The state has received a 30-day extension to identify low-income "opportunity zones" where investors in those areas can have their taxes on capital gains deferred for several years.
The state has identified 337 census tracts that could be eligible under a program that was part of the new federal tax law approved by Congress in late December. The state, however, can submit no more than 25 percent of those to the U.S. Treasury Department for inclusion in the program.
The law gave governors 90 days -- through Wednesday -- to do that work but also allowed for a one-time 30-day extension.
Arkansas received an extension through April 21, Brandi Hinkle, a spokesman for the Arkansas Economic Development Commission, said Thursday. "We just want to make sure we go through this carefully and make the best recommendations," she said.
Identifying the tracts "was pretty easy," Mike Preston, executive director of the development commission, said in early March after that part of the process was completed. The trick now is selecting the 85 tracts or so to send to the federal government.
The Tax Cuts and Jobs Act of 2017 established "opportunity zones" to encourage long-term private investment in low-income communities and neighborhoods. The program provides a tax incentive for those who reinvest unrealized capital gains into zones ultimately approved by the Treasury Department.
Low-income community tracts are generally defined as those in which the poverty rate is at least 25 percent or where median-family income doesn't exceed 80 percent of either the statewide or metropolitan area median-family income. Those determinations are based on data from the 2011 to 2015 American Community Survey of the Census Bureau.
All 75 Arkansas counties have at least one such tract. An online map that accompanies the survey identifies more than 41,000 such tracts nationwide.
"We want to make sure Arkansas gets the most bang for the buck," Preston said after the state had identified the eligible tracts. "We want to designate a zone to make sure investments are made rather than sit there and not getting any investment working."
The development commission's monthly conference call with "economic development partners" in early March focused on the zones, he said. Mayors, officials with local chambers of commerce, county judges and representatives of the Arkansas Municipal League and the Association of Arkansas Counties joined in on the call.
"The message was, 'give us your input on what you think is important in making these zones viable,"' Preston said. Communities and cities that wind up with approved opportunity zones "will have skin in the game" and will better market their needs, Preston said.
The state is particularly interested in communities where officials already are working with potential investors. "Our work [determining zones] would dovetail with those efforts," Preston said.
"The needs of Little Rock and Bentonville will be different than what you see in Gould," Preston said. "In Gould, it might be for a new grocery store. In Little Rock, maybe it's a large condominium project. In Northwest Arkansas, maybe it's a strip mall with restaurants, retail and housing."
The federal government has had similar programs before. In the 1990s, they were called "empowerment" or "enterprise" zones. They were "promise zones" during President Barack Obama's administration . Those efforts involved direct government investment.
"On the surface, this looks like a good idea," Preston said of the new legislation. "It doesn't cost the state any money. It's an offset to capital gains that investors pay taxes on. What kind of investment will that bring? What kind of investors? We don't know that yet, but the possibilities are endless."
Don Zimmerman, executive director of the Arkansas Municipal League, said Thursday that he was glad the state got an extension "in light of the fact that so much of the state is eligible." He said mayors across the state have gotten "more excited" about the program as they've learned about it.
The Economic Innovation Group, a research group in Washington, D.C., pushed the idea through Congress with bipartisan support. It estimated this week that U.S. households and corporations had $6.1 trillion in unrealized capital gains at the end of 2017. It also estimated that half of the states, like Arkansas, sought extensions.
Business on 03/23/2018