A tax incentive program enacted by the U.S. Congress intended to economically boost poverty-stricken areas has implications for downtown St. George and other parts of Southern Utah.
The “Opportunity Zones” legislation, part of the federal Tax Cuts and Jobs Act of 2017, gives preferential tax treatment to new investments in economically distressed communities across the United States. The zones were chosen based on 2010 census tract information, and among those selected in Utah are two in Washington County, and several others spread throughout the rest of Southern Utah.
The two main components of the law include capital gains deferral on investments made in established opportunity zone funds and the ability to sell a newly established business within an opportunity zone tax-free after 10 years of operation.
The zones were established in hopes that investments made in new businesses in these areas will have a ripple effect on the area’s entire economy.
As an illustration, James Rose of St. George-based Rose Development said some of the new businesses coming to downtown St. George that could potentially benefit from the tax incentives are bringing more workers to the area who spend money in locally-owned restaurants and shops. These businesses in turn benefit indirectly from new commercial development coming about as a result of the tax benefits.
“We had all these locals-owned businesses not having as much business and kind of suffering, and now, because these businesses have all these different employees, these restaurants by default sell more food,” Rose told St. George News. “It’s a self-feeding thing. That’s the thing about economics, it mushrooms out.”
St. George’s opportunity zone focuses primarily on the portion of the city along St. George Boulevard from Bluff Street east to Interstate 15, stretching northwest along the east side of Bluff Street and in the southeast section of the downtown area to about 900 South. According to the latest census tract data, the area has a 12% poverty rate with a median household income of $50,824.
Rose has been spearheading the effort to kickstart St. George’s opportunity zone by establishing one of Washington County’s first Qualified Opportunity Funds in order to help feed investments to startups in need of capital.
Rose said some qualified funding has already been going toward supporting an app developer based in downtown St. George.
“This is a guy who didn’t have any money, and he had a great idea. So, we thought, ‘You know what? That might work,’” Rose said. “There are a couple of other companies like that that now have an additional source of capital that they would not have otherwise had.”
Any company, however big or small, can take advantage of a qualified opportunity fund, meaning larger companies with more capital willing to headquarter in St. George could also potentially bring higher-paying jobs to the region.
Rose said he is particularly interested in the implications of opportunity zones for Southern Utah’s younger generation.
“I have four kids, and three of them are in high school now,” he said. “I look at them and think, ‘Man, they’re going to have to move out of town to find really great opportunities.’ We need to find things for them and their friends and other people so they can have great opportunities here in St. George.
“As developers, we’re thinking about more than just building something and selling it off. We’re thinking about what is the effect of everything we do on our kids.”
The St. George opportunity zone also aligns with the city’s recent push to revitalize the downtown area. Years before the legislation was enacted in January 2018, the city had already been encouraging new businesses to open downtown, such as those at Green Gate Village and Joule Plaza.
Outside of St. George, the Washington County opportunity zones also include some communities along state Route 18, such as Veyo, and the Shivwits Indian Reservation along Old Highway 91.
Who ultimately benefits?
The “everybody benefits” philosophy behind the opportunity zones legislation has yet to be proven. Many of the details of the law, which was written primarily by Republican lawmakers but enjoyed bi-partisan support, are still being ironed out. Current IRS guidelines for qualified opportunity zone funds are included in a 160-page document, with more revisions anticipated in July.
“Supporters say this will help revitalize distressed communities, but there is a risk that instead of helping residents of poor neighborhoods, the tax break will end up displacing them or simply provide benefits to developers investing in already-gentrifying areas,” Adam Looney, director for the Brookings Institute’s Center on Regulation and Markets, wrote in a critical analysis of the law.
Looney writes that the value of the tax incentive is ultimately dependent on rising property values, rising rents and higher business profitability:
That means a state’s Opportunity Zones could also serve as a subsidy for displacing local residents in favor of higher-income professionals and the businesses that cater to them—a subsidy for gentrification. Indeed, the highest returns to investors, and thus the largest tax subsidies will flow to those investing in the fastest gentrifying areas.
Looney suggests that the effects of opportunity zones be rigorously examined in the years leading up to the law’s expiration in 2027. He writes that there’s a chance poor people in the designated communities these zones were designed to help may not end up benefiting, negating the intended effects of a subsidy that may cost the tax base billions.
Utah zones emphasize rural communities
According to the Utah Governor’s Office of Economic Development, which chose the zones’ boundaries, one of the primary focuses of the opportunity zone selection process was on encouraging economic growth in rural areas, where poverty rates are typically higher. Of the 46 established zones in Utah, 19 were designated from rural communities.
“By identifying areas that are ripe for potential investment, opportunity zones will certainly help nudge these local economies in the right direction,” said Ginger Chinn, managing director of urban and rural business services for the Governor’s Office of Economic Development. “This is a very exciting development opportunity for both our urban and rural areas.”
Other opportunity zones in Southern Utah include areas in Iron, Garfield and Beaver counties and the Navajo Nation.
For more information, see the IRS’ Opportunity Zones FAQ.