The U.S. Department of Treasury and Internal Revenue Service have certified the 144 census tracts in Kentucky that were submitted by Gov. Matt Bevin’s administration to be “Opportunity Zones” — low-income areas where major investors would be incentivized by significantly reduced and deferred capital gains taxes.
Kentucky was one of 18 states to have its Opportunity Zones certified on Monday, in the first round of designations for the little-known federal incentive program that was tucked into the tax cut bill passed by Congress in December.
The 144 census tracts certified in Kentucky are located in 84 counties throughout all regions of the state, and the new Kentucky Opportunity Zone Initiative will be overseen by the Kentucky Cabinet for Economic Development, according to a news release from Bevin’s office.
The cabinet sought suggestions from local governments on what census tracts should be submitted to the Treasury last month, and the release indicated that every county that submitted a proposal received at least one Opportunity Zone.
The administration of Mayor Greg Fischer told Insider Louisville in March that they proposed roughly 20 census tracts in the city to the Bevin administration, and the Treasury certified 19 on Monday — including the downtown business district and tracts surrounding it to the west, south and east.
Last month, in what was billed as a business roundtable in the west Louisville neighborhood of Portland, Bevin and several officials from President Donald Trump’s campaign mentioned the possibility of the new Opportunity Zones program drawing capital investments into this impoverished section of the city.
The governor told the audience that west Louisville communities should welcome such investors “who come out of the graciousness of their heart to help us.”
In his announcement of the certifications, Bevin said the state “will maximize this golden chance to attract economic development projects to communities most in need across the commonwealth, and the Kentucky Opportunity Zone Initiative will strengthen and rebuild both rural and urban areas. Whether along the Mississippi River in West Kentucky, throughout West Louisville’s neighborhoods, or in the heart of Appalachia, these zones will spur investment, growth and community development.”
Up to 58 percent of the state’s nearly 1,000 tracts — and a majority of the 170 tracts in Louisville — were eligible to be deemed Opportunity Zones because they had a poverty rate of at least 20 percent, or a median family income below 80 percent of the statewide median.
Under the new program, capital investors can create private sector investment vehicles called Opportunity Funds, which must invest at least 90 percent of their capital in these zones. These investors are then encouraged to invest their large amounts of unrealized capital gains into these zones by having these gains taxes deferred, reduced or eliminated.
While the census tracts certified in Louisville include some of the most impoverished areas in west Louisville, other tracts contain areas and neighborhoods that have witnessed significant economic development, if not affluence.
In addition to the downtown tract that includes the Central Business District, other certified tracts to the south and east include NuLu, Butchertown, Phoenix Hill and the University of Louisville’s Belknap Campus.
The NuLu and Butchertown tract certified as an Opportunity Zone would include the new soccer stadium district that developers expect to spur $130 million in private investments for hotels, restaurants and offices.
The census tract where the Kentucky Exposition Center and Fairgrounds are located — and the Kentucky State Fair Board is seeking private development partners — is also included as an Opportunity Zone.
According to the 2011-2015 census figures, seven of the 18 tracts with the highest poverty rates in Louisville were not included as Opportunity Zones. While the west Louisville neighborhoods of Portland, Russell, California and Park Hill were included as Opportunity Zones, the far-west areas of Shawnee, Chickasaw and Parkland were mostly excluded.
Adam Looney of the Brookings Institute warned in a February article that without proper guardrails, Opportunity Zones could be used by governors to boost investors who have already committed to developing up-and-coming neighborhoods, instead of the most distressed areas.
Looney also said the capital gains tax incentives could amount to a “subsidy for gentrification” that prices out current low-income residents, as the value of the tax incentives is “based on capital appreciation, not on employment or local services, and includes no provisions intended to retain local residents or promote local housing.”
Jean Porter, the spokeswoman for Mayor Fischer, told Insider in an emailed statement that “we are very pleased with the designations and look forward to working with our state colleagues and private investors to attract new capital to Louisville.”
Porter did not immediately provide Insider with the list of tracts the administration recommended to the Bevin administration, and our open records request is currently pending.
The news release from the Bevin administration included praise from Senators Mitch McConnell and Rand Paul, as well as Republican Congressman Brett Guthrie and the Republican leaders of the state House and Senate.
“Today’s Opportunity Zones announcement is another reason why tax reform is good for Kentucky families and our state’s economy,” stated Sen. McConnell. “Opportunity Zones will breathe new life into struggling communities left behind by Obama-era policies. From coal country to farming communities and everywhere in between, overregulation was holding our economy and our workers short of their full potential. We are getting the government’s foot off the brake and letting the economy flourish.”
Economic Development Cabinet executive officer Vivek Sarin stated that they “see unparalleled prospects that can develop from this initiative, so we’re working to ensure Kentucky’s Opportunity Zones stand out as the most competitive and attractive in the nation.”
The Treasury and IRS have yet to finalize rules on how the Opportunity Funds will work, so such investments in the certified zones may not take place in the near term. The state cabinet has also created a website to highlight the new initiative featuring a map of the new Opportunity Zones, which will be further updated to include current corporate investment projects and information about Opportunity Funds.
This story has been updated to correct that the Parkland neighborhood was mostly excluded from the certified Opportunity Zones.