Opportunity Zones & Tribes


A Challenging Investment Landscape For Indian Country

The goal of attracting private investment for housing and economic development in Indian Country is not new. One of the primary objectives of the Native American Housing Assistance and Self-Determination Act (NAHASDA) of 1996 was to promote the development of private capital markets in Indian Country and to allow such markets to grow.

Although investment vehicles are available to attract private funds, such as the low-income housing tax credit (LIHTC) and New Markets Tax Credits, there are challenges to accessing private capital in Indian Country.

The barriers most frequently reported included lack of interest from other organizations or financial institutions; lack of availability of programs; political tensions between the tribe, the housing administrative entity, and other organizations; administrative constraints; and differing priorities.

A New Tool For Tribes To Attract Capital Investment

Opportunity Zones offer Indian Country an important new tool with which to attract investments in a wide range of projects to improve the economic conditions on tribal lands. There are potentially millions of dollars in investments which could be attracted to areas throughout Indian Country that have been designated as Opportunity Zones. As stated earlier, Opportunity Funds must hold at least 90 percent of their assets in Opportunity Zone property, which can include stock or equity in businesses. Tribally owned businesses already operating within an Opportunity Zone could seek new investments to further expand, or new businesses could be established.

opportunity zones for native american tribes

Opportunity Funds can also choose to hold their assets in tangible property within an Opportunity Zone, which could lead to the development or redevelopment of properties within Indian Country. This could attract new investments for the construction of new buildings or the redevelopment of existing buildings, such as warehouses, office buildings, hotels, or apartment buildings, thereby leading to an increase in jobs in the Opportunity Zone area. The potential impacts of constructing or redeveloping properties in Indian Country might include the creation of other, new secondary businesses, such as coffee shops or restaurants, that while not direct recipients of Opportunity Funds, support Opportunity Zone businesses. One can foresee that the construction of an office park, for example, could lead to new businesses, such as coffee shops or dry cleaners, being established nearby to serve the persons working in there. Finally, since there is no fixed ceiling on the number of Opportunity Zones that can receive investments in any given year, all eligible zones can receive any amount of capital through Opportunity Funds during the year. This represents a new way for Indian Country to attract financing for projects that would improve the economic outlook of the Opportunity Zone area, and, by extension, the tribe and its members.

How Opportunity Zones Could Attract More Investment To Tribal Areas

Opportunity Zones differ from existing programs that provide tax incentives for community and economic development. They are promising for Indian Country because of tax incentives, eligibility period, and flexibility.

How Opportunity Zones Could Attract More Investment To Tribal Areas

Attracting Opportunity Fund Investors

Tribes Are Already Building Capacity For Development Projects.

To attract investment in low-income and undercapitalized communities, tax benefits are available to corporations and individuals that invest capital in Opportunity Zones. These benefits defer or reduce taxes on capital gains and favor long-term investment. Once selected, Opportunity Zones keep the designation for 10 years.

Capital for eligible projects is directed to Opportunity Funds, which are organized as partnerships or corporations and certified by the US Treasury. There is no limit to the number of Opportunity Funds that can be established, and they can be created to invest in a single project or multiple projects.

With less complex rules and regulations than economic development tax credit programs and greater flexibility in the range of projects that can be undertaken, tribes could engage with Opportunity Funds and influence their development decisions.

How Tribes Can Better Position A Designated Opportunity Zone

Steps that Indian Country leaders could take to better position a designated Opportunity Zone within or adjacent to the “reservation” or jurisdictional area of an Indian tribe (“Tribe”) for such Opportunity Fund investment.

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Identifying Opportunity Zone Funds with a Focus on Indian Country Investments

In addition to identifying any Indian Country-focused Opportunity Zone funds, tribal leaders looking to stimulate Opportunity Zone investments should also consider collaborating with prospective investors to form a special purpose Opportunity Zone Fund. Such special purpose funds are already being formed for other Opportunity Zone investment projects. Notably, the statute requires that Opportunity Zone Funds be organized as a corporation or partnership. Although it would not make sense for a tax-exempt tribe to take a substantial ownership position in Opportunity Zone Fund, there is nothing to prevent a tribe or tribal organization from holding a small ownership interest in an Opportunity Zone Fund or from serving as a manager of such a fund.

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Evaluating Business Prospects in an Opportunity Zone

Once a Tribe has confirmed that an Opportunity Zone includes a tribal jurisdictional area, it may want to conduct its own evaluation of the prospects for specific types of business investment in the zone. In recognition of the fact that investment will be driven by market forces (and not government mandates), tribes and other governments should work to present the case for why business investment in a specific location is likely to be successful and to address any perceived limitations, such as availability of a ready work-force. Some of these efforts may need to be done in collaboration with local or state governments—particularly if the Opportunity Zone includes both tribal and non-tribal land. Some municipal governments are already hosting business forums aimed at highlighting the potential projects within designated Opportunity Zones. Under the Opportunity Zone legislation, there are very few legal limitations on the types of investments that can be made by an Opportunity Zone Fund. However, the statute does provide—by cross-referencing Section 144(c)(6)(B) of the Code–that investments in a golf course, massage parlor, hot tub facility, suntan facility , racetrack or other gambling facility, or a liquor store –do not qualify. Therefore, tribes should identify which businesses are needed (e.g., market demand for a grocery store or affordable rental housing) and be prepared to show potential investors how investment in such a business could be successful over a five to ten-year period.

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Tribal Investments in Infrastructure and Complementary Businesses

While a tribal government is not a taxpayer eligible for the Opportunity Zone tax incentives, appropriate tribal investments within a tribal Opportunity Zone could materially increase the likelihood of attracting private investors eligible to make investments in such an Opportunity Zone. Appropriate infrastructure investments might include: Road work Site preparation and grading Utility improvements Water/sewer upgrades Complementary businesses that a tribe might invest in to attract additional private investment could include the establishment of certain types of public entertainment venues, housing and public accommodations, and gas stations and convenience stores. Tribal casinos that have already become destination resorts will be in a good position to attract private investment—and the designation of nearby areas as Opportunity Zones will enhance their attractiveness to investors if the tribe is seeking such investment.

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Reviewing and Updating Tribal Legal Infrastructure to Attract Private Investment

A final critical step in preparing for Opportunity Zone Fund investments in an Opportunity Zone within a tribal jurisdictional area is the review and updating of tribal legal infrastructure relevant to private investment, lending and leasing. Private investors will be most comfortable investing in a tribal Opportunity Zone if the host Tribe has adopted secured transaction and other commercial codes that are comparable to state codes. This can easily be done by using model codes. Tribes should also look at whether their leasing authority has been updated and streamlined to avoid excessively time-consuming BIA regulation and approval processes. Tribes that have HEARTH Act leasing ordinances in place will have any easier time attracting private investment to trust land where investors will need to execute land leases to establish an Opportunity Zone business.

tribal areas that include designated opportunity zones

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