Colorado on Friday designated 126 census tracts as “opportunity zones” where investors can reduce and eventually avoid any federal capital gains generated from investments made there.
“Zones are in a number of different communities, and in almost every county,” said Jeff Kraft, who helped guide the selection process with the Colorado Office of Economic Development and International Trade.
The zones stretch across the state, with Alamosa, Bent, Rio Blanco, Crowley, Cheyenne, Lake and Las Animas counties home to some of the larger land parcels. But small tracts are peppered throughout more populated communities up and down the Front Range.
Congress established the opportunity zone program under the Tax Cut and Jobs Act in December with a goal of assisting areas left behind in the economic recovery. It allows investors to take built-up capital gains and put them into a fund that can then be used to invest in distressed areas.
If those investments are held for 10 years or more, any capital gains generated are waived. The expectation is that billions of dollars could flow into zones in every state.
To qualify, a census tract had to have 20 percent or more of its population living in poverty, and the median income had to be at 80 percent or less of the state median. Of the tracts that met those criteria, states could designate 25 percent as opportunity zones.
The selection process, which involved local enterprise zone administrators and occurred over three months, required balancing need against opportunity, Kraft said. An area might be economically disadvantaged, but so isolated or lacking in infrastructure that an investor wouldn’t ever consider it.
The state created a separate index to measure investment potential. That scoring system put around two-thirds of the zones in a band of Front Range counties from Larimer to El Paso. Denver qualified for the highest concentration of zones.
Those counties have also seen the greatest growth during the recovery. Kraft said state officials recalibrated the process to put more zones in rural areas.
The U.S. Treasury Department will take about another month to approve the zones, which will then be open for investment. The expectation is that large up-front investments, such as the purchase and renovation of old buildings or new infrastructure, such as wind turbines, will be more common than business startups.
New business ventures typically receive their investment over a number of years in stages. And many startups fail, leaving no capital gains to harvest.
Kraft said once the zones are designated, they can’t be changed. And while the state can provide technical assistance or help investors understand opportunities, it won’t control the program, which will be in federal hands.