Economic Development: Feds OK 10 Kane County ‘Opportunity Zones’
- Editor’s Note: Kane County Development and Public Service Department intern Mark Clough contributed to this report.
Ten “census tracts” in Aurora, Elgin, and Carpentersville have received federal approval as “Opportunity Zones” and are eligible for funds aimed at jump starting economic development in Kane County.
Exactly how many federal dollars that translates to has yet to be determined, but officials throughout Kane County are excited about the potential.
“We are elated to share that five of Aurora’s eligible census tracts and many other Kane County census tracts were approved by the U.S. Treasury,” said Aurora Chief Innovation Officer Adrienne M. Holloway. “This designation will enable the city access a unique financing tool that, when leveraged, will drive much needed capital to projects in Aurora’s low income communities.”
Included in the Tax Cuts and Jobs Act of 2017, supporters of opportunity zones hope to increase economic growth by enticing development through tax incentives.
Gov. Bruce Rauner recommended 1,300 census tracts, then announced in May that 327 Opportunity Zone census tract recommendations submitted by the state of Illinois were OK’d by the U.S. Treasury Department.
Ten Kane County tracts made the final cut.
“This is a really exciting opportunity for communities throughout Illinois,” Rauner said. “These zones include some of the most underserved areas of the state that have the greatest potential for improvement. They represent a broad cross-section of Illinois that includes rural, urban and suburban in-need communities that are ripe for investment and job creation.”
The idea is that the areas most in need of economic development rarely get the entrepreneurial investment necessary for change. In short, “entrepreneurial activity has dried up fastest in places that can least afford it,” according to a report by EIG.
By fostering economic development, entrepreneurs can help change blighted areas into suburban models, thus attacking core problems in poverty-stricken areas such as homelessness, joblessness, crime and public safety.
Opportunity zones already have shown success in other states. Here are two examples:
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How Kane Entrepreneurs Can Find Funding
In order for the opportunity zones to succeed, funding for these programs will be pooled through a Qualified Opportunity Fund. Similar to Tax Increment Financing, the Qualified Opportunity Fund is a funding mechanism that will collect funding from investors that can only to be used in a designated Opportunity Zones.
However, funding cannot be used on any development that is considered a vice by Congress, such as casinos or liquor stores. Through this mechanism, businesses, such as venture capitalists or tech startups could consider disadvantaged communities, bringing in new jobs and opportunities for economic growth.
As a component of the opportunity zones, qualified taxpayers will receive tax benefits for investing in a Qualified Opportunity Fund; of which there are three.
The first, a temporary tax deferral for capital gains reinvested in an opportunity fund.
The deferred gain must be recognized on the earlier of the date on which the opportunity zone investment is sold or Dec. 31, 2026.
Next, capital gains reinvested in an opportunity fund is increased by 10 percent if the investment in the qualified opportunity zone fund is held by the taxpayer for at least five years, and by an additional 5 percent if held for at least seven years, excluding up to 15 percent of the original gain from taxation.
Finally, there is a permanent exclusion from taxable income of capital gains from the sale or exchange of an investment in a qualified opportunity zone fund, if the investment is held for at least 10 years.
Interested investors must remember that funding for projects can only occur in a Qualified Opportunity Zone and must first be invested through an opportunity fund.
Eligible taxpayers may become a certified Qualified Opportunity Fund through self-certification, and submit a form attached to their federal tax return.
Goldie, G. (2018, June 11). Opportunity Zones Offer Tax Benefits to Invest in New “Qualified Opportunity Funds”. Retrieved from Illinois Manufacturers’ Association: http://ima-net.org/opportunity-zones-offer-tax-benefits-to-invest-in-new-qualified-opportunity-funds/
Bold, R., & Reineke, J. (2018, May 18). Gov. Rauner announces Opportunity Zones. Retrieved from Illinois Department of Commerce and Economic Opportunity: https://www.illinois.gov/dceo/Media/PressReleases/Pages/PR20180518.aspx