Eighty-five census tracts across 49 Arkansas counties have been identified by Gov. Asa Hutchinson as possible “opportunity zones” where investors in those areas can have their taxes on capital gains deferred or even eliminated.
The governor’s office sent a list of those tracts to the U.S. Treasury Department on Friday, after having earlier received a 30-day extension to submit the information. The program is part of the new federal tax law passed by Congress in December.
“I think it’s a great opportunity for Arkansas and for our local communities,” Hutchinson said by telephone Monday afternoon shortly after his office publicly released the list. “We tried to mirror the designated census tracts with the most likely area of investments. We relied on priorities set by local economic development leaders and sometimes based on the information of an investor who’d say, ‘This is what I want to invest in.’”
The Tax Cuts and Jobs Act of 2017 established the program to encourage long-term private investment in low-income communities and neighborhoods. The program provides a tax incentive for those who reinvest unrealized capital gains into zones ultimately approved by the Treasury Department.
Low-income community tracts are generally defined as those in which the poverty rate is at least 25 percent or where median-family income doesn’t exceed 80 percent of either the statewide or metropolitan area median-family income. Those determinations are based on data from the 2011-15 American Community Survey of the Census Bureau.
The state first identified 337 census tracts potentially eligible for the program but was limited by law to submitting no more than 25 percent, or 85 tracts, to the Treasury Department.
Hutchinson credited Mike Preston, executive director of the Arkansas Economic Development Commission, with doing much of the work to compile the list.
“It was very difficult,” Hutchinson said of narrowing the list to sites that stood the best chance of attracting investment.
“We didn’t want to designate a tract that would be idle 10 years from now,” Hutchinson said. “But of course there’s never a guarantee the investment happens, but this a premium opportunity.”
The Arkansas list of 85 tracts includes eight in Pulaski County, the most of any county, followed by six in Washington County, four in Mississippi County and three each in Craighead, Faulkner, Garland, Jefferson and Sebastian counties.
Large portions of traditional row-crop counties such as Mississippi, Desha and Jackson counties have been marked as possible zones. Large sections of heavily wooded counties such as Van Buren and Ouachita counties also received the state designations. Much of an area east of Interstate 30 near downtown Little Rock is among the selections sent by the governor.
Hutchinson designated three tracts in Hot Springs, with one tied to the specific area between the Arlington Hotel, which is under new ownership and is being renovated, and the site of the former Majestic Hotel, much of which burned in a fire in 2014 with the rest of it being leveled in 2016.
“That’s a pretty good anecdote of where [an area] is ripe for investment and where there’s a great need,” Hutchinson said.
Hutchinson also cited census tracts near the Little Rock airport, areas south of Interstate 630, and downtown North Little Rock.
The new program differs from similar efforts by Congress. Earlier programs, which identified areas referred to as enterprise zones or promise zones, were centered on government-based grants, loans and other incentives.
The Treasury Department, along with the Internal Revenue Service, still must write guidelines for the program, which will determine the types of investors who might be drawn to the zones.
The program generally sets tax breaks for investors based on how long they hold their investments. Keeping an investment longer than a decade would eliminate the taxes on the capital gains invested, with smaller breaks based on five and seven years of the investments.
The Economic Innovation Group, a research group in Washington, D.C., pushed the idea through Congress with bipartisan support. It has been estimated that U.S. households and corporations held $6.1 trillion in unrealized capital gains at the end of 2017.