Sonoma’s Highway 12 featured in Trump’s new ‘opportunity zone’ program

Will there be a rush of new development in the Valley’s Springs neighborhood stemming from Highway 12’s inclusion on a new list of state-designated “opportunity zones”?

That will depend on whether developers are lured to Sonoma by the Trump administration’s tax-friendly program.

The concept of opportunity zones was part of the Trump administration’s tax overhaul – more formally known as the Tax Cuts and Jobs Act of 2017. It offers tax breaks to investors who fund new developments in designated low-income neighborhoods. Last Wednesday, President Trump held a press conference about the program and its ability to revitalize “distressed areas.”

“Our tax cuts have kicked off a race to invest in opportunity zones beyond anything that anybody in this room even thought,” said Trump at the press conference.

The opportunity zone criteria required a neighborhood to have at least 20 percent of its residents living at or below the poverty level, or median family income below 80 percent of the regional median income.

Based on that criteria, California officials selected nearly 900 census tracts for the new program, including three in Sonoma County.

Sonoma County’s three zones are downtown Santa Rosa, Roseland and the Highway 12 corridor in the Springs. The Springs zone runs for three miles along the west side of Highway 12 from north of Donald Street to Madrone Avenue.

Last month, more than 60 real estate developers and investors from within and outside the Bay Area jumped on a bus to tour the Sonoma County opportunity zones and to meet with Santa Rosa City officials and planners.

Santa Rosa assistant city manager David Guhin said that the March 15 tour generated a “really strong response.”

“We have had a lot of follow-up meetings since the tour,” said Guhin about the Santa Rosa zones. “The interest has primarily been housing and we are urging developers to go ‘up not out’ with 8- to 10-story buildings.”

Guhin said the City of Santa Rosa is putting “a lot of measures in place” to encourage housing downtown and near mass transit. “We’ve developed a multi-pronged approach, of which the opportunity zone designation is one prong,” said Guhin, “to encourage infill building downtown at multiple levels of affordability.”

Matt Regan is senior vice president of public policy at economic-development nonprofit the Bay Area Council, and he helped organize the tour. He said tours like these are invaluable because “at the end of the day, the decision to invest in a community is math – but it also depends on the decisions being made by humans, and meeting with a mayor face-to-face, and hearing them say they are serious about affordable housing might tip the scale for that developer to proceed.”

The opportunity zone initiative works from a tax standpoint in a similar way to the home mortgage interest deduction. Both land and vacant buildings – housing and businesses - are eligible investments. Opportunity zone investments can defer or eliminate federal taxes on capital gains.

Sonoma County Community Development Commission Executive Director Margaret Van Vliet said she wasn’t aware of any investor or developer who’d become interested in the Springs specifically because of the opportunity zone designation.

Regan wasn’t aware that Sonoma Valley even had an opportunity zone, one reason that the March 15 tour of developers never made it down Highway 12.

Members of the newly formed Springs Municipal Advisory Council were also unaware of opportunity zone program. MAC member Omar Paz said that he was unfamiliar with the concept but that he expected development to be a hot topic at the council’s April 23 meeting and beyond.

Local housing activist Dave Ransom, of the Sonoma Valley Housing Group, said he sees both pros and cons with the program.

Ransom believes opportunity zones can help revitalize distressed communities, but there is a risk that instead of helping residents of poor neighborhoods, the tax incentive will end up displacing them or simply provide benefits to developers investing in already-gentrifying areas.

“Critics believe that the program benefits wealthy investors who would buy and sell the properties anyway,” Ransom told the Index-Tribune. “But the value of the tax subsidy is ultimately dependent on rising property values and rising rents. As I understand it, the law does not require that new housing built be affordable.”

According to analysts at real estate website Zillow.com, real estate sale prices are increasing at a faster rate in opportunity zones since being designated as such in 2017 – as much as 25 percent. In that same time frame, tracts that were not designated opportunity zones are up 8 percent in price.

“It’s also very likely that the big money hasn’t even started pouring into these zones yet,” according to Zillow policy analyst Casey Alexander. “Many funds may watch from the sidelines until more rules and regulations are hammered out.”

The affordable housing nonprofit, BRIDGE Housing, has launched a nationwide initiative to build in opportunity zones. It doesn’t currently have projects in the pipeline in Sonoma County but CEO Cynthia Parker is bullish on the concept.

“They can be a real game changer, as they are generating interest in affordable housing development from a new class of investors,” she told the Index-Tribune.

There is no investor tour planned yet for the Springs opportunity zone, according to Regan, but he plans to keep an eye on the neighborhood as he hopes that “investment there will support businesses without pushing out existing residents.”

“It is a beautiful location and it is prime spot for development,” Regan added.

“If I had the capital, I would be buying up all the properties on Highway 12,” said Ransom.

Email Lorna at lorna.sheridan@sonomanews.com.