Washington State Group Launches Aggressive Effort to Capture 'Opportunity Zone' Investment

Special Report: Tribes, Local Governments Focus on Potential Projects While Awaiting Federal Guidelines

The Emerald Coast Opportunity Zone Fund has identified housing as a major priority in part of the Olympic Peninsula in Washington state. Credit: John Gussman.

A provision in the new tax law establishing so-called Opportunity Zones is facing criticism that its elimination of some capital gains taxes could make it a tax dodge for the rich. But a band of Native American tribes and local governments on Washington's Olympic Peninsula is trying to demonstrate what the provision can accomplish.

Kyle Johnson, the economic development director for the Jamestown S’Klallam Tribe in Washington state, has already discussed several potential commercial development projects with more than a half-dozen local and institutional investors.

"This is an area the program was explicitly meant to benefit," said Johnson. "This will add some badly needed gasoline to development out here."

Passed by Congress last December in the Tax Cuts and Jobs Act, the program allows investors to defer or eliminate federal taxes on capital gains if they invest in distressed communities identified by the governors of each state. Investments are made through special funds created solely for the program.

Johnson’s small tribe is part of one of the largest such funds in development around the country: the Emerald Coast Opportunity Zone Fund, which Washington state Director of Commerce Brian Bonlender called "a model for the country in collaboration."

The fund consists of 17 municipalities across 14 low-income census tracts. Many of the entities have never worked together before, including five Native American tribes, eight small cities, two counties and two ports.

Tribal areas fared well in the federal government's opportunity zone designations. Governors in 26 states included explicit set-asides for tribal areas. As a result, 294 opportunity zones contain Native American lands, out of about 1,341 census tracts eligible for selection in tribal areas, according to housing organization Enterprise Community Partners.

Its mission: Aggressively reach out to investors to kickstart economic development in some of Washington’s state’s poorer areas. The group is perhaps one of the most ambitious such funds in the United States, said Washington state Rep. Derek Kilmer, who has been involved in the effort.

Credit: John Gussman.
A group in Washington state has already identified several potential economic development projects that could be funded through Opportunity Zones, from affordable housing to road paving.

Located 110 miles west of Seattle, parts of the Olympic Peninsula -- especially Jefferson and Clallam counties -- are rural, under-developed and isolated. Many areas do not have access to broadband.

The group has compiled a preliminary list of 28 projects to show investors, with affordable workforce housing a top priority.

"We have actually had people take jobs here and then move back to Seattle because they had no place to live," he said. "You’ve got people renting rooms or RVs on other people’s property. If people have no place to live, the other things we do won’t really matter."

Other projects include plans for downtown retail development on the Hoh Indian Reservation, port expansion and wind energy projects on Makah tribal land and a light-industrial development seeking mixed-use tenants on the Quileute Indian Reservation. The list includes food bank relocations, airport expansions and aquaculture and timber-harvesting projects designed to reflect the geography of the region.

The tribes in particular are eager to cash in, Johnson said. Several myths hinder investment in these regions, including the mistaken belief that gaming significantly enriches Native American communities, according to the Center for Financial Inclusion, a think tank that works to increase financial literacy. Other misconceptions are that investments generate significant social impact and that they don’t always align with Native American initiatives.

The federal government could release final guidelines as early as this month, and most groups across the country "are just waiting around" until it does so, said Julie Knott, interim executive director at the Clallam Economic Development Corp. and a leader of the Emerald Coast Opportunity Zone Fund.

"Even if we weren’t doing this Opportunity Zone project, we would be doing a lot of these things anyway," she said. "But this allows us to do so much more, including getting the attention of investors who otherwise never would have heard of us."

Knott expects funds to begin flowing to projects next year. By 2021, "we’ll see the first real picture of impact. And, out here at least, it will be palpable."

Editor's Note: This is the fifth of five parts on new so-called Opportunity Zone tax benefits designed to boost investment in economically distressed communities.
Part I: The Coming Cash Wave
Part II: Awaiting the Rules
Part III: Investor Interest
Part IV: Boon or Boondoggle?
Part V: The Case for Help