Different levels of government are able to provide financial incentives as a market-based solution to achieve equitable investment in designated areas. Government leaders have relinquished short-term tax revenues in the hope these financial incentives will serve as the backbone for long-term economic growth. If such strategies succeed, they retain the ability to reinvigorate existing communities and neighborhoods and promote denser living and working arrangements consistent with smart growth principles. Properly used and placed incentives can implement the region’s CEDS and Long-Range Plan goals by:
- Attaining Regional Growth by diversifying economic sectors and supporting the infrastructure necessary for small business creation;
- Revitalizing the Region’s Neighborhoods and Retail Centers by reusing and rehabilitating vacated buildings and community anchors; and
- Creating Meaningful Employment that meets community needs and provides a high quality of life for residents.
Opportunity Zones
Greater Philadelphia has over 20 different opportunity areas available to entrepreneurs, corporations, or government officials to encourage new and expanded business opportunities. Economic development incentives include place-based opportunities such as Enterprise Zones, Empowerment Zones, or Keystone Opportunity Zones (KOZs); tax-incentives such as NJ’s PILOT or Revenue Allocation Districts (RAD) or federal tax credits such as Opportunity Zones or New Market Tax Credits.
Created through the federal 2017 Tax Cuts and Jobs Act, Opportunity Zones were designed to enhance impactful economic development in economically-distressed census tracts by deferring or reducing capital gains taxes for individuals and businesses who invest in qualified census tracts through qualified opportunity funds (QOF).
- Investors can defer a capital gain by investing in a QOF and will recognize the gain either on the date the investment is sold or December 31, 2026--whichever is earlier.
- Investments held in a QOF for at least 5 years are eligible for a 10% exclusion on deferred gains and investments held for at least 7 years are eligible for a 15% exclusion.
- Investments held for at least 10 years in a QOF will receive a permanent exclusion from the capital gains tax. However, this does not apply to the original capital gains prior to the QOF.
Opportunity Zones [0.7 MB pdf] were identified by the individual states using the following criteria:
- No more than 80% of the median family income (statewide) for census tracts within non-metropolitan areas.
- No more than 80% of the greater median family income (statewide) or the overall metropolitan median family income for census tracts within metropolitan areas.
Up to 25% of the census tracts of each jurisdiction that met these criteria could be nominated. An additional 5% of each jurisdiction could also qualify if they met a different set of income and geographic qualifications:
- A census tract contiguous with a low-income Opportunity Zone; and
- A median family income of no more 125% of the median family income of the adjacent Qualified Opportunity Zone.
Approximately 7,800 census tracts are Opportunity Zones, 12% of all census tracts, nationwide. Greater Philadelphia has 126 Opportunity Zones, less than 2% of the nationwide total. Due to the difference in population and land area between the two states-New Jersey and Pennsylvania-there are 28 qualified tracts in the 4 southern NJ counties of the region and 98 qualified tracts in southeastern Pennsylvania. Identified Opportunity Zones are located in the region’s developed communities and cities that have experienced a decline in population and jobs over the past 10 years. Unemployment rates for qualified tracts in Greater Philadelphia are above double the national rate of 5.3%, peaking in specific tracts of the region’s core cities of Chester (17.3%), Camden City (20.9%), Trenton (15.7%), and Philadelphia (36.4%).
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