The U.S. Department of Treasury and the IRS recently announced the federal government has approved Opportunity Zones in 18 states, including Michigan. 

As CMF reported last month, Governor Rick Snyder asked the federal government to designate 288 census tracts, (which is the maximum number of tracts that qualify in Michigan), as official Opportunity Zones. All 288 recommended census tracts in Michigan have received approval and are now official Opportunity Zones. Here’s the full list of the Michigan census tracts included in the zones.  

Opportunity Zones, created through the recent tax reform legislation, are designed to incentivize investments in low-income communities or areas directly adjacent to one or more low-income communities. 

“These zones have the potential to help Michiganders take advantage of the full economic development potential in all corners of the state,” Snyder said. “This is a unique opportunity for investors and promising news for eligible communities.” 

Opportunity Zones retain their designation for 10 years.  

As for investors, they can defer tax on any prior capital gains until no later than December 31, 2026, as long as the gain is reinvested in an Opportunity Fund, an investment vehicle organized to make investments in Opportunity Zones.   

The Michigan State Housing Development Authority (MSHDA) shared in a press release that “the preferential tax treatment is connected to the longevity of an investor’s stake in a qualified Opportunity Fund and provides the most upside to those who hold their investment for 10 years or more.” 

MSHDA said the Opportunity Fund can be used as a primary investment in a variety of activities, such as creating a new business, new commercial or residential real estate or infrastructure. They also can be used to invest in existing businesses if it doubles the investment basis over 30 months. 

MSHDA’s executive director Earl Poleski said it’s an exciting economic development tool for Michigan, noting what Opportunity Funds could mean for affordable housing in some communities. 

“The benefits can be combined with other incentives such as New Market Tax Credits (NMTC), Low-Income Housing Tax Credit (LIHTC) and historic rehabilitation tax credit, adding a valuable tool for economic and community development,” Poleski said. 

"We are hearing excitement from the philanthropic sector about the potential for catalyzing investment in low-income communities,” Jennifer Oertel, CMF’s impact investing expert-in-residence said. “I am hopeful for the opportunity to expose traditional investors to impact investing and to dispel the myth that investors must sacrifice financial return in order to create social impact. However, those who care about low-income communities and the people who reside there are also concerned that this initiative, which will provide significant tax breaks for wealthy investors, be utilized to truly help those in need." 

Opportunity Zones were discussed at Mission Investors Exchange’s (MIE) conference last week in Chicago, both as a potential tool to invest in underserved communities as well as shining a light on concerns emerging from the philanthropic sector. 

Last week MIE shared a blog post from Enterprise, a nonprofit focused on affordable housing, which states in part, “Our partners on the ground – in urban, rural and all other types of communities – have shared concerns that this private capital may cause unintended negative outcomes for the very people they are seeking to help. In particular, there is a fear that local residents and businesses could be displaced if Opportunity Zone investments cause property values and costs of living to rise.” 

Earlier this year, Rip Rapson, president and CEO of The Kresge Foundation wrote a blog about such concerns with Opportunity Zones.  

“The broad language in the legislation leaves it in the hands of the investor – with no oversight from states – to determine whether investments meet community needs,” Rapson wrote. “This is a significant and important moment for community development champions to define what the future of this program should be.” 

Rapson provided recommendations on how the zones should utilize equitable principles of investing in low-income communities. 

"We heard at the Mission Investors Exchange conference about the huge potential of foundations being catalysts to deep and meaningful work in communities," Melanie Audette, senior vice president, MIE, told CMF. "This includes not only being informed about Opportunity Zones, but leading by bringing their expertise and network to the people and communities they serve and support. Community foundations in particular are especially well situated to play a role deep in community as conveners and intermediaries for those wishing to coordinate their own efforts in place. The network is particularly important as dollars begin to flow, keeping the impact in impact investing is a mantra for many of our members." 

As for next steps, MSHDA said that those who are interested in investing in the Opportunity Zones will need to apply to the U.S. Department of Treasury to establish an Opportunity Fund.  

The state is awaiting further guidance from the department on how that process will work.  

Want more? 

Check out the FAQs about Opportunity Zones.  

View the full list of Michigan Opportunity Zones. 

Check out Mission Investors Exchange’s resources on Opportunity Zones.