Several southwest Minnesota communities are officially ‘Opportunity Zones’

REGIONAL - Nobody knows for sure what effects the U.S. Treasury’s newly designated Opportunity Zones will have, but that doesn’t stop area economic development leaders from being hopeful.

The zones - quietly established in the 2017 tax bill - will allow investors to get tax-free income by investing their capital gains into specified funds that will be used to invest in small businesses and real estate projects located within low-income communities.

The program aims to bring private investment to poor and rural areas of the country, as roughly 80 percent of venture capital currently goes to California, Massachusetts, New York and Texas.

It’s hard to say what the program will accomplish, because the program’s guidelines have not been released yet. Regardless, area county administrators and coordinators scrambled to put their eligible low-income census tracts in the mix, without knowing exactly how things would work.

Minnesota Gov. Mark Dayton had a similar task when selecting the state’s zones. He had to nominate 25 percent of eligible tracts, narrowing down 509 possible tracts to 128.

Greater Minnesota leaders weren’t confident they’d be included, as during a conference call with the Minnesota Department of Employment and Economic Development (DEED), state officials told them most eligible tracts were located in the Twin Cities or on Indian reservations.

However, in Dayton’s final recommendations, he nominated several southwest Minnesota communities, including those in Nobles, Rock, Jackson, Cottonwood and Pipestone counties.

“When the recommendations came out, we were all shocked,” Worthington Community and Economic Development Director Jason Brisson said. “We thought that maybe Nobles and one more county in the southwest would be picked, but they picked all of these zones in the rural areas.”

Minnesota’s zones were formally approved by the U.S. Treasury on May 18.

Nobles County The northernmost Worthington census tract includes most of Oxford Street and residential communities located south of Oxford Street. It excludes residential communities along Lake Okabena and much of downtown Worthington.

“If it had to be one tract, this is the best one,” Brisson said. “Our entire commercial corridor is in here, so redevelopment opportunities are bountiful in this area.”

Minnesota Housing Commissioner Mary Tingerthal specifically mentioned housing as an area of potential growth the zones could impact. Brisson noted the selected southwest Minnesota tracts include cities that badly need affordable rental housing.

“My take on it is the governor saw an opportunity there to take some action on the workforce housing challenge,” Brisson said. “This is another tool to draw from to make it happen.”

Worthington typically subsidizes new housing developments with its own money or state grants, as investors say they cannot make proper return on housing projects with the city’s relatively low wages.
The Worthington zone contains several areas in which housing could be expanded. Notably, land along the Grand Avenue extension is considered a prime spot for residential development, as is land north of Marthaler Chevrolet and the new Runnings facility.

Cottonwood County Three zones were eligible, but the county recommended its southeasternmost tract, which follows Minnesota 60 and covers Bingham Lake and most of Windom. It just clips the southern part of Mountain Lake.

Windom has seen its industry grow, and with the Minnesota 60 four-lane expansion finishing this year, city leaders expect that will continue. However, the city, like Worthington, struggles to find private investment to build housing for its workers.

“We’ve got large businesses - Prime Pork, Toro, Fast Global, Big Game - that employ a lot of folks, and we have a lot of people come into Windom to work,” said Steve Nasby, Windom city administrator. “We’d like to grow the community and have those folks live where they work, and the way to do that is through additional housing.”

   Rock County

Minnesota’s southwesternmost county had one eligible census tract, which covers the south and eastern part of Luverne along with Magnolia, Kanaranzi, Ash Creek, Steen, Hill and Bruce.

Luverne needs more rental housing units but, like the others, is lacking the investment to do so.

A 2016 housing study found demand for approximately 390 new housing units through 2025.

For Kyle Oldre, Rock County Administrator, the hope is to attract businesses back from border states, as the county has lost several companies to South Dakota over the years.

“We’re always looking for manufacturing jobs and businesses, so if we can attract them by making ourselves more competitive, that would be a boost,” Oldre said. “At least it levels the playing field some.”

  

Pipestone County The city of Pipestone is split almost 50/50 into two different census tracts. The city and county selected the tract that covers the eastern half of Pipestone.

“We chose the one containing the industrial park and airport, and it also has some areas that could be subject to redevelopment using opportunity zone incentives,” Pipestone City Administrator Jeff Jones said. “The park almost completely full right now, which is a good thing. But we want to be positioned where if there’s a new business considering Pipestone, that we have some incentives that would allow us to expand our industrial park and provide the needed space.”
Jones - being used to state grants - is excited about the possibility of private investment.

”Here’s an opportunity to get that private investment in here that is significant but untapped,” Jones said. “We’re feeling that’s opening a whole new area of possibilities for expansion here and new growth.”

 

Jackson County Of two eligible census tracts, the tract encompassing the entire city of Jackson was chosen. The tract covering Lakefield was not.

“We did try to get it done for both, but it didn’t happen,” Jackson County Coordinator Pipestone City Administrator said.

Jackson Economic Development Coordinator Thomas Nelson first pushed to get the county to apply for the zone. Jackson has several incentives to bring businesses to the city, including grants, financing and job training programs.

“Whether or not it’s something that bears any fruit, we’ll find out, but it certainly doesn’t hurt to have more tools at our disposal toward economic development,” Duncan said.

     Left off Murray County, not having an eligible census tract, was not included in the program.

“I was disappointed that we weren’t eligible to apply, but at the same time pleased that we didn’t have any census tracts considered to be ‘low income,’” said Amy Rucker, Murray County economic development director.

In Iowa, much of the northwest corner was excluded for the same reason. Lyon, Osceola and Dickinson counties were left out of the program, as none of them have an eligible census tract.

During a visit to Sibley, Iowa last week, Sen. Chuck Grassley, R-Iowa, said the program will increase capital investment in rural areas, but likely won’t be ready to go this year.

“I doubt there will be much use for it during 2018,” Grassley said. “You might find some local efforts to get ready for when the rules come out, and maybe there will be some suggestions of what to do to meet the requirements.”