Can public and private funds be mixed in projects that benefit the community?
A QOF must be taxed as a corporation or partnership, therefore it can not be a government entity. Depending on the powers granted to each county, they must determine if such a fund can be created. There is no limitation in combining funds. Proper structuring must be carefully designed.
There's nothing to my knowledge against setting up a QOF as a public-private partnership. I don't think the IRS would take issue with that. But the more likely setup is what IDAs do for local tax incentives or the NYCHDP does for affordable housing - either a master lease or a nominee ownership type of transaction. The regulations specifically contemplate these.
A county could create zoning incentives, property tax assistance and expedited permitting. It could also act as a lender or guarantor. This is an interesting strategy. A project could be structured to accommodate public and private capital.
In order to attract investment in infrastructure or housing development, potential investors need to understand not only the tax advantages of making an investment but also the potential to redevelop communities. The first step in identifying and developing relationships with investors is to provide investor education. This could be done by: 1. Organizing and presenting an educational stakeholder event(s) that bring together potential investors, Opportunity Zone municipality leaders, other federal, county and city officials, local nonprofit organizations, community and economic development partners, and others to educate all on the Opportunity Zone tax provision and the benefit to the community. 2. Developing an Opportunity Zone website and/or investment prospectus, which will include an honest assessment and analysis of the zones within the county, an outline of the types of specific projects in the zones, an analysis of the local and supportive investments within the zone, and the qualities specific to attract investors. 3. Coordination of social engagement and events. After awareness campaigns, investors become more interested in the opportunities of a community and it may be prudent to host investor receptions or dinners. The key to a successful presentation and investment pitch is to highlight the entrepreneurial scene, the deal flow availability, and the commitment of local capital.
Sure, but the QOF must conduct an active trade or business. Investment can be public/private and even non-capital gain investment. Noncapital gain investment won't get any tax benefits, however. If a community nonprofit sets up the QOF, it could generate taxable unrelated taxable income so it may want to limit its percentage ownership and maintain control either through an LP as the GP or as an LLC managing member.
Private-public partnerships are certainly one option for utilizing the Opportunity Zone benefit. If the county helps create a vehicle whereby private investors can provide equity to fuel needed projects, that is a great outcome. The key is determining how to allow the investors to exit the PPP after more than 10 years.
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