When David Dragoo first heard of federally incentivized opportunity zones, he was somewhat dubious — but now, he and other Montrose leaders are celebrating.
Three broad areas, or census tracts, in the county, are among the 126 tracts in Colorado that on April 11 won U.S. Department of Treasury certification as Colorado Opportunity Zones. The zones, in essence, allow investors to reinvest taxable income on capital gains into an opportunity fund.
“I think it’s so new, people are going to be (like) ‘This is not real.’ I can understand why. It sounds too good to be true,” said Dragoo, president of Mayfly Outdoors.
Mayfly is building the Colorado Outdoors Project, a mixed-business and residential area along the Uncompahgre River, which lies within the urban renewal authority area under the city, county and several other partners.
Dragoo said the more he learned about the opportunity zones, the more compelling he found them. On April 11, he joined Montrose Economic Development Corporation Executive Director Sandy Head and other leaders in celebrating the decision to designate wide swaths of Montrose County as Colorado Opportunity Zones.
The zones encompass parts of the West End, the areas where Colorado Outdoors, Montrose Regional Airport, the Montrose County Event Center and Montrose Forest Products are located, as well as the town of Olathe.
“That’s fantastic,” Montrose Mayor Pro Tem Roy Anderson said. “It was really a joint effort between several groups. Those things tend to pay off.”
The city worked with MEDC, Region 10 and Montrose County on the endeavor.
“We are very excited to have yet another opportunity for community supporters to invest in the Montrose community and we are hopeful that this new program will benefit us for years to come,” City Manager Bill Bell said.
The opportunity zones program was established under the federal tax reform legislation of 2017. It allows for temporary deferral of capital gains in the gross income for capital gains that are reinvested into opportunity funds, according to the state of Colorado.
The legislation also established a step-up in basis for capital gains reinvested into an opportunity fund. This basis increases by 10 percent if the investment is held for at least five years, and by an additional 5 percent if held for at least seven years, according to a fact sheet prepared by Economic Innovation Group, which supported the federal legislation.
In certain situations, an investment held for at least 10 years may be eligible for a permanent exclusion from taxable capital gains income.
The Colorado Office of Economic Development and International Trade worked with local entities to identify which census tracts to nominate as opportunity zones.
“We got what we asked for,” Head said a few hours after the Governor’s Office announced success for all 126 nominated tracts in the state. “We asked for three. We prioritized our three zones, thinking that at minimum, the governor would approve one. We got all three. That was really exciting because there are few parts of the county that won’t be able to (take advantage of the designation).”
Montrose County assisted the local-level nomination process, as did the Telluride Foundation, with respect to the West End.
“It’s definitely — to use a cliché — another tool in the toolbox that may entice some additional investment in those designated tracts,” Montrose County Government Affairs Director Jon Waschbusch said. “The West End was another tract. This will be good for them. Anything we can do over there is always good.”
“Essentially, it allows deferral of capital gains under certain circumstances for investors in those areas. With the marking having been what it’s been, there’s a lot of unrealized capital gains out there and folks may be looking for some relief. … This is good news.”
Region 10 Executive Director Michelle Haynes said the six-county economic league worked with the state to identify the best-qualified zones.
“We were allowed to pick at least one zone for each of the counties and then worked to get additional zones qualified,” Haynes said, explaining need and investment opportunities were considered.
Ranking was based on known and current activities, as well as places cities and counties within Region 10 believed were priorities.
Region 10 worked with local governments, as well as investment partners and MEDC to identify the best candidates for opportunity zone designation.
“We do feel like there is a significant opportunity for investment in those census tracts that were approved,” said Haynes.
In Montrose County, the approved tracts include economic drivers such as the airport and sawmill, she said.
“There are a lot of things we feel are important ongoing opportunities that are going to be included. We hope to see that spur additional investment.”
Head said she expects the designation will prompt further growth at areas such as the airport and MEDC’s Aerospace Research Business Park.
“The airport obviously is a huge economic driver. We should see some investment out in that space,” Head said. “The West End, obviously, is in need — it has both the need, qualifies as one of the census tracts and is one of the places we want to see the growth.
Haynes said she also wants to see the West End grow through the program. Overall, she sees opportunity.
“We hope we see some development, including housing, which we are in desperate need of,” she said, explaining the program might encourage the development of lower-cost housing that investors might not otherwise find to be an affordable venture.
“It gives incentives for investments,” said Dragoo, who furnished letters of support during the nomination process.
The state conducted due diligence and made final submissions to the Treasury Department.
“It’s huge for our project. It just incentivizes the cash outlay for folks looking to purchase land, or bring business here, on top of the great ones we already have with the city or county,” Dragoo said.
The capital gains incentives can be invested in a host of ways, among them, equipment, land and buildings, he added.
State officials hope the incentive will drive more private investment into distressed communities through business and real estate.
“Colorado’s Opportunity Zones can help create momentum in communities that need a little boost in their economic recovery efforts,” Gov. John Hickenlooper said, in a provided statement. “We owe it to these areas of the state to take advantage of every potential incentive. Hopefully, we will see significant dividends in the future.”
Reducing capital gains tax should incentivize investors, Head said.
“We see this as a beneficial tool to help us raise money for projects we either have in the works right now or encourage some new projects,” she said.
“It will be interesting to see how the mechanics actually work, but it has some appeal and hopefully, it will help us as we move forward trying to seek outside investments and see some of our projects grow.”
Katharhynn Heidelberg is an award-winning journalist and the senior writer for the Montrose Daily Press. Follow her on Twitter @kathMDP.