic Development Commission (AEDC) said those “OZs” nominated more than a year ago were chosen based on their potential for economic success and ability to attract investment.

Nationwide, the U.S. Treasury Department has approved a total of nearly 8,700 OZs across the U.S. It is estimated that potential capital eligible for reinvestment in the zones will generate $6.1 trillion in new economic development. Those selected as “qualified opportunity zones” retain that designation for a decade. Investors can defer tax on any prior gains until no later than Dec. 31, 2026, so long as the gain is reinvested in an IRS-approved fund organized as a corporation or partnership with the specific purpose of investing in OZ assets.

In the Little Rock area, Hutchinson and AEDC official selected eight mostly urban districts in Jacksonville, North Little Rock and Little Rock as qualified OZs. Three adjacent zones in Little Rock stretch all the way from the Dunbar neighborhood downtown eastward to the Clinton National Airport and surrounding area. The north-south boundaries of those same zones mostly cover the city’s oldest downtown neighborhoods from the Arkansas River near the Little Rock Port Authority down to Roosevelt Road and I-440.

Besides Hobbs, Johnathan Holifield, executive director of the White House Initiatives on Historically Black Colleges and Universities, and Delta Regional Authority Co-Chairman Chris Caldwell also participated at Monday’s roundtable on behalf of the White House. Locally, Leslie Lane, senior vice president at Arkansas Capital Corp., and Lisa Ferrell, CEO of Rockwater Village and the Southern Cap Opportunity Zone, represented the business and investor community.

SCOTT: NO GENTRIFICATION DEBATE
The Little Rock OZ summit also included a late morning panel discussion hosted by Scott, where Little Rock city officials, business leaders and economic developers talked about news ideas to attract investors to the city’s designated zones. The all-day event ended with a bus tour through each of Little Rock’s four Opportunity Zones, concluding with a press conference at the Dunbar Community Center where Scott announced “next steps” regarding a new Little Rock Opportunity Zone Task Force that will be fully unveiled later this week.

The Little Rock mayor also offered insight into how Little Rock plans to move forward and engage community stakeholders regarding the city’s Opportunity Zone strategy. Scott said he will press the task force to help the city accelerate efforts to attract new investment to the four qualified zones in the downtown area.

After the full day of events, several local people attending the summit said they were excited about the prospect of attracting new jobs and economic development to areas of the city that have been left behind. Martie North, senior vice president at Simmons First National Bank, said one of the biggest challenges is to fully understand the rules for the new federal tax incentives in order to protect the people who live within the zones from being displaced.

“A lot of things that were said went over a lot of people’s heads, so they really could not connect what (opportunity zones) will look like in real world scenarios,” said North, who oversees Simmons’ community development. “The rules are very lax and opportunity zones are really focused on the needs of the investor and not necessarily the need of the community in which the zones are located.”

North, who Scott has already named to the local task force, also said she hopes that the local debate on OZs will allow voices at the grassroots level to be heard and respected. She also mentioned possible gentrification in the OZ areas, something Scott said he did not want to be the focus of discussions during the all-day summit.

“I am hoping that as we move forward, we never lose sight of what ‘negative gentrification’ looks like. When I use that term …, it is displacement of the existing community with new (residents) that totally pushes out the existing community,” said North. “On the policy side, we have to be intentional or we end up with unintended consequences.”

Angel Burt, incoming executive director of the Dunbar Historic Neighborhood Association, also stressed that she hopes the people who live and work in the OZ areas are at the center of the discussion concerning the types of investment that come into those communities. She mentioned that the Dunbar neighborhood that is included in one of four local OZs includes many longtime black homeowners and two of city’s HBCUs in Philander Smith College and Arkansas Baptist College.

“I am excited that Mayor Scott has started this conversation and is taking the lead in helping to bring new jobs and economic development to these vibrant, unique and historic neighborhoods that have often been left behind in these kinds of discussions,” said Burt, who will also sit on the local task force.

Besides Little Rock, only a few of the 80 rural and urban OZ communities selected by Hutchinson a year ago have come forward will fully developed plans to attract outside investment. Pine Bluff, which also had four OZ districts and plans for a $350 million casino and hotel gaming project, has to date made the most progress, creating a task force in February to streamline investment into the Jefferson County city.