By Roger Morris
Last year, Delaware state officials scrambled to identify 25 census tracts for setting up “Opportunity Zones” in economically distressed communities. These special zones designated by the U.S. Department of Treasury offer tax benefits to investors who put their money where in areas where it’s needed most.
But picking the right spots is only the first step. Now the state is working hard to bring in new investors.
In December, the Delaware Division of Small Business launched an interactive website (https://business.delaware.gov/opportunity-zones) and hosted an Opportunity Zone Summit at the University of Delaware’s STAR Campus. The event attracted a mix of longtime Delaware investors and newcomers less aware of economic development opportunities.
“The meeting we held in December, in cooperation with the university and with the Biden Institute, was pretty well mobbed, and there were a lot of potential investors from Delaware and from outside the state,” said Albert Shields, a policy director for Gov. John Carney who helped define the zones.
Some uncertainty has stemmed from the steady trickle of new information out of the federal government.
“Some questions about tax incentives are still being answered,” Shields said. “Rulings and information have been coming out in waves from the Treasury Department.”
While the state will not currently process investment proposals, it can provide potential investors with detailed information on the opportunities in each zone.
“Our role now is to continue to drive investors to utilize the zones by highlighting the opportunities, mainly through our website,” said Damian DeStefano, director of the Delaware Division of Small Business, which helped identify the zones. “We are in competition with other zones across the country, which are also trying to attract investors.”
The creation of the zones was done on short notice. “We got the request from the federal government in the beginning of 2018, just after the holidays,” Shields said, “and we had to identify and nominate the census tracts [which are the basis of each zone] by March.”
Several state agencies as well as local county and town governments were involved in the process. Of the 25 zones created, 15 are located in New Castle County and five each in Kent and Sussex counties.
The zones include neighborhoods in Wilmington; properties along the Del. 9 Corridor in New Castle; areas in Dover, Milford, Georgetown, and Seaford, including the Seaford Nylon Capital Shopping Center; the STAR campus in Newark; and aging industrial sites along the Delaware River in northern New Castle County that are eligible for additional development and cleanup under the Coastal Zone Act.
It was further noted that some of the newly designated Opportunity Zone tracts are located within existing Downtown Development Districts, so investors may already qualify for state investment rebates, local tax abatements, affordable bridge loans and other state and local incentives. Since the downtown program launched in 2015, roughly $21 million in state-funded investment rebates has leveraged $371 million of additional public and private investment in Dover, Georgetown, Harrington, Laurel, Milford, Seaford, Smyrna and Wilmington.
Carney’s recommended fiscal year 2019 budget set aside an additional $8.5 million for the program.
The Opportunity Zones website breaks down investment opportunities into several categories, each one with individually defined options — technology and startup, industrial, urban business, housing and commercial, hospitality and tourism and agribusiness. Each zone is also mapped out with quick overviews of its features and opportunities.
For example, the listing for census tract 10003010104, which borders Delaware Bay and Chester County, Pennsylvania, in the Claymont area, explains to investors that the zone has a population of 3,771 people and that its opportunities include “425 acres of waterfront property (former steel mill) shovel ready for mixed use redevelopment. 71 ac parcel, former chemical manufacturing, includes freight RR and pier/docking.”
Two zones located in Wilmington carry the additional notes that there is “potential for additional financial incentives and tax credits.”
“These Downtown Development Districts or DDTs had already been identified for investment potential and were ahead of the game,” Shields said. “They have what are called ‘stackable incentives,’ as they are already eligible for DDT rebate programs and other possible incentives in addition to the federal tax credits.”
The basic federal incentive of the 2017 tax reform act is that investors may be able to defer taxes on almost all capital gains they invest after Dec. 31, 2017, through Dec. 31, 2026. To qualify for deferral, capital gains must be invested in a qualified opportunity fund (QOF) within 180 days; the fund must hold at least 90 percent of its assets in qualified opportunity zone property and investment in the QOF must be an equity interest, not a debt interest.
DeStefano said that all investment proposals are not submitted to the state or to the individual Opportunity Zones but rather go directly to the Treasury Department, where they will be evaluated and where decisions will be made on whether they should be accepted.
“In fact, we won’t actually know the names of investors and their projects for several months,” he said.