House Bill 4657 seeks to expand the tax incentives available to investment and development in Federally designated Opportunity Zones. These special areas were something I first learned about in the Fall of 2018 when reading up on the ongoing development plans for my own city, Rock Hill, as part of my graduate work in Arts Administration.
Wait, you might say, you studied city development in an arts administration degree? And in a finance course?
Well, yes.
As all of the savvy arts administrators (most of them are in our Advocate network!) already know, understanding the ins and outs of your local economy is a critical part of managing a budget, developing a strategic plan, and growing an organization. Rock Hill, like many developing cities, has quickly realized that the arts are an integral part of any development plan.
Enter the Opportunity Zones. Arts organizations, who usually have a close connection with the communities they serve, are positioned to take advantage of this program. If you get a thrill about digging deep into the issues like I do, buckle up and let’s talk about how.
But first some background…
What are Opportunity Zones?
Opportunity Zones are a provision of the Tax Cuts and Jobs Act of 2017, signed into law by President Trump on December 22ndof the same year. The law provides tax incentives on capital gains that are reinvested in federally designated, economically distressed communities across the United States. Though the use of private funds rather than taxpayer dollars, Opportunity Zones have the potential to stimulate local economies and revitalize these areas.
The first opportunity zones were designated on April 9, 2018, spanning a total of 18 states. Since then, the program has expanded to included areas in all 50 states, 5 US territories, and Washington, DC.
How does it work?
Opportunity Zones are identified and nominated by individual states and must then be certified by the U.S. Secretary of the Treasury. States may designate up to 25% of low-income neighborhoods that meet federally mandated income requirements, and up to 5% of areas that meet other income-related and geographic stipulations (such as being connected to another low-income zone). Zones are designated based on existing census tracts, meaning they usually contain more than just residential areas – opening the door for new development in all aspects of a community.
Qualifying investments are made in privately managed Opportunity Funds that self-certify with the IRS. These funds can then be used for development and revitalization of business, housing, and land in designated Opportunity Zones.
South Carolina Opportunity Zones
There are 1,097 census tracts in South Carolina, 538 qualifying as low income under the program, and the Governor nominated the maximum allowed for designation on March 23,2018. All 135 of those census tracts are now South Carolina Opportunity Zones.
South Carolina lists its Focus Areas in developing Opportunity Zones as the following:
- Promoting economic vitality parts of the state that have not shared in the general prosperity over the past few years
- Funding the development of workforce and affordable housing in areas with escalating prices and inventory shortages
- Funding new infrastructure to support population and economic growth
- Investing in startup businesses who have potential for rapid increases in scale
- Upgrading the capability of existing underutilized assets through capital improvement investments
House Bill 4657 adds some additional tax incentives at the state level for investments that align with some of those focus areas in the form of new tax credit programs. If all these facts and figures haven’t bored you at this point, it’s well-worth looking into the difference between tax breaks and tax credits, and how programs like Opportunity Zones differ from existing development centered tax credit programs.
What do Opportunity Zones mean for the arts?
If your organization operates within an Opportunity Zone (as defined by the IRS), there may be a few ways for you take advantage of what’s to come.
While a donor is entitled to a tax deduction though their financial support of your organization, an Opportunity Fund may offer an alternative avenue for capital projects. Opportunity Funds can be used for improving existing community assets as well as developing new ones. Investors may be willing to partner with an organization on a project and develop a plan for either providing discounted access to the space or eventually donating it to the organization.
As new businesses emerge, they will most certainly be looking for ways to drum up support in the surrounding community. Who better than arts organization’s to be first in line? Finding ways to partner with these businesses in their early stages is certainly a strategic way to foster long-term partnership and future corporate support. Even better, is a fantastic way to meet your audiences where they are (and hopefully pick up some new supporters in the process).
If leveraging a direct impact isn’t plausible for your organization, all is not lost. As I mentioned above, the City of Rock Hill has fully integrated the arts into their development plan. As more and more communities continue to take advantage of Opportunity Zones, arts leaders will likely be called upon to join the conversation. If they aren’t? Request a seat at the table. As the South Carolina Arts Alliance continues to remind advocates, the arts have a $9.7 billion impact on the state economy and is responsible for $269 million in tax revenue. Arts organizations are of and for the community and have often seen it change through many years. Leaders of those organizations can offer important perspective when planning for its growth.
Jeff Robinson is a Graduate Fellow with the South Carolina Arts Alliance, a Master of Arts in Arts Administration student at Winthrop University, and the Director of Bands at York Middle School.
Additional Resources:
https://www.irs.gov/newsroom/opportunity-zones-frequently-asked-questions
