The Opportunity Zones Priority Projects Committee and Gov. Wanda Vázquez convened with mayors and legislative leadership in an Opportunity Zones Summit to update the island’s municipal leaders on opportunity zone (OZ) developments in Puerto Rico, so that they can provide their input concerning the eligible activities that they wish to develop in their respective towns.
Back in August, the committee published a list of commercial activities eligible for benefits under the OZ legislation in a bid to increase investment in distressed communities. Back then, Secretary of the Department of Economic Development and Commerce (DDEC by its Spanish acronym) Manuel A. Laboy, confirmed that the Committee would release “a more specific list” that would include more detailed information on these eligible activities by region, as well as specific eligible businesses.
The Summit was held last week with the intention of educating mayors on OZ’s and how municipalities can use that tool to achieve greater economic development so that they can assess which activities they want to endorse in their respective jurisdictions in order for the committee to create the second anticipated list.
Puerto Rico’s chief financial officer and executive director of the Fiscal Agency and Financial Advisory Authority (Afaaf by its Spanish acronym), Omar Marrero—who also chairs the committee—informed THE WEEKLY JOURNAL that, in the meeting, mayors learned that in addition to the tax incentives offered through the U.S. Tax Cuts and Jobs Act and the local OZ Development Act established earlier this year, they can implement additional benefits through municipal ordinances.
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Marrero explained that in addition to federally established incentives and the investment tax credits (ITCs) offered by the Puerto Rican government, which range from five to 25 percent, municipalities can increase ITCs up to 75 percent.
“However, it corresponds to municipalities to determine if they want to promote those activities… In general terms, we wanted to give [mayors] the opportunity to identify what are the eligible activities that they want to promote within their municipalities,” the official stated.
For example, he said, some municipalities might be more inclined to develop tourism activities, whereas others might determine that housing or industrial projects would be more suitable to the needs of their respective towns’ residents.
“At the end of the day, it will depend on each mayor’s public policy, based on their citizens’ needs to determine which will be the economic activity and the quid pro quo that they are willing to offer those eligible activities,” he reiterated. Although he couldn’t offer a precise date, Marrero estimated that the committee will have compiled all of the mayors’ input by the end of the month or early November.
Meanwhile, the CFO noted that the DDEC has reported “many approaches” from investors who are interested in establishing OZ projects.
“I can confirm that… Javier Bayón, director of the [DDEC] Business Incentives Office, was presenting not only on how many jurisdictions are trying to capture investors’ interest, but how Puerto Rico has benefited and how investor interest in Puerto Rico has grown,” he said.
Out of roughly 9,000 designated OZ across the United States, Marrero affirmed that Puerto Rico is one of the most eye-catching for investors for multiple the reasons; the first being that more than 95 percent of the island qualifies as an OZ, unlike states in the mainland that only have certain regions.
In addition, Puerto Rico has the capacity to increase the investment tax credit by means of an eligible activity in a specific geographic point of reference—the reason the summit was held.
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Lastly, the local government is working with the U.S. Department of Treasury to create a revolving loan program with funding provided by the Community Development Block Grant Disaster Recovery (CDBG-DR) grant.
“Basically, we are taking $400 million from CDBG funds to create a revolving loan program to offer a loan that will not have an interest rate greater than two percent to be able to finance up to 20 percent of an OZ investment… We have the opportunity to see economic financing that once paid goes back into the fund, and continues to serve as a revolving fund for loans,” Marrero explained.
According to the Aafaf executive director, this is a “novel” measure that, if applied correctly, could result in copycat implementations in the mainland U.S. Essentially, Puerto Rico is being used as a testing ground for this initiative in order to later apply it in distressed communities stateside.
“The idea of this is [to provide] outside the box solutions and to use disaster [relief] funds to achieve greater economic development in jurisdictions that have been economically depressed for some time now. That is basically the OZ menu; there is no other U.S. jurisdiction that has that asset,” Marrero affirmed.
Editor's note: This story was published on the October 16 print edition of The Weekly Journal.