Most of urban Utah is enjoying a terrific economy. But the good times don’t extend to some low-income neighborhoods, or to many parts of rural Utah.
Unemployment is high in many rural and economically challenged areas, and many young people are forced to leave their neighborhoods and towns to earn a living. Many rural areas are losing population.
But more jobs, improved housing and business vibrancy could be created in these disadvantaged areas if investors take advantage of a new federal tax incentive program designed to boost jobs and economic growth in economically distressed areas.
Many people are aware that the federal Tax Cuts and Jobs Act of 2017, championed by Sen. Orrin Hatch, cut taxes by $1.5 trillion. But it also contained an excellent program to incentivize investments in economically distressed areas. Utah business leader Jim Sorenson encouraged Hatch to include this program, and the senator agreed that it could provide a big economic boost in areas that need it most.
Under the program, state governors are allowed to nominate a certain number of “growth opportunity zones” in poverty-stricken areas. In Utah, with 181 qualifying census tracts, Gov. Gary Herbert was allowed to nominate 46 zones. He wisely asked city and county leaders for their input and recommendations in his nominations.
Individuals and corporations that invest in these economically distressed zones to generate jobs and economic growth are provided significant capital gains tax incentives. The positive impact could be substantial.
It is estimated that, nationwide, up to $6 trillion is now being withheld from reinvestment because investors are reluctant to pay capital gains taxes. Under the opportunity zones legislation, some or all of immediate capital gains from asset sales could be deferred from federal taxation if the money is reinvested in opportunity zones. And, long term, investors could sell investments in these zones free from capital gains after a decade.
The favorable capital gains treatment is expected to incentivize development and investment in areas that desperately need it.
“Our goal is economic prosperity for all Utahns,” Herbert said. “Opportunity zones will go a long way in helping to support growth in economically distressed areas throughout the state. By working with these communities, the zones will attract more businesses and new investment.”
In Utah, a primary focus in designating opportunity zones was to encourage investment in rural areas. Of the 46 nominations, 19 were designated in rural communities.
This is a commonsense program to help distressed communities. It will tap into a multitrillion-dollar pool of capital that is mostly sitting on the sidelines because of tax disincentives. Putting that money to work will provide jobs, a stronger economy and, ultimately, more tax revenue.
The U.S. Treasury Department recently released guidelines for the program, so interested investors can now determine if an opportunity zone investment makes sense for them. To ensure that opportunity zones benefit local citizens, state and local authorities are required to promote local hiring and affordable housing as zones receive new investment.
Some of the Utah opportunity zones are in large rural areas, such as in Carbon, Grand and Beaver counties. Others are small urban neighborhoods in Kearns, Magna, Clearfield, Ogden, Provo and Salt Lake City, among others.
A complete list of Utah opportunity zones can be found on the website of the Utah Governor’s Office of Economic Development.