Opportunity Zones, the tax incentives for investment in poor and undercapitalized communities that were included in the Tax Cuts and Jobs Act, did not go unnoticed in Indian Country.
Governors in 26 states have named census tracts that include tribal areas. Of 481 tribal census tracts across the country, 248 (or 52 percent) are in at least one census tract eligible for Opportunity Zone designation. All 248 received at least one Opportunity Zone designation. (This analysis includes all Opportunity Zone tracts that have been approved by the US Treasury as well as proposed tracts awaiting approval.) Of the 1,341 census tracts eligible for selection in tribal areas, 30 percent were picked, so tribal areas fared well in Opportunity Zone designations.
Governor Bollock of Montana noted, “We asked cities, towns, counties, tribes, and economic development organizations to nominate areas that are most likely to realize development which benefits communities.” Tribes in other states also worked with their governors’ offices and with local community development organizations to promote the inclusion of tribal areas as designated Opportunity Zones.
Market forces will determine their eventual impact, but the new zones could shepherd significant new capital to tribal lands.
A challenging investment landscape for Indian Country
The goal of attracting private investment for housing and economic development in Indian Country is not new. One of the primary objectives of the Native American Housing Assistance and Self-Determination Act (NAHASDA) of 1996 was to promote the development of private capital markets in Indian Country and to allow such markets to grow.
But our study of housing needs in tribal areas found that the use of funds other than the NAHASDA block grant for housing construction and rehabilitation in tribal lands was limited, with most respondents to our survey of housing administrators reporting that private subsidies were included in less than one-fourth of their projects.
Although investment vehicles are available to attract private funds, such as the low-income housing tax credit (LIHTC) and New Markets Tax Credits, there are challenges to accessing private capital in Indian Country.
The barriers most frequently reported included lack of interest from other organizations or financial institutions; lack of availability of programs; political tensions between the tribe, the housing administrative entity, and other organizations; administrative constraints; and differing priorities.
How Opportunity Zones could attract more investment to tribal areas
Opportunity Zones differ from existing programs that provide tax incentives for community and economic development. They are promising for Indian Country because of tax incentives, eligibility period, and flexibility.
To attract investment in low-income and undercapitalized communities, tax benefits are available to corporations and individuals that invest capital in Opportunity Zones. These benefits defer or reduce taxes on capital gains and favor long-term investment. Once selected, Opportunity Zones keep the designation for 10 years.
Capital for eligible projects is directed to Opportunity Funds, which are organized as partnerships or corporations and certified by the US Treasury. There is no limit to the number of Opportunity Funds that can be established, and they can be created to invest in a single project or multiple projects.
With less complex rules and regulations than economic development tax credit programs and greater flexibility in the range of projects that can be undertaken, tribes could engage with Opportunity Funds and influence their development decisions.
Tribes are already building capacity for development projects
Opportunity Zones hold promise for addressing the lack of interest from other organizations or financial institutions. After more than 20 years of working with NAHASDA, tribes and economic development organizations in Indian Country have gained experience at leveraging funding and planning for new development.
The LIHTC was cited as the program that tribes most often used other than the NAHASDA block grant for housing construction and rehabilitation in our study, and Opportunity Zones can build on that investment momentum.
- Bad River Reservation (Wisconsin) uses the LIHTC for new development and appointed a project manager for tax credit projects.
- White Earth (Minnesota), a tribe working on its fifth LIHTC project, noted an increase in investors and developers interested in LIHTC projects.
- The Lumbee Tribe has worked with its community partners, the local bank, and the city (Pembroke, North Carolina) to develop funding packages for housing that serves tribal members. Using the LIHTC and other programs, the tribe is providing new, energy-efficient housing and accommodating the needs of elders and members with disabilities.
These and similar experiences at other tribes have built capacity for managing development projects, forming partnerships, and attracting investors in Indian Country.
Governors have taken notice of tribal lands in their Opportunity Zone designations. Now tribes can use their experience to package development projects in Opportunity Zones to attract new corporate and private investors.