Tens of millions in stateside dollars could be headed for investment in Puerto Rico. This is thanks to the just-enacted budget deal, which added key provisions to the Tax Cuts and Jobs Act signed into law by President Trump in December.
The tax cut plan included an estimated multi-billion bipartisan provision to bolster economically depressed areas across the United States by offering deferred capital gains taxes and then significant tax breaks to those willing to invest for a decade in low-income areas to be called “opportunity zones.”
{mosads}The goal of opportunity zones is an important one: spurring much-needed investment into housing, small businesses and infrastructure in depressed areas. Picture entrepreneurs in depressed and hurricane-battered communities in Puerto Rico getting an infusion of cash because of this very simple provision in the GOP tax bill.
Many expect financial institutions to immediately set up qualified opportunity funds to market to their wealthy, investor clients near retirement as a safe place to park their money tax-deferred in a slow-growing market for 10 years. The trade-off being slower growth than the stock market but tax-free gains.
The law’s only limitations would be that the zones must:
- have a poverty rate of at least 20 percent
- have a median family income in rural areas that do not exceed 80 percent of the statewide median
- have a median income in metropolitan areas that do not exceed 80 percent of the metro area’s median income
- be a census tract adjacent to a low-income area as long as the median income doesn’t exceed 125 percent of the area median income
Frankly, almost all of Puerto Rico would qualify due to its high poverty level.
The island’s non-voting Rep. Jenniffer Gonzalez-Colon (R-P.R.) won the support of Speaker Paul Ryan and other leaders to include legislation that automatically qualifies communities on the island that meet these standards for this opportunity zone designation in the recently passed budget deal.(This was established in the legislation’s Section 41115: Opportunity Zones Rule for Puerto Rico.)
Elsewhere in the United States, a governor must designate which communities to submit for federal approval and no more than 25 percent of the total from that state would be eligible. The Gonzalez-Colon provision gives Puerto Rico a leg up and allows all the low-income census tracts on the entire island to be eligible automatically.
Many U.S. companies and individual investors are looking for opportunities among distressed properties and businesses. Puerto Rico now has more than its share due to its long economic contraction and the recent devastation of Hurricane Maria.
Investors are always seeking new opportunities and already starting to take notice. Recent seminars on opportunity funds being created to invest in opportunity zones are drawing standing-room-only crowds around the country.
Puerto Rico now has a real opportunity and can move quickly to pitch itself as a market for investment for these stateside dollars. The island’s local banks, business groups and entrepreneurs should take notice and act quickly as other communities will move quickly to put out an “opportunity investors welcome” sign.
Former U.S. Rep. Jerry Weller (R-Ill.) serves as an advisor to Puerto Rico’s Private Sector Coalition and the Puerto Rico Manufacturers Association. He served on the tax-writing Ways & Means Committee for 12 years.