More than two years after Congress created opportunity zones as part of the 2017 Tax Cuts and Jobs Act, business advocates on Hawaii island say there’s frustration among local entrepreneurs about a perceived lack of movement from the state to bring new investment into the island’s economically disadvantaged communities.

A branch manager at the agency tasked with promoting the state’s opportunity zones said after a couple years of promoting the zones, recent efforts to help individual projects, including a planned showcase, have been hampered by the pandemic and associated economic crunch.

Now with the state facing a challenging economic recovery, finding ways to connect local community projects with the nation’s investors could be a powerful tool for defining a way forward.

The program is aimed at spurring new investment in low-income communities nominated by governors and designated as opportunity zones. In exchange for investing capital gains into qualified opportunity funds that can then make equity investments in projects located in one of the zones, investors benefit from being able to defer and potentially reduce the taxes they’d normally owe on their gains.

At the end of April, the accounting firm Novogradac said investments in its tracking list of Opportunity Funds passed the $10 billion mark.

Hawaii has 25 opportunity zones distributed throughout the islands with six on Hawaii island: two in West Hawaii covering a single area of about 18.8 square miles around Kailua-Kona and home to more than 13,500 people and four clustered in Hilo on the east side of the island, covering an area of about 23.4 miles and home to more than 19,700 people.

But West Hawaii Small Business Development Center Director Dennis Boyd said he hasn’t seen much movement from the state to attract investors.

“This is a source of frustration for me that Hawaii sort of dropped the ball on opportunity zones,” Boyd said. He also said he doesn’t know of any local businesses that have received investment through the program, but noted that doesn’t mean there aren’t any out there.

Last year, the Department of Business, Economic Development and Tourism hosted seminars and workshops throughout the state to promote the program and educate local businesses and developers. But Boyd said local business owners who were once excited about a new avenue for attracting investors are now left with the question of just how to do that.

“It’s demoralizing, I think, that we don’t seem to be able to take advantage of situations here in Hawaii,” Boyd said. “I don’t know what it is. I really don’t know what it is, but we shoot ourselves in the foot. I mean it’s come back to that: we don’t move forward. We don’t move, period.”

Likewise, Judi Mellon, East Hawaii Small Business Development Center director, also said the state and county haven’t taken an active approach to encouraging investment in the opportunity zones, citing a lack of matchmaking between projects and investors.

Mark Ritchie, branch manager for business support in the Business Development and Support Division within DBEDT said the agency’s been working over the last couple years to promote the opportunity zones themselves and has lately shifted toward working with projects that are in the zones.

COVID-19 Has Slowed Recruitment Efforts

The agency has created a web page listing a couple opportunity zone projects that are actively seeking investment, including a charter school on Oahu and an affordable housing project on Maui with links for investors to request more information.

But the pandemic hasn’t made efforts to reach out to investors easy. At the start of this year, DBEDT had plans for an investor showcase of Hawaii projects as part of its outreach strategy to investors that ultimately had to be canceled.

“This is a source of frustration for me that Hawaii sort of dropped the ball on opportunity zones.” — Dennis Boyd, West Hawaii Small Business Development Center director

Additionally, a volatile market meant investors who might have put their capital gains into opportunity zones now may not know if they’ll even have capital gains to invest.

“Everything is in flux right now,” Ritchie said. “The work we’re doing in opportunity zones right now, we’re sort of starting the engine back up now.”

Elsewhere in the country, several states are using an online marketplace platform called Opportunity Exchange, where investors and project sponsors can connect. Additionally, state legislatures and municipalities have created additional incentives to drive investment into projects that meet particular community needs.

A list compiled by the Urban Institute, for example, cites a series of benefits Alabama established, such as letting certain Opportunity Funds access state-created funds for investment and the creation of a $50 million pool of tax credits to guarantee returns and offset losses. To qualify for the added benefits, the Opportunity Fund has to have a strategy for tracking and reporting social impact and show “how and why they will create as much community-oriented impact as possible” in regard to local priorities.

And extra incentives are a chance for local governments to set some reporting requirements that were left out of the federal legislation, said Brady Meixell, a research analyst at the Urban Institute.

“It can be completely non-burdensome, but just simple questions of ‘who, what, when, where and how much’ for any opportunity zone investment,” he said, “and making that publicly available so that if you’re subsidizing development or business investment with public money, the public has a right to know who’s benefiting and where that money’s going.”

Additional Incentives For Development

Although Hawaii hasn’t passed any new incentives like those in other places like Alabama, Ritchie said opportunity zones in Hawaii overlap with pre-existing economic development programs like enterprise zones, new market tax credits and, on Oahu, transit-oriented development, all of which together let investors benefit from several initiatives at once.

The agency has also hired a contractor, Hawaii Community Reinvestment Corp., to help guide Hawaii projects through the process of getting ready for investment. Ritchie said in order to qualify for that guidance and be listed on the state web page, projects have to articulate a social benefit it will bring to the surrounding community.

Looking ahead, Ritchie sees opportunity zones as one part of Hawaii’s recovery from the economic fallout associated with the pandemic. He said the agency is looking to restart its more public efforts toward the fall when investors may be more receptive to outreach. He added they’ve also been exploring how to potentially host a virtual showcase.

Ritchie also sees potential in public-private partnerships, given the amount of state and county-owned land in opportunity zones with a development plan in place and where Opportunity Funds could contribute to the overall financing plan for the project.

Identifying Possible Projects

Hawaii County Councilwoman Karen Eoff, whose district covers the bulk of the two West Hawaii zones, also said she sees potential in the opportunity zones for the economic recovery ahead.

One possibility she mentioned is for a public-private partnership for the Kealakehe Wastewater Treatment Plant. Last month, the county Environmental Management Commission voted to recommend that the county explore public-private partnerships for upgrades to the facility in light of the recent Supreme Court case concerning the discharge of wastewater into the sea.

“That’s in an Opportunity Zone,” Eoff said. “I don’t know if that would entice an investor or help an investor. I don’t know enough about all the details, how it would work, but I don’t think it’s out of the question.”

Ritchie said there are also some other projects in development that the agency may want to start profiling for potential investors, even though investment might not happen for another year or two.

And on the national level, investors still may be looking for places to jump in.

A couple weeks ago, Bisnow reported some Opportunity Fund managers have seen an uptick in activity over recent weeks and that the market uncertainty may actually have pushed some investors to take their money out of the stock market and place it into Opportunity Funds.

Rachel Reilly, director of impact strategy at Economic Innovation Group, said Arctaris Impact Investors recently launched a survey asking states and cities about their current Opportunity Zone needs. Arctaris, she added, has committed to making large investments into communities with the specific intent of addressing issues related to the pandemic and subsequent economic issues.

“So the timing is good in a lot of ways,” she said.