Whether a federal program designed to pump private investment into distressed parts of the country could uplift Southern Illinois is a question local officials aren’t sure how to answer yet.
They aren’t alone. Rural communities and small cities across the country are trying to figure out how and whether they can benefit from the “Opportunity Zones” program. Included in the Tax Cut and Jobs Act that President Donald Trump signed into law in December 2017, federal policymakers have hyped the creation of tax-incentive districts as one of the most important economic development tools geared toward distressed areas in years.
The program has generated a lot of buzz for development in big cities such as Chicago, and even mid-sized ones such as Louisville, Kentucky. But for the much smaller towns, there's more uncertainty around how to take advantage of the program.
“I think there is potential. The question is whether or not rural places are really in a position to harness that potential,” said Katharine Ferguson, who is the director of rural and regional development initiatives with the Aspen Institute, an educational and policy studies organization based in Washington. (Ferguson, who works in the institute's Colorado office, is also the associate director of its Community Strategies Group.)
The program allows investors to defer and reduce their tax bill generated from the sale of stocks, mutual funds, real estate and businesses if they agree to invest their profits into eligible economic development projects in designated communities.
The vehicle is designed to take advantage of an estimated $2.3 trillion in unrealized capital gains that U.S. investors hold. Trump has also touted the program. He signed an executive order in December establishing a White House Council composed of cabinet-level officials to find better ways to target public funds for economically distressed areas, including qualified opportunity zones.
Almost every county in Southern Illinois has at least one.
Shortly after the law’s passage, every governor was directed to pick 25 percent of his or her qualifying Census tracts — generally defined as those with high poverty rates, or adjacent to distressed areas. Across Illinois, then-Gov. Bruce Rauner’s administration designated 327 tax-favored zones from the roughly 1,300 that qualified.
The state’s Department of Commerce and Economic Opportunity has taken the lead in selecting the Census tracts and educating communities about the potential benefits for the designated districts.
“Of the many programs that DCEO is able tout, this is one of the most exciting, I think, for rural areas,” said Brad Tietz, the department’s legislative affairs director.
But on the ground, economic development officials say the outlook is fuzzy.
“Generally speaking, folks are aware of them, but still trying to figure out how to take advantage of them,” said Cary Minnis, executive director of the Greater Egypt Regional Planning Commission.
Part of the issue is that there are a number of unknowns for the program, added Steven Mitchell, the city of Carbondale’s economic development director. Among them, he said, is that there is still a general lack of awareness among investors about the program. Also, the Internal Revenue Service has yet to release final rules for creation of the funds through which the investment is to flow to the opportunity zones. Meanwhile, the clock is ticking on this time-sensitive program.
Because of the challenges of getting it off the ground, Mitchell said he’s not aware of “a lot of movement among investors toward opportunity zones in rural areas” at this time.
One challenge Carbondale in particular faces is where the zones are located, Mitchell said. The three tracts chosen in Jackson County are all within the Carbondale city limits. They encompass most of Southern Illinois University Carbondale, as well as other residential and rural areas. The city and others made suggestions to the governor’s office as to which Census tracts would make the most sense to include. One of the tracts chosen was not on the city’s list because it is largely zoned residential.
“While there is potential in these areas, they are not without their challenges,” Mitchell said. The best opportunity for the city related to the opportunity zones is to encourage development in the business district that is bordered by Washington Avenue and East Main, which includes the University Mall and the Carbondale Business Development Corporation’s Business Park East, he said. The business park includes a number of acres available for development on either side of Reed Station Road, north of the intersection of Old Illinois 13.
One of the designated tracts in Carbondale also includes 41 acres in the SIU Research Park that presents potential opportunities for startup businesses, said Kyle Harfst, executive director of the park. Like others in the region, Harfst said it's hard to say what the benefit will be while there are still so many uncertainties surrounding the program. For SIU, that includes additional questions about how the program fits within the scope of a public institution.
“The devil lies in the details," he said. "An opportunity zone in and of itself does not create incentive.” But Harfst said he's highly interested in trying to figure out whether this program might create new options for the region. “We’re in the game, so to speak,” he said.
Minnis, of the Greater Egypt Regional Planning Commission, said that regional economic development officials are planning a meeting for later this month to share information, ideas and questions they have about the program with their peers.