OZ Reform Legislation 2023 Update, With John Sciarretti & Peter Lawrence

Opportunity Zone reform legislation introduced in April 2022 failed to pass before the end of last year. But extending and improving the tax policy remains a priority for the industry and key supporters in Congress.

John Sciarretti, head of the Novogradac Opportunity Zones Working Group, and Peter Lawrence, director of public policy and government relations at Novogradac, join the show to discuss the status of the “Opportunity Zones Improvement, Transparency, and Extension Act,” including when and how it may be re-introduced and eventually passed by Congress.

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Episode Highlights

  • The size of the Qualified Opportunity Fund marketplace, estimates as to how much capital has been raised through the end of 2022, and how the equity raised via the QOF structure compares to other alternative investment structures.
  • How the end of the last session of Congress played out, and why the void in clear leadership on the Republican side of the aisle likely contributed to stalled negotiations on tax legislation.
  • Current Democrat and Republican priorities in tax legislation that still need to be addressed, and how Opportunity Zones and other tax incentive programs may fit into those priorities.
  • Why a slow start to the new session of Congress and the debt limit issue may push any potential tax legislation negotiations back toward the end of 2023.
  • The biggest obstacles to Opportunity Zone reform legislation, and the best ways that OZ stakeholders can continue to advocate for extension of the policy.
  • How Community Reinvestment Act regulations reform may impact Opportunity Zones.

Guests: John Sciarretti & Peter Lawrence, Novogradac & Company

John Sciarretti & Peter Lawrence on the Opportunity Zones Podcast

About The Opportunity Zones Podcast

Hosted by OpportunityDb.com founder Jimmy Atkinson, The Opportunity Zones Podcast features guest interviews from fund managers, advisors, policymakers, tax professionals, and other foremost experts in opportunity zones.

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Show Transcript

Jimmy: Welcome to the Opportunity Zones podcast. I’m Jimmy Atkinson. Last April, the Opportunity Zones Improvement, Transparency, and Extension Act was introduced into the House and Senate. This was bicameral and also bipartisan legislation. The reform legislation was co-sponsored by Senators Cory Booker and Tim Scott and House Representatives Ron Kind and Mike Kelly.

Unfortunately, the legislation did not pass at the end of 2022 as I had predicted. But we’re going to dive into a discussion today of what’s next with Opportunity Zones reform legislation. When might it get reintroduced? Will Opportunity Zones get extended? Will they get reformed? We hope to look into some answers to those questions today.

And joining me on the show today to discuss what may be next with OZ reform legislation are John Sciarretti and Peter Lawrence from Novogradac and Company. John is a CPA and partner at Novogradac, and he also leads the Novogradac Opportunity Zones Working Group. Peter is the Director of Public Policy and Government Relations at Novogradac.

John and Peter, really appreciate both of you taking some time to come on the podcast today. Welcome. How are you doing?

John: Doing great. I appreciate being here as well, Jimmy.

Peter: Absolutely, Jimmy. It’s a great time to talk to you and start off the year. I look forward to the discussion.

Jimmy: Perfect, guys. Well, John, I’ll turn to you first. We’re going to get into legislation in a minute. But first, I know a lot of our high-net-worth investors who listen to the show are very familiar with Novogradac. But in case anyone may not be familiar with Novogradac and the work that you do on Opportunity Zones, can you quickly give a background on Novogradac, who the firm is, and what you guys specialize in?

John: Sure. So Novogradac and Company, we’ve been around for over 30 years. We primarily focus on community development, finance, and that includes tax credits such as low-income housing tax credits, renewable energy credits, new architects credits. But we got involved early in the Opportunity Zone legislation, actually, before it was actually enacted, and been active in it since the beginning. So we work with lots of funds and developers and intermediaries around the incentive. And it’s been a lot of fun, Jimmy.

Jimmy: Excellent. Well, let’s talk legislation in a couple more minutes here. But first I wanted to contextualize how big the marketplace is for Opportunity Zones. Specifically, how much equity has been raised to date through qualified opportunity funds, which then deploy capital into different Opportunity Zone investments.

John, I’ll turn to you again. Novogradac is well known in the industry for the work that you do tracking different qualified opportunity funds. I believe you’re tracking about 1500 or so different qualified opportunity funds so far since inception and tracking how much equity has been raised to date. You just came out about a week or so ago with your 2022 report.

So what can you tell us about what Novogradac does with regard to QOF tracking and how much equity has been raised so far?

John: Sure. So back in early 2019, we realized there’s no reporting required for opportunity funds and the fundraising that they receive. And we realized that any sort of tax data would be behind. And so we started a survey where we’ve reached out to funds. Now, these are multi-investor funds. So it’s not your proprietary funds that are sort of sponsor-managed, but multi-investor funds.

And over the years, we’ve accumulated data from 1,661 funds that we’re tracking, but only 1,274 of those have reported fundraising data. And for this year, 2022, we show equity raised of $9.7 billion and $34 billion since the beginning. So $34 billion have been raised since we started tracking these funds. We think that the number is three to four times that. At least, we always said we thought the number was three or four times that amount just from anecdotal evidence.

Jimmy: Well, I want to take one minute to share my screen briefly here and actually just kind of show everybody who may be watching on our YouTube channel how this data looks if you compare qualified opportunity fundraising to that of other different alternative investment structures. I’m using data that your firm, John, have reported. Novogradac is the orange number here for qualified opportunity funds.

You guys are… Or, and then again, this is just through 2022, or just for the year 2022. Here’s that $9.7 billion number that you’re tracking. I’ve then multiplied that by three to arrive at $29 billion total qualified opportunity fund equity raising in ’22.

We don’t really know. And we probably won’t find out for at least another 18 months or so, I guess until the 2022 data are available.

But here’s how qualified opportunity funds, which I consider a part of the alternative investing universe, kind of compares to some of these different alternative structures. It’s right up there with non-traded REITs, and it blows DSTs out of the water. That’s a special type of 1031 exchange, and it’s considerably higher than interval funds and non-traded BDCs as well. Just had to geek out there for a moment for my fans that like these different alternative investment structures, John and Peter there.

John, any thoughts on how QOFs compare to other alternative structures or other programs?

John: You know, I think it’s interesting to look at the quarterly data. So when you look at our fundraising report and you look at the quarterly data, it had a really strong first quarter. Actually, 41% of the money, $4 billion, was raised in that first quarter. And then it sort of slowly trickled down to where the last quarter was only $1.4 billion. And you compare that to other years, the last quarter was the big quarter, you know, end of the year investing.

So I think it signals the macroeconomy in that folks didn’t have the gains. And you look at the 2022 stock market being down about 20%, real estate sales down probably 10%, M&A activity down 40%. I mean, that’s a big episodic gain that, you know, funded a lot of these QOFs. And so you look at that and say, well that sort of makes sense, we have less gains and so there’s going to be less investment as we get through the year.

When you look at that alternative report, I actually read that report, they talked about the fourth quarter being fairly dismal. A lot of withdrawals and nontraded REITs, you know, folks kind of worried about the net asset value going down as a result of higher interest rates and the like. Plus, they had alternative investments now in interest rates where they could store their cash until equilibrium hits the markets, right?

And so, you know, I think a lot of that has to do with it, but I think we’re consistent there with the alternative investments. Alternative investments, they have a lot of foreign money in them, they don’t need gains. So I think it’s a little easier to invest in those assets than it is opportunity zones.

Jimmy: Oh, yeah, for sure it is. There’s less of a hurdle that you have to clear, of course. And as you mentioned, a lot of foreign money can pour into those other programs where that’s not really part of the opportunity zone program. But I guess the tax incentive of opportunity zones draws quite a bit of money in such that opportunity zones are kind of able to compete with those other types of private alternative investment structures that we just laid out there.

And, John, you were referencing the report in “The DI Wire” from a few weeks ago. I’ll make sure we link to that report in the show notes for this page, but it compares those different numbers from Robert A. Stanger and Company that are not opportunity zone specific but help us compare opportunity zones to those other types of structures.

Well, I wanted to turn our attention now to the bulk of today’s episode, which will be on Opportunity Zone reform legislation. We’ve just painted a picture of how big the marketplace is for Opportunity Zones and how crucial it is really that this program gets extended and reformed so it can help further improve the lives of the residents of these different neighborhoods that have been slated as opportunity zones.

We can help drive more economic catalyzing efforts into opportunity zones because otherwise, unfortunately, opportunity zones are set to expire at the end of 2026. So, Peter, I want to turn to you now. You’re going to be the star of the show here for the bulk of the remainder of this episode.

2022 opportunities on reform legislation, unfortunately, did not pass in the last sessions of Congress. How did the end of the year play out exactly? And why was OZ reform not included in the yearend omnibus bill?

Peter: Well, Jimmy, thanks for the question. And I think I want to start off by making clear to your listeners that the opportunity zone legislation wasn’t specifically excluded unlike other related tax legislation. Unfortunately, a whole slew of potential tax legislation was held off. And that was sort of somewhat of a minor surprise because in many respects the stars had to be aligned.

So you said that you were predicting that it would be. I thought there was positive momentum as well towards having community development tax legislation included, because I think one thing we were looking for was, would there be an omnibus spending bill for fiscal year 2023. You know, Congress every year, needs to make sure the federal government is funded. And often the case, instead of passing twelve individual spending bills by the, you know, deadline of the fiscal year on September 30th, what ends up happening is Congress passes what’s called a continuing resolution to give them time to negotiate. And in order to save time, they package all twelve spending bills together into one piece of legislation and pass it in November or December.

And that type of legislation is an ideal sort of what we call a legislative vehicle for tax legislation because it’s hard to bring up tax legislation on its own. And so having that opportunity begin to sort of come together and we had seen first that President Biden and the leaders of Congress came together after the election and agreed, yes, we want to negotiate an omnibus spending bill. They first agreed to the sort of top-line number, what defense would get and non-defense would get, and that usually bodes well. And sure enough, they finally did strike an agreement on omnibus legislation.

And the next step would be, at that point, treasury…the leadership of Congress to say, “Okay, now we can negotiate the tax pieces.” And we were getting towards the end of the finish line there before Congress was going to leave for the holidays. And for a variety of reasons, leadership decided, “Okay, we’re not going to include anything tax.” Now some folks have pointed out, well, there was this retirement reform package that was included, but that really was something entirely separate.

It was a long-standing effort of congress to reform retirement, and there had been a previous sort of package enacted two years ago, and this was sort of a follow one to address all the items that weren’t addressed in that first package.

And they had a House version and a Senate version had already passed, and so they were kind of already very close to finishing the negotiations. And leadership said, “It’s okay to include that in there, but we’re not going to include anything else.” And I think the primary reason why they broke down is because there was this mismatch of what Democrats and Republicans wanted.

I mean, Democrats wanted to get as much of an expansion of the Child Tax Credit that was originally included in the American rescue plan that was in effect essentially for 2021, added. While, you know, Republicans often wanted three sort of very broad business-related tax extenders included.

And they weren’t congruent, and they just ran out of time I think, to be able to seriously talk about what might be possible. And so they deferred the entire conversation to the next Congress. So I think that’s sort of the dynamic. I don’t think Opportunity Zone stakeholders should read anything into that Congress doesn’t want to do Opportunity Zone legislation. I think there’s still an appetite there if another opportunity, another window were to open up.

And unfortunately, we do have a challenging environment this year, and I’m happy to go into that but I guess I’ll just take a moment there so you can have a follow-up question.

Jimmy: Yeah, sure. No. That’s really crucial for you to point out that this wasn’t that Opportunity Zones failed to get extended. It’s that a lot of different tax legislation failed to become a priority, I guess, at the very end of the last session of Congress. The finish line kind of came up on them a little bit too soon, snuck up on them, and both Democrats and Republicans just weren’t able to come to the table to negotiate on anything tax-wise at the end of the year.

There were numerous different priorities and different programs and tax legislation that did not end up making the cut, and Opportunity Zones are a small part of that. Peter, you also mentioned to me the other day that there was another issue, particularly on the Republican side, during the lame duck session where there was a lack of clear leadership. And we know now that Kevin McCarthy did eventually win the Speaker of the House position for the Republicans on the House side, but that was not clear that that was going to happen for the first several days of this session of Congress. It was quite a contentious vote as our listeners and viewers recall from last month, I’m sure.

And that kind of goes back into the lame-duck session from last year too. It wasn’t really clear that he necessarily had the votes. Could you expand on that a little bit for us?

Peter: Absolutely. Normally, when it comes to negotiating high-profile stuff like tax legislation, you often refer to the four corners being the House Speaker, the House Minority Leader, the Senate Majority Leader, and the Senate Minority Leader. And they all come together and they negotiate the really important stuff together.

And unfortunately, there really was a huge question about who the top House Republican would be in November, December. I mean, it did take a while, but House Republicans did secure the votes in the election to take power. But Kevin McCarthy had not nailed down the necessary majority of all the House members, and it took a long time, 15 rounds of voting for him to get there. And I think that did represent a bit of a leadership vacuum.

And not only that but also there was uncertainty on who was going to lead the Ways and Means Committee. The former Republican ranking member, Kevin Brady, was retiring, and there was a three-way race to determine who would replace him and potentially become chair in a Republican-controlled House. You know, a race between Jason Smith in Missouri, Vern Buchanan of Florida, and Adrian Smith in Nebraska hadn’t been resolved yet. So there really wasn’t a true partner in sort of one-quarter of Congress that could negotiate on taxes. And I think that also led to a decision to defer.

You know, there was the clarity in terms of who was leading on appropriations on spending. Kay Granger was the ranking member, and she’s now Chair of Appropriations, so she was kind of already in place to negotiate that piece. But there wasn’t a counterpart as the top Republican on Ways and Means, and I think that contributed as well to not deferring the whole conversation on tax policy.

Jimmy: Sure. Yeah. You were missing one of the four corners, so to speak, as you mentioned, and Ways and Means wasn’t clear either. I have a fun fact. Kay Granger is my congresswoman here from Fort Worth. So just wanted to plug that real quick. So what’s happening this year now? We still have tax legislation that needs to be worked on by both sides, the Democrats and the Republicans. But we’ve had a pretty slow start to this new session of Congress, right? Peter, we just mentioned that it took 15 rounds of voting just to figure out who the speaker would be.

And then what are some of the other dominant issues right now which are preventing tax legislation from bubbling up to the surface?

Peter: So you’re right, it’s been a slow start to the Congress given that uncertainty on leadership. And only recently did Jason Smith beat out Vern Buchanan and Adrian Smith to become Chair of Ways and Means Committee. And only recently did they make committee assignments for both Ways and Means and the Senate Finance Committee. So only… And then, actually, at the time of this recording, yesterday was the first Ways and Means hearing of the year. So it’s definitely a slow start.

And I think the other major issue that’s going to sort of dominate, suck up the oxygen in Congress this year is what to do about the debt limits, which has been something that Congress, in the past, has considered. But also, whenever there’s been a change in power, it could always prompt some challenges in getting Congress to agree to increase the nation’s debt limit.

So on January 19th, you know, the Treasury’s borrowing did hit $31.4 trillion, which is the debt limit. And the reason why we haven’t had challenges since then is because Treasury is, as it has in the past, has employed what they call extraordinary measures, a variety of accounting, and various other actions to not exceed that $31.4 trillion.

And in her letter to Congress, Secretary Janet Yellen did say that Treasury would be able to continue to do this at least until early June. And independent experts that analyze the debt limit suggest that we probably have until mid-July before we reach what’s called the X date, which is the date on which Treasury runs out of this ability to use extraordinary measures to avoid…

Jimmy: It’s when the government runs out of money, essentially, right?

Peter: Yes. Yeah, they have to borrow some more from the international debt markets to be able to go forward. So, absolutely, that is what we’re looking at. And I think there’s been a lot of chatter and discussions in these first couple of weeks about that. You know, President Biden and Speaker McCarthy did have a meeting last week to start off discussion.

But it’s going to be particularly fraught negotiations. President Biden is sort of starting off with his position that he doesn’t think there should be any link to the nation’s debt limit. It’s too important, and it represents what Congress has already authorized in terms of spending and tax. And so, the metaphor is that the credit card payment isn’t running up things that have already been authorized, and it’s time to pay that.

And it doesn’t warrant to place any conditions because of fear that spooks the credit rating agencies and the nation’s debt rating. And so that’s his initial position. But Speaker McCarthy equally is stating out his position that they’re a coequal member of the government and they were elected in November, and they want their policy preference expressed in terms of having some form of a spending constraint. And we’ll see what happens.

You know, about a decade ago, what we saw was the Budget Control Act of 2011, which placed spending caps and created a super committee to try to find deficit reduction. It’s not clear if we’ll see something similar this year. But definitely, I think I would be surprised if there was a clean increase with no conditions. I just don’t think that Speaker McCarthy would survive that. Remember, he had 15 rounds.

Part of the reason why it took him so long is that some members of the Republican Conference were wanting to make sure McCarthy held to his principles in this negotiation and make sure that he comes away with something. And so I think if he didn’t, he would be at risk of not being anymore.

So I do think that there will be something, but it’s going to be a messy process, and it’s going to sort of take up, I think, the bandwidth of the Ways and Means and Senate Finance Committee, since that debt limit is in its jurisdiction and those committees be sort of being part of the negotiation on what should be done going forward.

Jimmy: Right. So, probably no tax legislation until that gets resolved. That’s a much larger, more urgent issue for the Senate Finance Committee and the House Ways and Means Committee and Congress, in general, to tackle in the meantime. So when might a window open for tax legislation and possibly some OZ reform legislation to get packaged into a tax bill?

Peter: Right. So, you know, I mentioned that independent experts suggest the next date is mid-July. We’ve heard from Congress some initial suggestions that there should be a short-term increase or at least suspension of the debt limit until September 30th, so that it would line up with the end of the fiscal year. And so everything could be all part of the one big negotiation to fund the federal government, address the debt limit altogether.

And so, given that, I think that seems to be there are a decent chance of that happening. And because it does, once again, give more time for Congress. And there are some sort…there’s a relationship here, right? Because if spending is curtailed for fiscal year 2024, that might be what the Republicans say they got out of a debt limit negotiation. So it’s not inconceivable that would happen.

But if we get into that situation, then we’re sort of already in the context of October and November, which is the timeframe when often they start negotiation on yearend tax legislation. Tax legislation is very often considered at the yearend, given that we tax on a calendar year basis, right? And so, Congress often wants to set the policy for how you’re going to claim your taxes at the end of the year for the upcoming filing year. So I wouldn’t be surprised if that’s when we start again negotiating.

And remember, we still have all these unresolved issues from negotiation from last year’s yearend negotiations. So I think they’re still very much a relevant issue. And there are new things too, like the 1099 issue that I think many members of a bipartisan issue want to sort of reform. I think the $600 threshold, which is coming into effect this year, until IRS decided to postpone it for a year, is a ripe issue that Congress will want to address. So in addition to all the various items they couldn’t get to at the end of last year.

Jimmy: Right. Okay. So some tax legislation might come into being toward the end of the year, depending on how negotiations go in the fourth quarter. It sounds like maybe November or December, toward the end of the year, we might see something get passed.

The Opportunity Zone piece of that, the legislation that was introduced last April is gone now. Essentially, it needs to be reintroduced to this new session of Congress. Do you anticipate that the reform legislation from last April might get reintroduced verbatim, as is, or might there be some tweaks to it? And how do you see that getting reintroduced and when?

Peter: Great question. And typically, legislation always gets tweaked with dates and things like that. But there are sort of two different schools of thought when it comes to these situations. There will need to be some sort of reevaluation on the situation because one of the four leads, Ron Kind, the former House Democratic lead from Wisconsin, has retired. So a new House Democratic lead needs to be identified.

And the two schools of philosophy is, reintroduce the same bill, except for you the various date tweaks, because that way it’s that much easier to get all the members that co-sponsored in the last Congress to co-sponsor it again, if, you know, essentially the same legislation they supported in the previous Congress.

But there also is, I think, a thought that whenever you reintroduce legislation, it always gives an opportunity to think, what are some new things and maybe some new proposals that would help increase the co-sponsor support. And so I think this is something that the leads are going through. Remember, we’re doing a slow start to Congress, so it’s not yet fully engaged in that point. But I expect sometime in late March, April, potentially into May, the bill will be reintroduced and there may be tweaks.

You know, we, at the Novogradac Opportunity Zone Working Group have been working on some suggested changes that could be considered. That’s one thing that those new ideas might be incorporated. Or the leads might decide, “No, let’s keep it the same legislation, essentially, to maximize chances of getting co-sponsors.” And, you know, those new ideas always can be introduced as separate legislation.

John: At a minimum, I think there were a number of technical corrections that the Opportunity Zone Working Group came up with in conjunction with the Economic Innovation Group. So at a minimum, that would be introduced. And I think what a lot of folks are hopeful of, and it wouldn’t be too heavy of a lift, is that the Opportunity Zone designation, which actually expires in 2028, that’s pushed forward a bit to really line up with this bill, because this bill extends the investment date to ’28. Or the capital gain recognition date to ’28.

And so, because you have 180 days and partnerships even have longer, ’28 gains may not be able to be invested if that Opportunity Zone designation isn’t moved. And so, like I said, it wouldn’t be a heavy lift, we’re hopeful that gets added as well, and we’d like to see it extended out a little further so folks can reinvest if needed to and things of that nature.

Jimmy: Sure, yeah. That’s a minor technical detail that shouldn’t go unnoticed, and hopefully, that’s an easy fix, though. Last year’s legislation that I’ve referred to called for the ’26 end date to get pushed to ’28, is it possible we see that extended to ’29 maybe, in this iteration, or do you think they’ll stick with ’28?

Peter: It’s a great question. I think part of the issue always is as you push it out further, it increases the score. And so that is, I think, something to keep in mind that the more something costs, the harder is to enact. And, you know, the other aspect I think we all should just keep aware is how a bill…what the bill is introduced doesn’t mean that you’re fixed on that when they actually get to a legislative vehicle.

So they may introduce a bill keeping the ’28 date to start with. But when they come to the actual hard negotiations in November, December, if there’s an opportunity to make it ’29, then I’m sure the leads will push to do that. But it’s not necessary that it be included in the bill as reduced.

John: The bill actually reduced the investment term for the 5% incentive to six years, and we won’t have six years. And so, they may move to ’29 so that we can include that 5% or they’ll make it just 15% for five years.

Jimmy: Yeah.

John: But it’s an interesting technical issue that they’ll have to deal with.

Jimmy: Yeah, that’s another interesting wrinkle there. And who is pushing this legislation right now? Is it Senator Booker or Scott? Or is it House Rep Mike Kelly? You mentioned that Ron Kind is out right now.

Peter: Right. So, yeah, we do expect those three members, Senators Booker and Tim Scott, and Representative Mike Kelly from Pennsylvania to remain. And Mike Kelly would go from being the lead co-sponsor to being the lead sponsor, given that Republicans are now the majority. That’s generally, whenever you have bipartisan bills, the lead sponsor is usually the majority party.

But I think there has already been efforts to identify which House Ways and Means Democrat will be willing to step up and become the new lead co-sponsor. But I don’t think it’s yet public yet, and hopefully, it will be relatively soon.

Jimmy: Good. So we’ve identified some of the, I suppose, structural obstacles to getting OZ reform legislation through. It didn’t happen last year. This year, it seems like one of the biggest obstacles in place right now is the debt limit, getting that issue resolved, and then there are various other intricacies of just negotiating a tax legislation.

But besides those structural obstacles, what do you identify or who do you identify as being possibly the biggest obstacles to OZ reform legislation eventually passing and becoming law?

Peter: Right. Well, you know, I do think that, first, I sort of do feel duty bound to mention that there needs to be an agreement from leadership saying, “Yes, we want to do tax legislation at the yearend,” because that was lacking last year, right?

Jimmy: And it may lack again this year, right?

Peter: It could lack again for a reason. They may not be able to say…come to agreement on having… “Yes, we gotta negotiate something.” That’s a key first step. But assuming that happens, there are priorities, again, the Child Tax Credit, the three main business tax extenders, the amortization of research and development expenses. The section 163(j) limitation on deducting debt, you know, sort of adding back depreciation and amortization as part of calculating the 30% limit, and the step-down and bonus depreciation. Those are all continuing priorities. And I imagine they will be.

They still need to figure out what iteration of a Child Tax Credit expansion is acceptable. I mean, for what it’s worth, Chairman Jason Smith has said he’s willing to negotiate on a Child Tax Credit. So that seems somewhat positive for the possibility of agreement there. But that is a necessary key step because I see Opportunity Zones sort of being plugged in once that big negotiation, they get those sort of fundamental pillars of the agreement in place because I think that there is strong bipartisan support for it.

And this is probably one of the top priorities of Tim Scott, a Senior Senate Finance Committee member and the top Republican on the Banking Committee. So I think there’s a good chance. And there are other community development tax proposals that I think may be a part of that yearend tax legislation, such as proposals on the Low-Income Housing Tax Credit to create a new Neighborhood Homes Tax Credit, which would be a single-family credit for owner-occupied housing. And potentially even making permanent the New Markets Tax Credit, which is often compared with Opportunity Zones as a similar way to bring private capital into low-income communities.

So those are all, I think, potentially, at the mix for a yearend negotiation and I think it would be very much Opportunity Zones has a clear sort of pathway once that big agreement. But I will say, as we hinted there, who may be a potential barrier there. I’d the biggest challenge we have is Senate Finance Committee Chairman Ron Wyden from Oregon. He has been a little bit of a skeptic. He sent out letters to various opportunity funds and he has concerns, and he has introduced legislation in the past with reforms to the Opportunity Zones incentives.

So I think for those Opportunity Zone stakeholders in Oregon, I think it’s going to be crucial for them to reach out to their senator and say, “Here’s what we could do if this Opportunity Zone legislation were to be enacted. This is the type of project we’d love to continue to invest in Oregon, but we’re being held back.”

Because while 2026 might seem a long ways off to Congress, it’s not for Opportunity Zone stakeholders. They’re making decisions now that where those deadlines will be crucial. So I think that’s going to be a key thing that needs to happen. You’re going to need to convince the Chairman of the Finance Committee that this needs to advance. And if we do that, then I think that would be the biggest obstacle to be overcome.

John: You know, an interesting anecdote from the Treasury report that I mentioned earlier is 76% of Oregon’s opportunity zones have received investment and it’s second on the list. I mean, so it’s not like they’re not getting investment. So that’s a good thing.

Jimmy: That’s a great stat to point out there, John. And, yeah, the fact of the matter is, this is a perishable tax incentive. And for better or worse, every day that goes by, the incentive becomes a little bit less and less valuable as that deferral date draws nearer. The ten-year benefit is still huge, of course, but the deferral benefits are shrinking as each day goes by. And we’ve already lost on the step up in basis benefits of 10% and 15%. Unless the Opportunity Zone reform legislation were to pass at some point this year, hopefully, and extend those dates outward a little bit.

So, Peter hinted at this. You know, OZ stakeholders, especially if you’re doing development that’s adhering to the spirit of policy, to whatever extent you can publicize those stories and tell those stories and, hey, if they happen to be in Oregon and can maybe convince a senator there, all the better, I think, to help advance this legislation.

Hey, Peter, is there anything else you’re keeping an eye on that may impact opportunity zones? There’s been some chatter lately about the Community Reinvestment Act and some regulations being reformed there. What can you tell us about the CRA?

Peter: Sure thing. And I want to encourage, by the way, I know it seems like November is a far way off, but once that bill is introduced, you want to encourage your member of Congress to co-sponsor, certainly. We want all members that we can, not only ones who co-sponsored in the last Congress, but others, because the more co-sponsors we have, the greater chance that legislation will be included in a year-end bill.

But on your point about the Community Reinvestment Act, this has been a longstanding priority of the federal banking regulators, the Office of the Comptroller of the Currency, the Federal Reserve, and the Federal Deposit Insurance Corporation, they oversee the nation’s banks. And the Community Investment Act is a really key piece of legislation for community development. Investment in lending, you know, about $200 billion a year is largely motivated by the Community Reinvestment Act and they’re going through this process to totally rewrite the regulations.

They haven’t gone under a fundamental rewrite since 1995. And you can imagine what banking was like in 1995 versus what it is today. There’s a lot that has been changed. So last May, all of those federal banking regulators did release a proposed set of regulations and there was talk at one point that they were going to try to get a final set of regulations published by the end of last year. It didn’t happen, obviously, and so it slipped into the first half of this year. But they potentially could have a huge impact on, first of all, recognizing Opportunity Zones, of course, wasn’t in existence in 1995.

So we want to make sure that the regulations are rewritten to consider that and it could give clearer clarity on how banks could get CRA credit for both not only any opportunity zone equity investments done, but also lending quite…you know, I think even more powerfully. Because while banks may have all the episodic capital gains, they lend all the time. And the favorable lending terms may make a huge difference towards making opportunity zone investment successful or not.

So that is something we’re definitely…the Opportunity Zones Working Group did submit comments and we’re hopeful that those final regulations will give some clarity there.

Jimmy: Yeah, that would help potentially unlock a huge source of capital for Opportunity Zone projects to get underway. Well, gentlemen, really appreciate you joining me today. Thank you both so much for sharing your insights on Opportunity Zone equity raising and the legislation where we are and where we’re going here.

Before we head out, before we end our episode today, where can our audience of high-net-worth investors and advisors go to learn more about the professional services that Novogradac provides to the OZ industry?

John: You can actually go to our website. It’s www.novoco.com. We have an Opportunity Zones resource center on the website, all the latest news, lots of guidance, and even a fun list on there. So please do visit our Opportunity Zones Resource Center.

Jimmy: And all that equity-raising data is available on there as well. And for our listeners and viewers, as always, I’ll have show notes available for today’s episode at opportunitydb.com/podcast. And there, I’ll have links to all of the resources that John, Peter, and I discussed on today’s show.

And please also be sure to subscribe to us on YouTube or your favorite podcast listening platform to always get the latest episodes. John, Peter, again, thank you so much today. It’s been a pleasure.

John: Thank you.

Peter: Thank you, Jimmy.

John: Bye.