AGENDA TITLE:
title
Presentation on Opportunity Zones 2.0 Program (ED)
end
MEETING DATE:
July 15, 2026
PREPARED BY:
Luis Aguilar, Economic Development Director
recommendation
RECOMMENDED ACTION:
Receive a presentation on the Opportunity Zones 2.0 program.
body
BACKGROUND INFORMATION:
The City of Lodi is currently participating in the first-generation Opportunity Zone Program (OZ), which was created under the Tax Cuts and Jobs Act of 2017 to encourage reinvestment of capital gains into economically distressed communities. The program offers preferential federal tax treatment for investments in qualified projects located within designated low-income census tracts. Investors who reinvest capital gains into qualified projects within these zones can receive preferential federal tax treatment, including deferral and potential reduction of capital gains taxes.
Eligible investments include:
• New construction or rehabilitation of real estate
• Equity investments in operating businesses
• Infrastructure or energy-related projects
The program is designed to promote sustained economic growth, job creation, and community revitalization in historically underserved areas. The City’s opportunity zone is currently comprised on one census tract; Tract 44.03 (DEOID 06077004403) which is 0.4 square miles bound by E. Lodi Ave to the north, E. Kettleman to the south, Central Ave to the east and the railroad tracks to the west. The tract has seen no opportunity zone investments since the program was established. In addition, Tract 45.02 (GEOID 06077004502) in now eligible for this program and covers a larger footprint; bounded by E. Lockeford to the north, E. Lodi Ave to the south, Guild Ave to the east, and the railroad tracks to the west.
The City’s designated Opportunity Zones allow investors to utilize federal tax incentives for investments in economically distressed areas, supporting real estate development, business growth, and community revitalization. The City’s Economic Development Strategic Plan aligns with Opportunity Zone initiatives. The plan identifies high-growth, high-wage industries, infrastructure priorities, land use, housing, and workforce development strategies to guide local economic growth over the next 5-10 years. This framework helps investors and developers understand where their projects can have the most impact and benefit from Opportunity Zone incentives.
Key Takeaways
o Lodi’s Opportunity Zones provide tax incentives for long-term investments in targeted areas.
o Investments can include real estate, business equity, and infrastructure projects.
o The City’s Economic Development Strategic Plan supports OZ-aligned growth and revitalization.
o City, State, and Federal Interactive maps and property listings help investors identify eligible tracts and
available properties.
Opportunity Zones Permanent Extension
The One Big Beautiful Bill Act (OBBBA), signed into law in July 2025, permanently extended the Opportunity Zone program beyond its original 2026 sunset date, making it a permanent feature of the U.S. tax code. Opportunity Zones 2.0 (OZ 2.0) builds on the original 2017 Opportunity Zones program with the same objective to incentivize investment in economically distressed areas. Census tracts must meet certain income and poverty criteria: either Median Family Income (MFI) at or below 70% of the area MFI, or a poverty rate ≥ 20% and MFI ≤ 125% of area median. OZ 2.0 includes both urban and rural tracts, with additional tax incentives for rural areas where a lower development threshold applies (50% for substantial improvement instead of 100%).
Key Permanent Extension Provisions
• No more 2026 deadline: The original law allowed only capital gains deferrals until Dec. 31, 2026. The OBBBA removed that cap, so investors can continue deferring gains in OZs indefinitely by reinvesting in Qualified Opportunity Funds (QOFs).
• Decennial redesignation: Current OZs will sunset at the end of 2026, but governors must redesignate new zones every 10 years. The first new round is due within 90 days of July 1, 2026, with new zones taking effect Jan. 1, 2027.
• Eligibility tightened: Census tracts must meet stricter low-income criteria - either ≤70% of area median income or ≥20% poverty rate, with income capped at 125% of median income. Contiguous tracts to eligible zones are no longer eligible for future designation.
• Enhanced rural boost: Rural OZs receive a 30% increase in the tax benefit for certain investments.
• Modified deferral rules: Investors can still defer gains, but the 10-year holding period for the 15% basis step-up restarts when reinvesting in a new QOF after an “inclusion event”.
• Information reporting: QOFs and Qualified Opportunity Zone Businesses (QOZBs) face new reporting requirements, with penalties for noncompliance.
As a result of the extended program, Governors may nominate up to 25% of their state’s eligible census tracts as Qualified Opportunity Zones. California has 2,469 eligible census tracts, so the Governor may nominate a maximum of 618 tracts. This new requirement now makes the census tract selection process more competitive. Cities are required to submit a request to the Governor’s office to retain and/or include additional census tracts into the City’s existing Opportunity Zone. The timeline for this process is as follows:
o July 1 - July 20, 2026: Local governments and economic development organizations can submit nominations for OZ 2.0 census tracts.
o August 1 - August 15, 2026: Public comment period for proposed designations.
o August 16 - August 30, 2026: Governor makes final selection and submits to the U.S. Treasury.
o January 1, 2027: OZ 2.0 designations take effect for a 10-year period, continuing to use 2020 census boundaries even after the 2030 census.
The City of Lodi’s Economic Development Strategic Plan supports OZ-aligned growth and revitalization, and has an opportunity to participate in the extended program. In partnership with the Lodi Economic Development Ad-Hoc Committee, Economic Development staff is prepared to submit census tract 45.02 for inclusion in the OZ 2.0 program. This census tract meets the most significant qualifying criteria of (1) higher poverty rate 35.4%, (2) large resident population (4,311), (3) stronger disadvantaged-community credential 94.7%, (4) an under-invested census tract and, (5) greater developable-capacity.
FISCAL IMPACT:
Not applicable.
FUNDING AVAILABLE:
Not applicable.