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.
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 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.
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.
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.
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.
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.
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