General Assembly passes bill to temporarily double Ohio’s historic, Opportunity Zone

Senate Bill 225 also briefly doubles the breadth of a second, much newer, program.

The bill allows the development department to issue up to $75 million in Opportunity Zone tax credits in the current two-year state budget cycle, which ends June 30, 2023.

Today, the program is capped at $50 million in every biennium.

In the current cycle, development officials have approved nearly $26.2 million worth of credits, based on applications filed in January, according to data analyzed by Crain’s.

The additional $25 million earmarked by the legislature means there will be almost $50 million in credits available to investors over the next year. Lawmakers similarly set aside $50 million in credits for the 2024 fiscal year.

After that, the program will fall back to an annual limit of $25 million.

In 2019, Ohio became one of the first states to create a tax credit for Opportunity Zones, economically distressed areas that received special status from the federal government in 2018. The state’s income tax credit is equal to 10% of an investor’s contribution to a project, with a $2 million cap for any applicant.

Senate Bill 225 also makes some long-term changes to the program.

Under current law, applicants must be Ohio taxpayers. Going forward, though, investors who are not subject to Ohio income taxes can apply — and can sell their credits to buyers who have state income-tax liabilities.

And recipients will be able to split up their awards, using a portion of the tax credits to offset their own liabilities and then selling the rest.

“This is a prime example of something that seems like a subtle change on the surface, but I think it’s going to generate even more interest in the program and encourage developers to utilize the program even more than they already have been,” said Mike Sikora, a Cleveland attorney who played a significant role in crafting the Opportunity Zone language in the bill.

The bill also requires the development department to accept applications twice a year, in January and July, instead of once every calendar year.

During its initial two-year term, the program was undersubscribed. Investors left $10 million in tax credits on the table in 2021. That allocation simply went away, since the program does not include a rollover provision.

But Sikora believes there will be ample demand for the increased allocation, now that investors and developers are more comfortable with the Opportunity Zone program. He noted that development projects often take years to plan, finance and get under way.

“We are seeing a very high level of Opportunity Zone activity so far this year,” he said.