The opportunity zones that succeeded in the past were not the most distressed nor the most prosperous. They were the ones whose local governments had done the preparatory work, writes Jason Villalba.
Smiley N. Pool/The Dallas Morning News
Some of the most consequential decisions in Texas government happen without a press conference. The redrawing of the federal Opportunity Zone map, scheduled to be completed in Austin this summer, is one of them.
The Opportunity Zone program, created in 2017, gives investors significant federal tax benefits for placing capital gains into projects inside designated census tracts. The first round of the program, launched in 2018, channeled roughly $100 billion into the selected communities. Version 2.0 of the Opportunity Zone program, made permanent last July under the One Big Beautiful Bill, will attract similar sums to be invested over the next 10 years.
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This summer, Texas will nominate approximately 600 new tracts for the program . The office of the governor, through its Economic Development and Tourism office, will make the final selection. The deadline for local jurisdictions to submit their nominations is June 26, less than six weeks away. The next opportunity to revise the map will not occur until 2036, a decade away. Time is of the essence for city halls around North Texas.
The state will not weigh nominations in a vacuum. It will weigh them against one another. The tracts that receive the benefit will be the ones whose sponsoring cities arrive with a clean demonstration that the tract qualifies under the new federal eligibility rules, documented local commitments such as council-approved tax incentives, economic development corporation participation and an identified project sponsor prepared to deploy capital in the first two years after designation.
A city that walks into Austin with that package will be heard. A city that walks in with merely a letter of interest will not.
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Much of North Texas is well-positioned to participate in this process. Cities like Dallas, Fort Worth, Plano, and Arlington have the staff, the standing relationships, and the institutional heft to command attention at the Capitol and the governmental infrastructure necessary to compete for the investment. Some of our suburban and exurban communities, however, do not have the necessary resources or preparation processes in place to fully capitalize on the opportunity.
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Smaller cities in the area, the ones now absorbing the region’s growth in Ellis, Kaufman, Rockwall and the outer reaches of Collin and Denton, have the qualifying tracts, the necessary developers, and are exactly the kinds of communities the Opportunity Zone program is intended to support. But, they do not often have the bandwidth to assemble a competitive nomination in six weeks while doing everything else a small city has to do.
The lesson of the 2018 round is worth keeping in mind. According to the Treasury Department’s Office of Tax Analysis, about a third of the zones designated nationally had still received no investment at all through 2022. They were placed on the map and forgotten. And the investment that did flow was strikingly concentrated: just 5% of zones nationally drew 78% of the dollars. The zones that succeeded were not the most distressed nor the most prosperous. They were the ones whose local governments had done the preparatory work, paired the federal designation with real local incentives, and lined up developers in advance. Designation alone has never been enough. Designation paired with execution has been transformative.
The new law also adds a feature that should focus the attention of every small-town city manager surrounding the Dallas-Fort Worth area. Investments routed through a newly created category of rural opportunity fund will triple the standard benefitwith only half the construction threshold requirements of an urban deal. That changes the math on projects in the smaller cities and unincorporated communities that historically watched this kind of capital pass them by.
North Texas has spent 20 years building the institutional infrastructure that makes complex public-private deals possible. Our regional councils of governments, chambers, economic development corporations, and public finance bar are as sophisticated as any in the country. The capacity is here. The clock is the constraint.
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Six weeks is a short runway, but the work can be accomplished if the preparation begins now. Cities should be inventorying eligible tracts. Counties should be strategizing with smaller jurisdictions within their borders. Councils should be moving incentive resolutions to the front of the agenda. Developers and capital sources who have been quietly watching should be making themselves known.
The map will be drawn whether North Texas participates in the drawing or not. The communities that prepare today will be most likely to find success. As is usually the case, the early bird gets the worm.
Jason Villalba served three terms in the Texas House of Representatives. He leads the Texas practice and the governmental relations group at FBT Gibbons LLP in Dallas, and is the founder, chairman, and CEO of the Texas Hispanic Policy Foundation.
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