Title
Opportunity Zones Guidance - Citywide
Description
This report will provide the Economic Development and the Arts Subcommittee with an update about the City’s process to submit Qualified Census Tracts to the State of Arizona for federal Opportunity Zones 2.0 consideration.
THIS ITEM IS FOR INFORMATION AND DISCUSSION.
Report
Summary
The federal Opportunity Zones (OZ) program was established in the Tax Cuts and Jobs Act of 2017 to encourage long term private investment in economically distressed communities. The program provides tax incentives to investors that reinvest capital gains into Qualified Opportunity Funds (QOF). Arizona’s designated OZ 1.0 census tracts included 42 in the City of Phoenix. The City of Phoenix will need to submit a new list of census tracts to the Arizona Commerce Authority (ACA) by May of this year.
Under the original OZ framework (OZ 1.0) investors received:
- Temporary deferral of capital gains invested in a QOF until December 31, 2026.
- Reduced taxable gain (10 percent at five years, 15 percent at seven years).
- Phoenix supported OZ 1.0 activity with streamlined development services, including planning, reviews, and guidance on community and site readiness.
The U.S. Treasury and Congress are modernizing the OZ program (OZ 2.0) to increase transparency, tighten eligibility, and ensure investment benefits flow to genuinely disadvantaged communities. OZ 2.0 introduces a new eligibility map that significantly narrows qualifying areas. States must re-nominate eligible census tracts for OZ designation, and federal criteria are significantly stricter than for OZ 1.0. Existing projects will retain OZ 1.0 benefits, but new investments after 2026 will depend entirely on the updated federal map.
To qualify for OZ 2.0, a census tract must meet one of the criteria below based on 2024 census data:
- Median Family Income (MFI) less than or equal to 70 percent of the surrounding Metropolitan Statistical Area (Required MFI threshold at or below $69,911); or
- Poverty rate greater than or equal to 20 percent and up to 125 percent of the MFI ($133,210).
The Governor’s Office will submit the official list of census tracts to the U.S. Treasury on July 1, 2026. City staff is conducting a structured three-phase process to identify the most strategic and community-aligned tracts. Under federal rules, states may designate up to 25 percent of eligible tracts statewide as OZ. According to the ACA, Arizona is applying the same 25 percent cap at the jurisdiction level to promote geographic equity, helping ensure nominations are distributed across communities rather than concentrated in a few larger cities with more eligible tracts. The City's census tract submittal must be provided to the ACA by May 8, 2026, and include no more than 33 tracts, the number restriction based on the 25 percent cap. The state used a similar approach during the OZ 1.0 designation process.
Department
Responsible Department
This item is submitted by Assistant City Manager Ginger Spencer and the Community and Economic Development Department.