During the 2019 NADO Annual Training Conference (October 19 - 22 in Reno, NV), Scott Dadson shared information creating investable communities and how to take advantage of the Opportunity Zone Program.

1. Creating Investable Communities &
Opportunity Zones: Local and State Readiness

2. A Not So Fun fact: “State and local government” is by far the largest economic sector that has never
recovered from the 2008 economic crash -- down 71,000 employees since January 2009. That means
innovation capital is harder to find.
State and Local Fiscal Stress…
Sources: BLS, Milken Institute Analysis

3. 3
Source: Congressional Budget Office, using data from the Office of
Management and Budget and the Bureau of the Census.
Public Spending on Transportation and Water
Infrastructure, by Level of Government, 1956 to
2017

4. 4Source: Milken Institute Analysis
The Context
live in economically
distressed communities.
Between 2000 and 2015,
more than half of these
communities experienced a
decline in both jobs and
businesses.
three-quarters of net job
growth occurred in a
narrow selection of
metropolitan areas,
resulting in inequalities
across the country.
comes from small
businesses, for whom
the most important
variable for success is
access to capital.
52.3M
AMERICANS
FROM 2010
TO 2016
67% OF
JOB GROWTH

5. 5Copyright 2019
• Opportunity Zones is a new tax incentive-driven initiative -- NOT a program –
designed to encourage eligible investors to invest in 8700 US census tracts.
• Investor rules have been written –but continue to evolve - and OZ funds are now
forming and OZ deals are happening across the country. $63 billion of potential
QOF capacity has been announced to date.
• Jury is out: OZs could either move billions in new impact investment annually into
distressed communities driving job, wealth creation and economic resilience for
local residents or promote unwanted investment, gentrification and displacement.
Communities have a role to play!
• Public sector success using the OZ tool will demand new skill sets for public
officials, early engagement and creative partnerships with investors, citizens and
key local constituencies.
OZ Toplines for the Day

6. 6
1 Milken Institute does not provide investment advice and any information contained in this document is for informational purposes only and does not constitute financial, accounting, or legal advice.
2 IRS Revenue Guidelines are required for clarification and have yet to be released
3 For a more detailed explanation of Opportunity Zones and Qualified Opportunity Funds, please visit: irs.gov and cdfifund.gov.
4 Kosmont Companies proprietary graphic
• Opportunity Funds may provide potential Federal tax
incentives to investors (1,2,3)
• A temporary capital gains tax deferral for all newly
realized capital gains reinvested in an Opportunity Fund,
lasting until the investment is sold or December 31, 2026,
whichever is sooner
• A 10 % basis adjustment on the original capital gains,
which can result in tax reductions if the Opportunity Fund
investment is held for 5+ years; plus an additional 5 %
adjustment if the investment is held for 7+ years
• If an investor holds the Opportunity Fund investment for
10+ years, the investor also may permanently avoid
capital gains taxes on any proceeds from the Opportunity
Fund investment itself
How do the Tax Benefits Work?
Timeline of tax benefits (4)
Realized
capital
gain
2018 2019 2020
2023
2026 2027 2028
2022
2021
2024
2025
Investment
Made into
Opportunity Fund
Basis increased
by 10% on
original gain
Deferred Fed Tax
on original gain
due by 12/31/26
Basis
increased by
5% on
original gain
Basis is adjusted to
equal Fair Market
Value. No tax on
Opportunity Fund
appreciation

7. 7Copyright 2019
What Investors Are Looking For…
• Investment certainty
• Permit delays, regulations, no headline risk.
• Acceptable rate of return
• That rate depends on the type of investor and the type of deal.
An EXIT.
• Investors want to know how they get their money back, and when.
A PARADIGM CHANGE IN ECONOMIC DEVELOPMENT?
“We used to look for communities offering us a tax break. With OZs, we don’t need that. What we need a
community that has the infrastructure, community partnerships and talent base in place, or a plan to get that done
in the next few years.
—Investor

8. 8
Key Industries
1. Agriculture
2. Aviation/Aerospace
3. Energy/Alternative Energy
4. Entrepreneurship
5. Film/Arts & Entertainment
6. Health Services
7. Hospitality & Tourism
8. Information Technology
9. Manufacturing
10.Science & Technology
What is the path
forward to
launching this “tool
kit” in a way that
aligns with the
timing requirements
of the Federal
incentives?
3.

9. 9Copyright 2019
The OZ Acceleration Curve:
innovation at scale to attract impact capital and catalyze stronger public sector economic development systems
Local Economy
Development
OZ ReadinessWork to
catalyze project innovation
Planning & Preparation
Project & Pipeline Development
Project Acceleration
Pre-deal incentives in place to
advance high impact transactions
Scale up public sector innovation
andbreakthrough community
partnerships to attract impact
capital
• OZ Expert (Deal Jockey) Hired
• Reporting Framework Established
• Framework for High Impact Transactions
• Predevelopment Funding Available from
State/Philanthropy
• Carrots and Sticks for Smart Permitting
of Issues Preferred Projects
• Community Finance Ecosystem Engaged
• Designated Point Person
• Deep Community Engagement
• Know Your Zones/Zoning/2030 Economy
• Promotional Prospectus Done
• Inventory of Assets/Current Spending
• Gauge Your Capital Access and
Entrepreneurship Gaps
• OZ-Ready Project Portfolio
• Workforce Innovation
• Regional-Scale Partnerships
• Deal “Warehousing” To Bundle Smaller
Projects and Engage Institutional Capital
• New Community Finance and Capital
Access Structures

10. 10
Phase 1 Preparation & Planning: Key Takeaways
• Put An Integrator on Point, not just your
housing person
• Don’t go it alone: Need for Community
Quarterbacks and Engaging Philanthropy
• At Minimum: Check Your Zoning & Codes
• Build Out A Prospectus
Planning & Preparation
OZ ReadinessWork to
catalyze project innovation
• Designated Point Person
• Deep Community Engagement
• Know Your Zones/Zoning/2030
Economy
• Promotional Prospectus Done
• Inventory of Assets/Current
Spending

11. 11
Phase 2 Project Acceleration: Key Takeaways
• Hire A Deal Jockey/Screener
• Predevelopment/Development
Funding: The Critical Move
• Investors don’t want to be first money
• Address Permitting Issues and Delays
• Remember the timelines
Project Acceleration
Pre-deal incentives in place to
advance high impact transactions
• Project Finance Expert (Deal
Jockey) Hired
• Predevelopment Funding Available
from State/Philanthropy
• Permitting/Regulatory/Reporting
Issues Addressed
• Preferred Project Incentives Created

12. 12
Phase 3 Project & Pipeline Development: Emerging
Pathways
• Regional Partnerships
• Cracking the code on public-private
investment in infrastructure
• Deal warehousing
Project & Pipeline Development
Scale up public sector innovation
andbreakthrough community
partnerships to attract impact
capital
• OZ-Ready Project Portfolio
• Long Term Asset
Management/Procurement Reforms
• Regional-Scale Partnerships/Workforce
Innovation
• Deal “Warehousing” To Bundle Smaller
Projects and Engage Institutional
Capital

13. 13
• Easing local regulatory barriers
• Develop incentives to attract and build OZ projects
• Ensure project pipeline is fully fledged out
• Key Players: US Department of Treasury, HUD, State Governors, State Governments, Local Governments,
Government
• Providing complimentary debt financing in Opportunity Zones
• Key Players: JP Morgan Chase, Wells Fargo, Citi, Bank of America, Morgan Stanley, Credit Suisse, Goldman Sachs
Banks
• Investing equity capital through received capital gains
• Developers investing in low income areas, with the benefit of a tax incentive
• Key Players: High Net Worth investors, Family Offices, Developers, Corporates, Industry
Private Capital
• Enable community engagement to stabilize and sustain struggling neighborhoods
• Address community specific needs by supporting efforts at the local level
• Partner with public and private entities
• Seed initiatives that encourage and leverage private capital investment
• Key Players: Milken Institute, Economic Innovation Group, Cal FWD, LISC, Enterprise Community Partners, Kresge
Foundation, Rockefeller Foundation, Governance Project, Accelerator for America, EJF Philanthropies, Parker Foundation
Non-Profits/
Philanthropy
The Opportunity Zone Players

14. 14Source: Katz, B. (2019). How philanthropies leverage opportunity
zones. Knight Foundation.
1. Convene Stakeholders – coordinating efforts within government and across key institutions and sectors
2. Map Assets – supporting design and marketing of OZ Investment Prospectuses to enable effective communication of
city/county/state competitive advantages, trigger local partnerships, and identify sound projects prepared for receive
capital
3. Build Markets – supporting collection of market data, the conduct of market research, and the provision of patient
capital
4. Empower Local Residents – helping residents in/near OZs express preferences, obtain skills, start businesses
(improving quality of life)
5. Build Institutions – enhancing capacity of existing public/private/civic organizations, and creating or supporting new
institutions/intermediaries that can help cities design, finance, and deliver transformative investments and initiatives
6. Encouraging Innovation – using mechanisms (e.g., challenge grants) to source path breaking ideas around urban
stakeholders or push key players to coalesce around coordinated neighborhood investment strategies
7. Sharing information – speeding the process by which innovative strategies, practices, and instruments are captured,
codified, and communicated.
Role of Philanthropies

15. 15Source: Novogradac Opportunity Zones Resource Center.
State Conformity
At present, 46 of 50
states have adopted
some form of full or
partial tax conformity.
Nonconforming
states:
• California
• Mississippi
• North Carolina
• Massachusetts

16. Economic Development in
Opportunity Zones
(infrastructure, housing, jobs,
education, health)
16
Opportunity Zones as an Economic Development Tool
Public
Private
Infrastructure,
housing, jobs,
education, health
Housing, commercial,
retail
Project Pipeline & Deal Flow
Community finance,
tax credits
QOF, CRA, Social
Impact Funds
Debt, Equity
Capital Toolbox
Barriers
State/Local Regulatory
State
Taxes
Coordination
Time

17. 17
Source: Lincoln Institute of Land Policy.
The Land
Value
Capture
Toolbox

18. 18
Source: Lincoln Institute of Land Policy.
The Land
Value
Capture
Toolbox

19. 19
MI State Approach Framework

20. 20Source: Novogradac Opportunity Zones Resource Center; Kentucky Red Tape Reduction Initiative.
Connecticut
• Bill 6552 - An Act Concerning Exemptions from Certain Historic Preservation Requirements
• Would allow fewer hurdles to redevelopment of historic properties in OZs in small towns. Would exempt (a) distressed municipalities
that have been unable to alter a historic building for five years or more, and (b) individuals who wish to alter a historic building located
in an opportunity zone from compliance with the provisions of chapter 97a of general statutes
California
• SB 25 - California Environmental Quality Act: Projects funded by qualified opportunity zone funds or other public funds
• Would streamline environmental review and approval for OZ developments. Establishes expedited judicial review procedures under
the California Environmental Quality Act (CEQA) for projects financed in whole or in part by a “qualified opportunity fund” or other
specified means and meeting other specified conditions, requiring the courts to resolve lawsuits within 270 days, to the extent feasible.
Kentucky
• Red Tape Reduction Initiative
• Initiative identifies costly, ineffective, or outdated regulations and conducts a thorough review
• As of June 2019, of over 4,700+ of KY’s administrative regulations, 628 have been repealed, 693 amended, with 27% of all regulations
having been repealed/amended
Puerto Rico
• S 1147 - Puerto Rico Economic Development Opportunity Zones Development Act of 2018
• Promotes incentives and favorable regulatory environment for OZ projects (e.g., tax credits, tax exemptions, credit priority system,
expedited permitting and more)
Place-Based OZ Incentives: Streamlining Regulations

21. 21Source: Novogradac Opportunity Zones Resource Center.
Nebraska
• LB 87 - Provide funding in opportunity zones designated pursuant to federal law
• Legislation that gives OZ developments priority for funds from the state Affordable Housing Trust Fund, as well as the state
Site and Building Development Fund, Job Training Cash Fund and Business Innovation Act
• Would also make OZ preferred locations for state’s Enterprise Zone Act
Maryland
• HB 1141 – Qualified Maryland Housing Tax Credit
• Would enable the creation of a state affordable housing tax credit effective in 2020
• Would also create a “Qualified Maryland Housing Tax Credit” for properties that qualify for the federal low-income housing tax
credit (LIHTC) and are in areas designated as “community revitalization areas,” which include OZs. The bill sets an annual
statewide cap of $10 million and no requirement that the development also receive federal LIHTCs
California
• AB 791 - Income taxes: credits: low-income housing: qualified opportunity zone
• Provides a $100 million credit to maintain affordable housing units located in OZs and creates a new Low-Income Housing Tax
Credit (LIHTC) set aside to encourage the additional creation of low-income housing units in OZs
Place-Based OZ Incentives: Supporting Housing Priorities

22. 22Source: Novogradac Opportunity Zones Resource Center.
Maryland
• SB 581 –Economic, Housing, and Community Development Tax Credits – Opportunity Zone Incentives
• Establishes the Opportunity Zone Enhancement Program, to be administered by the Department of Commerce
• Qualifying businesses investing in projects located in an opportunity zone may qualify for enhanced incentives under
the following ​existing MD tax credit programs (1) job creation; (2) One Maryland; (3) enterprise zone; (4)
biotechnology investment incentive; (5) cybersecurity investment incentive; and (6) More Jobs for Marylanders
Rhode Island
• SB 668 – Rhode Island Opportunity Zone Tax Credit and Tax Exemption Act
• Legislation to create a 20% tax credit for investments of at least $250,000 in qualified OZ business property in the
state
• H 5808 – Relating to taxation
• Would create a 10% tax credit for OZ investments in Pawtucket and Central Falls, with the QOF required to make a
minimum investment of $250,000 to receive the credit
Place-Based OZ Incentives: Tax-based Incentives for
Business Formation and Job Creation

23. 23Source: Novogradac Opportunity Zones Resource Center.
Ohio
• SB 8 – Authorize tax credit for investment
• Would amend and enact sections of the Revised Code to authorize tax credits including job creation, job retention, historic
preservation and other tax credits for investments in designated Opportunity Zones. Proposed 10% state tax credit for OZs,
using existing tax credit availability.SB 8 – Authorize tax credit for investment
• HB 727 - Grant income tax credit if invest in an opportunity zone
• Authorizes a nonrefundable income tax credit for certain investments (at least $250,000) in an Ohio opportunity zone
West Virginia
• HB 113 – Personal Income Tax
• Would create a decreasing modification for personal income tax and corporation net income tax for income derived from
businesses activity in state QOZs
Texas
• HB 2397 – Tax refunds for business in economic opportunity zone
• Franchise tax credit and sales-and-use tax refund for certain businesses that invest in OZs. A 25% credit would be granted
for expenses to remodel, rehabilitate, or build a structure in an OZ, or to purchase equipment or machinery for a building in
an OZ. This legislation would also allow a one-time 25% credit (or $50,000 credit, whichever is less) for qualifying
businesses for expenses involving materials, labor and equipment for structures in OZs
Place-Based OZ Incentives: Tax-based Incentives for
Business Formation and Job Creation

24. 24Source: Novogradac Opportunity Zones Resource Center.
Texas
• HB 1000 – Rural and opportunity funds
• To create 25% tax credit for rural OZ investment that would apply to the state insurance tax, since TX has no state
income tax. QOFs would be required to have invested at least $100 million in nonpublic companies in OZs or rural
cities/counties and there would be a $35 million annual cap
• SB 826 – Texas Rural and Opportunity Zones Act
• Would create a 25% tax credit against the state insurance tax for credit-eligible capital contributions to a state-
approved rural opportunity fund that in turn makes an investment that meets certain job-creation and job-retention
standards in a targeted rural area
Kentucky
• HB 203 – Kentucky Rural Jobs Act
• Would provide tax credits for investments in rural counties and federal opportunity zones across Kentucky, with an
annual cap of $35 million; State-approved growth funds would require a minimum of $100 million to be invested in
targeted areas during first two years, with remaining funds invested over rest of program’s life
• Legislation requires 75% of investments to go to small businesses in counties with populations of 50,000 or less
Place-Based OZ Incentives: Tax-based Incentives
Targeting Rural Areas

25. 25Source: Novogradac Opportunity Zones Resource Center.
Oklahoma
• OS 62-690.18 – Priority Enterprise Zones
• Department of Commerce will use priority enterprise zones to attract capital to OZs. That allows investors to layer
in other incentives with an OZ investment, such as doubling the state investment tax credit, tax increment
financing, low interest loans from banks participating in the state program and more
Louisiana
• HB 585 – Louisiana Act No.251
• Would add buildings in OZs to a list of properties allowed to participate in the state’s restoration tax abatement
program, which allows property owners to pay property taxes for five years based on the value of the property for
the year before it was improved
Vermont
• H 442 - Act relating to downtown and village center tax credits in an opportunity zone
• Would allow OZ properties to apply for the state Downtown and Village Center Tax Credit twice as often as other
projects (annual, rather than biannual, basis). That credit covers 10 percent to 50 percent of eligible rehabilitation
expenses
Place-Based OZ Incentives: Pairing Existing Incentives

26. 26Source: Novogradac Opportunity Zones Resource Center; Arizona
Commerce Authority.
Washington, D.C.
• D.C. Law 13-166 – Supermarket Tax Exemption Act of 2000
• Waived certain taxes and fees to supermarkets that locate in specific neighborhoods (Priority
Development Areas), encouraging investment in areas lacking access to groceries and fresh food
• Benefits (10-year) include real property tax exemption, business license fee exemption, personal property
tax exemption, and sales and use tax exemption on building materials necessary for construction
Arizona - AZ Commerce Authority Programs
• Quality Jobs Tax Credit
• Provides up to $9,000 of income or premium tax credits over a three-year period for each net new job to
the state and concurrent qualifying capital expenditures
• Qualified Facility Tax Credit
• Provides refundable income tax credits up to $20,000 per qualifying net-new job to eligible manufacturing
companies that invest in one or more qualifying facilities
• Job Training Grant
• Reimburse a portion of qualifying costs associated with hiring and training of net new employees
Place-Based OZ Incentives: Pairing Existing Incentives

27. 27Copyright 2019
Some Final Questions To Ask:
• Should your city or state create its own OZ or parallel pre-development fund to
accelerate implementation?
• Should state and local partners drive “adjacency strategies” to better link long-
term community economic demand to start-up service company investments?
• Should your city or state wisely partner with major institutional investors
(education, hospitals, military, pension funds)
• Should you act and think regionally based on long-term economic demands
and shared best practices?
• Should you weigh in on a federal OZ fix-it-bill? (to include CDFIs, extend
deadline, add back reporting, add wrap around support, disaster zones)

28. Matt Horton
Associate Director, Center for Regional Economics and California Center
(310) 570-4617
mhorton@milkeninstitute.org
www.milkeninstitute.org