Birmingham has 24 Opportunity Zones submitted to U.S. Dept. of Treasury

Under the new Opportunity Zone designation, empty lots like this in Birmingham could soon be the site of new homes and businesses. Photo Cred: Andre Natta

On March 21, Governor Kay Ivey released a list of 158 Opportunity Zones she has submitted to the U.S. Department of Treasury, 24 of which are located in Birmingham.

The city with the next highest total of Opportunity Zones is Mobile with 14. So what exactly are these zones and what will it mean for economic development in the Magic City?

Map of the nominated Opportunity Zones

First and foremost, these zones are designed to draw long-term capital investments into poverty-stricken communities. In Birmingham, 30.9 percent of residents live at or below the poverty line. The program provides a federal tax incentive for investors to re-invest their unrealized capital gains into Opportunity Funds dedicated for investing in designated Opportunity Zones, as stated in a press release by Governor Kay Ivey.

According to the Brookings Institute, “Opportunity Zones offer favorable capital gains treatment for taxpayers who invest in designated high poverty neighborhoods. Invest in real estate or businesses located in a qualified zone, hold it for ten years, and not only can you sell your investments free of capital gains tax, but you also get a tax break on untaxed capital gains rolled into an Opportunity Zone investment. Individuals in a high-tax state and with short-term capital gains can avoid $7.50 in taxes for each $100 they invest, even before considering any return on their Zone investments. It’s very favorable treatment.”

Councilor John Hilliard, who chairs the Economic Development Committee, said he is excited about the potential investments in Birmingham’s neighborhoods that are currently struggling with high rates of poverty.

“I almost wanted to go and give Governor Ivey a hug when I first heard the news. I hope she knows we’re going to work extremely hard to recruit and grow businesses to these areas,” Hilliard said. “They had the vision to help us grow. A strong Birmingham means a strong Jefferson County and Alabama. I hope that corporations throughout the world and Alabama will come and invest in those areas and take advantage of these benefits.”

Beyond corporate investors, Hilliard said this is an amazing opportunity for local entrepreneurs and investors. “Rather than worry about the Amazons of the world and recruiting them here, we need to grow and create our own Amazons. This is a window for small businesses. They can become the next big thing. To our small business people, take note of this and get involved and take advantage of these Opportunity Zones.”

Here is a video detailing the potential impact of Opportunity Zones

These zones were established by Congress as part of the Tax Cuts and Jobs Act of 2017. By law, governors can nominate up to 25 percent of their state’s qualified census tracts for inclusion — or, if the state has fewer than 100 such tracts, up to 25 tracts. Up to 5 percent of the state’s 25 percent can be non-low-income tracts eligible based on contiguity.

In Alabama, 629 of the state’s 1,181 census tracts are categorized as low-income. Out of those 629 eligible tracts, the state was able to designate 158 as Opportunity Zones, roughly 25 percent of the eligible land.

“I serve all 67 counties as governor of this great state, and it was very important to me to ensure that every county had an Opportunity Zone, thereby giving each county a chance at spurring economic growth,” Governor Ivey said in a statement released by her office. “These zones were selected through a deliberative process to ensure that Alabama communities get the most benefit out of the designation.”

According to Ivey’s office, the areas eligible for submission as Opportunity Zones are census tracts designated as low-income communities — meaning a poverty rate of at least 20 percent or a median family income of less than 80 percent of the statewide median income. Census tracts are small, statistical subdivisions of a county established by the U.S. Census Bureau. Each tract averages between 1,200 and 8,000 in population.

A more detailed list/map of the nominated tracts will be added once they become available.