More than two dozen communities across the state are readying for what could be a tidal wave of investment over the next decade. It could also just be a trickle. Or it might not come at all.
State and federal officials this week announced the 25 “tracts” that have been selected as the next federal Qualified Opportunity Zones, a designation designed to help draw private, long-term investment to low-income areas.
Maine’s current 32 Opportunity Zones have been in place since 2018 and are set to expire.
Gov. Janet Mills announced Tuesday that she selected the 25 areas from a list of 78 options.
Eight of the 25 tracts — including parts of Westbrook, Brunswick, Augusta and East Millinocket — were also designated in the previous round.
But areas that missed out a decade ago, like Sanford, Biddeford, Houlton, Machias, Skowhegan and Dover-Foxcroft, will get their shot at attracting some needed investment.
A lack of reporting requirements makes it impossible to tell how successful the program is. There’s no way to know whether a project used Opportunity Zone funds unless a developer volunteers the information.
The program appears to have been used successfully at least a handful of times in Maine, including for projects in South Portland, Brunswick, Waterville and Augusta.
Data from elsewhere in the country, however, suggests mixed results.
Opportunity knocks
The Opportunity Zone incentive program was established in 2017 by the Tax Cuts and Jobs Act to encourage long-term investments in low-income urban and rural communities nationwide. It was made permanent last year and reintroduced as the Opportunity Zone 2.0 program, which offers additional incentives for selections in rural areas, has tighter qualifying criteria and new reporting requirements.
Eligible communities are determined based on income and poverty thresholds.
It has been hard for municipalities to track the success of the program because there has not been a requirement to report whether a project is using the incentive. According to the Department of Housing and Urban Development, however, Opportunity Zones attracted more than $100 billion in the last 10 years. Another $100 billion is expected in the next decade.
The program allows investors to create or invest in so-called “opportunity funds” through which they can reinvest capital gains — profits from the sale of investments — into designated areas tax-free for at least five years, then get a 10% tax break on the initial investment. That increases to 30% in designated rural areas. Any profits they make annually through the investment after 10 years are tax-free.
Governors nominated eligible communities for the designation, which were then certified by the U.S. Department of the Treasury.
Maine’s 32 current zones were selected by former Gov. Paul LePage and will expire at the end of 2028. The new zones will take effect Jan. 1, 2027, so there will be a roughly two-year overlap.
‘Transformative impact’
Mike Duguay, commissioner of the Maine Department of Economic and Community Development, said state officials spent the last year consulting with developers, local leaders and financial professionals to determine where investment “can have the most transformative impact.”
“We did not approach these designations lightly,” he said in a statement. “This was a bottom-up effort to ensure that these federal tools are working hard for Maine’s specific needs.”
Tony Armstrong, a commercial real estate broker and adviser, was thrilled to see Dover-Foxcroft make the cut this time around.
He has been working to redevelop Browns Mill, the former Maine Leathers Tannery, in the Piscataquis County town.
The project has the potential to see the same kind of transformation as mill projects in Lewiston and Biddeford, if on a smaller scale, Armstrong said, but hasn’t had the necessary “oomph” to draw the kind of attention needed.
At the same time, the Piscataquis County Economic Development Council has been trying for years to recruit a developer to build an 80-room hotel.
That, too, hasn’t quite made it over the finish line.
“This kind of program … is going to make the difference,” Armstrong said.
Wasted opportunity?
But other parts of the state that could desperately use an infusion of investment, like large swaths of northern and western Maine, were passed over, despite being some of the most rural parts of the state.
According to Brady Meixell, a senior research associate at the Urban Institute who is studying opportunity zones and their impact, that may not be a bad call.
The Urban Institute found that in Ohio, more than two-thirds of the state’s opportunity zones did not receive a single dollar of investment from 2020-24. The vast majority of money flowed into metropolitan centers like Cleveland and Columbus.
Ohio is the only state with Opportunity Zone data because of reporting requirements to get a matching state-level credit, so the Urban Institute views the Midwestern state as a sort of case-study of the program’s efficacy.
Governors in other states, Meixell said, took a lesson from those results: “There are going to be some very disinvested tracts that are eligible that it would feel good to select because you want to drive capital into them, but Opportunity Zones just are not the program that’s going to do that,” he said. “To some degree, some of those might be wasted picks.”
Only 39% of tracts selected for the Opportunity Zone 2.0 program were in rural areas, despite the added incentives.
There are “Goldilocks tracts” he said, in areas that could be poised for greater development but need an extra push to get there.
But in many cases, governors overcorrected and prioritized areas that already had a large number of jobs and a higher percentage of multifamily housing (which is the most common use for Opportunity Zones).
“A meaningful number of zones were already ascending rapidly before designation,” Meixell said.
Based on the data from Ohio, those are the zones most likely to see significant investment —those that were already experiencing greater income and home value growth in the years before the program launched.
Essentially, the zones receiving the most money from investors were the ones that didn’t need an incentive to court development in the first place.
A boon for Bayside
According to the Urban Institute, Portland’s Bayside is one of those communities.
The neighborhood already has hundreds of units in the pipeline and hundreds more in pre-development.
Portland officials initially tried to decline Bayside’s potential designation.
In a March meeting, members of the Housing Economic Development Committee feared the city could face another Urban Renewal by welcoming in a developer without any control over what is built in the neighborhood while investors line their pockets at the expense of longtime residents.
But Duguay sent a letter to Mayor Mark Dion, outlining how the program works.
“Being designated as an Opportunity Zone does not take away local control over land use, zoning, or project approvals. It is merely a federal tax incentive program, not a land-use or permitting regime,” he wrote. “In a nutshell, the program changes who might provide capital, not who makes the decision on whether a project gets approved.”
Chris Marshall, co-founder of GreenMars Real Estate in Portland, has plans for a more than 300-unit housing development in Bayside. The Opportunity Zone will be crucial in bringing in the investors that project needs, he said.
While Marshall is primarily focused on Bayside, he was excited to see the city’s other tract, which includes Riverside Street and the Riverton neighborhood.
The area has more commercial and industrial space than the kind of high-density multifamily housing that often draws opportunity zone investors, but it’s a prime location near the highway with access to highly skilled workers, making it ripe for economic development, he said.
“You need economic activity to boost wages,” he said. “If we can get more supply in one zone (in Bayside) and increased wages in another zone, that’s a win/win and work both sides of the equation on housing affordability,” he said.
This story was originally published by the Maine Trust for Local News. Hannah LaClaire can be reached at hlaclaire@pressherald.com.