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SUBMITTAL OF THE STOCKTON OPPORTUNITY ZONES 2.0 PRIORITIZATION LIST TO THE CALIFORNIA STATE GOVERNOR
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RECOMMENDATION
It is recommended that the City Council approve a motion:
1. Authorizing the City Manager, or designee, to submit the Stockton Opportunity Zones 2.0 Prioritization List to the California State Governor; and
2. Authorizing the City Manager to take necessary and appropriate actions to carry out the purpose and intent of the motion.
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Summary
The Opportunity Zones program was established in December 2017 as part of the Tax Cuts and Jobs Act. In 2025, the One Big Beautiful Bill Act expanded the program and made permanent these designations in an effort to stimulate long-term private investments in low-income communities. Local jurisdiction must submit Opportunity Zone 2.0 designations to the Governor’s Office by July 25, 2026. The Governor may nominate up to 25 percent of California’s eligible census tracts. City staff have identified qualified census tracts that meet the low-income criteria, and that also demonstrate a need along with the opportunity for investment (Attachment A - Stockton Opportunity Zones 2.0 Prioritization List).
DISCUSSION
Background
The Opportunity Zones program was established by Congress in 2017 through the Tax Cuts and Jobs Act in order to spur long-term private sector investments in low-income communities across the nation. The original program is scheduled to sunset on December 31, 2026. The Opportunity Zones 2.0 program is a permanent expansion of the original program with new eligibility thresholds and ten-year designation cycles beginning January 1, 2027. This economic development program offers a way for investors to reinvest unrealized capital gains into distressed communities through Qualified Opportunity Funds (QOFs) in exchange for a graduated series of incentives tied to long-term holdings.
Opportunity Zones offer investors three incentives for placing some of their unrealized capital gains to work rebuilding economically distressed communities:
1. Gain Deferral - An investor can defer capital gains taxes for five years by reinvesting capital gains in a Qualified Opportunity Fund.
2. Basis Step-Up at Five Years - If the QOF investment is held for at least five years, the investor’s basis increases by 10 percent of the deferred gain for standard QOFs, or 30 percent of the deferred gain for Qualified Rural Opportunity Funds (QROFs).
3. Gain Exclusion at Ten Years - If held for at least ten years, the investor may elect to adjust the basis of the QOF investment to its fair market value on the date of sale, effectively eliminating federal capital gains tax on appreciation generated within the fund.
Opportunity Funds are investment vehicles organized as corporations or partnerships that hold at least 90 percent of their assets in qualified Opportunity Zone business properties. There are several types of business properties eligible for investment:
• Original-issue stock of a qualified Opportunity Zone corporation.
• Interest in a qualified Opportunity Zone partnership.
• Tangible property used in qualified Opportunity Zones.
In other words, almost any asset including high-growth startups, small businesses, real estate, manufacturing facilities, brownfield redevelopment, incubators, co-working spaces, and rental housing may qualify as eligible Opportunity Fund investments.
Those that will likely have interest in investing or establishing an Opportunity Fund include banks, venture capital partnerships, angel investor groups, multi-family developers, philanthropies, and Community Development Financial Institutions (CDFI). Local municipalities may be able to set up their own funds as well.
Present Situation
Governors have until September 28, 2026, to formally nominate Opportunity Zone census tracts with the United States Secretary of the Treasury. The California Governor recently announced that nominations will be accepted until July 25, 2026. Once submitted by the Governor, the Secretary will review the recommended Opportunity Zones and certify nominations by January 2027.
While governors are given broad discretion when it comes to designating Opportunity Zones, priority will be given to census tracts that align with statewide and regional economic development objectives, including:
1. Advancing California Jobs First
2. Attracting private investment in affordable housing aligned with stated Regional Housing Needs Assessment (RHNA) goals
3. Inclusion of “shovel-ready” sites
4. Public investment (demonstrated or planned) within the census tract
Based on the eligible census tracts, and the State of California priorities, City staff developed a prioritization list of census tracts for submission to the California Governor. Staff also developed a map to assist Council and the community in understanding the location of each census tract (Attachment B - Stockton Opportunity Zones 2.0 Map)
It is at the Governor’s sole discretion to recommend which qualifying census tracts are designated throughout California so long as it does not exceed 25 percent of the state’s 2,469 eligible low-income census tracts. Approving a prioritized list of census tracts allows staff the ability to submit and advocate for designations of the most census tracts possible for the City of Stockton. The prioritization list of qualified census tracts includes a balance of areas that have demonstrated the greatest need for investment with those areas that provide greater opportunity for private investment. Overall, the priorities are intended to support both neighborhood revitalization and large commercial and industrial development that would generate job growth and revenue.
Should these areas in Stockton be designated as Opportunity Zones, it could bring awareness of the program to local bankers, financial institutions, investors, and business networks to encourage the establishment of Opportunity Funds. Once an Opportunity Fund has been established, the City and the private market could then actively promote itself to potential investors.
Staff is requesting that the City Council approve the Stockton Opportunity Zones 2.0 Prioritization List so that eligible census tracts may be submitted to the Governor’s Office prior to the July 25, 2026, deadline.
FINANCIAL SUMMARY
There is no negative financial impact associated with this action. Submission of eligible census tracts could result in long term economic investment in the City of Stockton, creating jobs and generating revenue for needed services.
Attachment A - Stockton Opportunity Zones 2.0 Prioritization List
Attachment B - Stockton Opportunity Zones 2.0 Map