Puerto Rico May Shift Some Aid to Opportunity Zone Projects

(Bloomberg) -- Puerto Rico Governor Ricardo Rossello said he’s seeking U.S. approval to put about $400 million of federal aid toward opportunity zone projects, a new class of private investment that can hand investors sizable tax breaks.

Speaking at an opportunity zone summit in San Juan Tuesday, Rossello said the commonwealth’s government was in talks with the U.S. Housing and Urban Development and Treasury Departments for approval to invest community development block grant money in such projects. About $9.7 billion of the disaster relief money currently earmarked for Puerto Rico will come from that HUD program, according to the commonwealth.

Rossello said investing the federal funds alongside private resources was part of the island’s efforts to distinguish itself from other jurisdictions in the opportunity zone program.

“If a deal is close to coming together, but it could use a little additional financing to push it over the edge, economic development funds already appropriated by Congress may be able to be used to provide that leverage in a subordinate position so that the deal can go forward,” Daniel Kowalski, senior counselor to Treasury Secretary Steven Mnuchin, said in a telephone interview.

Already facing a declining population because of a long-sputtering economy, the island suffered a further blow with the destructive impact of Hurricane Maria and a federal response many on the island and elsewhere say was too slow. Recent U.S. Census Bureau data showed the island’s population declined by almost 4 percent -- about 130,000 people -- since the storm. About 45% of Puerto Ricans live in poverty, far more than in any U.S. state.

The opportunity zone program was created as part of the 2017 Tax Cuts and Jobs Act to bring development dollars to areas of need, and nearly the entire island of Puerto Rico qualified. Nationwide, most of the eligible areas face elevated poverty or limited household income, but there are also some that already had significant development momentum even without the tax breaks. Some critics are concerned that money will go first to the areas promising the highest returns, not those with the most dire need for capital.

Rod Miller, the CEO of Invest Puerto Rico, said that the presence of several hundred at the opportunity zone conference where Rossello announced the plan Tuesday "demonstrated that there is a high level of interest in Puerto Rico’s revitalization and reinvention story by a diverse suite of investors across asset classes."

A bill that Rossello signed Tuesday creates a regulatory framework for opportunity zone investments in Puerto Rico.

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