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Federal Market Intelligence for Small Business |
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Set-Aside Alert news analysis:‘OppZones’ vs. HUBZones -- Is it synergy or new competition?The 2017 tax law created 8,700 Opportunity Zones in USThe new Opportunity Zones created under the 2017 tax law could mean increased investment for some existing HUBZones and reduced investment for the rest, according to an analysis by Set-Aside Alert. Comparisons of the maps and of the number of zones in each program suggest that up to about half of HUBZones could overlap with Opportunity Zones. There currently are 8,700 census tracts designated as Opportunity Zones, and about 16,500 census tracts and other areas designated as HUBZones, including former military bases, disaster areas and rural counties. Geographic areas that are dual-designated as Opportunity Zones and HUBZones are likely to be more competitive in gaining investment and new business, because they offer investors incentives from both programs. That would be a boon for small businesses located in those HUBZones. Meanwhile, thousands of remaining HUBZone geographic areas that lack the dual designation with Opportunity Zones and do not get the tax incentives are likely to fall behind in attracting new business. There also may be Opportunity Zones that are not in any HUBZones, possibly increasing competition for new investment with HUBZone areas. Opportunity Zones created in 2017 Under the 2017 tax law promoted by Republicans and President Trump, the Treasury Department has certified 8,700 census tracts across the United States. New investments made in these designated census tracts are eligible for deferred and reduced capital gains taxes. Governors in each state designated census tracts that meet certain criteria for low incomes. According to an analysis by the Economic Innovation Group think tank, which advocated for the Opportunity Zones, the designated zones prioritize high need. The Opportunity Zones have an average poverty rate of 31%, which is above the 20% poverty eligibility threshold, and an average median family income of 59% of the area median, lower than the 80% eligibility threshold, the economic group said. However, the regulations implementing the Opportunity Zones did not mention any consideration of the impact on the SBA’s program for Historically-Underutilized Business Zones (HUBZones), according to a review by Set-Aside Alert. HUBZone program The HUBZone program, founded in 1997, allows federal contracting officers to create set-asides for small businesses that are located in HUBZones and that have 35% of their employees living in such zones. The government’s goal is to award 3% of federal contracts to HUBZone firms; however, that goal has not been met in recent years. Currently, there are 16,566 designated HUBZones, including 14,980 census tracts, 619 Indian lands, 613 nonmetropolitan counties, 221 redesignated counties, 125 base closure areas and 8 disaster areas, according to a recent Congressional Research Service report. There are 6,769 small businesses certified as eligible for HUBZone set-asides as of April 2019, CRS said. Overlap of OppZones on HUBZones A comparison of the numbers of Opportunity Zones vs. HUBZones indicates that there are 16,566 HUBZones and 8,700 Opportunity Zones. That suggests that at maximum, 8,700 geographic areas could be dual-designated and eligible for maximum benefits from both programs. Small businesses located in those areas are likely to reap rewards. At the same time, about 7,866 existing HUBZones likely will not have an Opportunity Zone designation and are likely to be less competitive in seeking new investments. But could a single Opportunity Zone encompass more than a single HUBZone? A visual inspection of the maps suggests that even if that were true, the current Opportunity Zones do not cover all HUBZones. Viewing the maps of both programs suggests that the Opportunity Zones cover roughly half the geographic areas of the HUBZone areas. Impact on HUBZones Opportunity Zones present new challenges for HUBZones because at the present date, the opportunity zones appear to cover a maximum of half the HUBZones. Some may not coincide with HUBZones at all. That suggests that a maximum of half the HUBZones may benefit from additional tax breaks, while the other half won’t benefit. It is hard to know whether the tax breaks of the Opportunity Zones are significant enough to have a major impact either way, but HUBZone firms should be aware of the potential. SBA officials were not available for comment by press time. To review whether your business is in an Opportunity Zone go to the Treasury Dept. Opportunity Zone Resource page cited below.
More information:
Treasury Dept. Opportunity Zone Resources: https://bit.ly/2EkPfFI
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