Staff Report
City Council
Item No. 3.D
Meeting Date: August 12, 2026
From: Erick Becerril – Economic Development Manager
Title: Authorize a Letter of Support to the Governor’s Office of Business and Economic Development (GO-Biz) - Supporting the Designation of Eligible Opportunity Zone 2.0 Census Tracts within the City of Cathedral City
RECOMMENDATION:
To authorize the City Manager to prepare a Letter of Support to the Governor’s Office of Business and Economic Development (GO-Biz) supporting the designation of eligible Opportunity Zones 2.0 census tracts located within the City of Cathedral.
BACKGROUND:
The federal Opportunity Zone program was originally established through the Tax Cuts and Jobs Act of 2017 to encourage long-term private investment in economically distressed communities through preferential federal tax treatment for qualified investments.
Congress has since enacted legislation creating Opportunity Zones 2.0, providing states with the opportunity to nominate a new set of eligible census tracts for designation. The Governor’s Office of Business and Economic Development (GO-Biz) has initiated California’s public comment process to assist in identifying eligible census tracts for nomination to the U.S. Department of the Treasury. The public comment period is scheduled from August 3, 2026 - August 28, 2026.
Within Cathedral City, the following census tracts have been identified as eligible for consideration:
Census Tract 06065044702
Census Tract 06065044907
Census Tract 06065044933
Census Tract 06065044934
Census Tract 06065044916
Census Tract 06065045000
Census Tract 06065941001
On August 3rd, GO-Biz released the list of recommended eligible census tracts, to which on only Census Tract 06065044916 was identified from the entire list of eligible tracts in Cathedral City. Due to continued interest for development of the eligible census tracts, staff desires to advocate for the proposed track and others in the city that would support both commercial and residential development.
DISCUSSION:
Opportunity Zones are a federal capital gains tax incentive that is overseen jointly by the U.S. Department of Treasury and the Internal Revenue Service (IRS). In California, the Governor’s Office of Business and Economic Development (GO-Biz) partners with the California Department of Finance (DOF) to nominate and recommend eligible census tracts to the Governor, who has final authority to submit official state nominations to the U.S.
Department of Treasury.
The designation is utilized to mobilize long-term private investment in low-income communities. Unlike traditional community development programs, OZs are uncapped, investor-driven, and by right. A taxpayer with a capital gain — individuals, corporations, institutions — may be eligible to invest in a designated census tract and receive preferential tax treatment without applying for federal approval. The OZ incentive operates through Qualified Opportunity Funds (QOFs), which pool investor capital and deploy it into eligible investments (i.e. qualifying activities) within designated census tracts.
Opportunity Zones are intended to stimulate private-sector investment in communities that have historically experienced economic challenges while encouraging long-term capital investment, business growth, housing development, and job creation.
The Opportunity Zone Program was originally scheduled to sunset on December 31, 2026.
With the passage of the One Big Beautiful Bill Act (OBBBA) on July 4, 2025, the program is now a permanent part of the federal tax code. As part of this legislation, a new round of Opportunity Zone census tract designations—referred to as “Opportunity Zones 2.0”—will be introduced.
Governors may designate up to 25 percent of their state’s eligible census tracts. However, the OBBBA establishes more stringent eligibility requirements for future designations.
To qualify, a census tract must satisfy one of the following tests:
Median family income (MFI) below 70 percent of the metropolitan average or the statewide average (for non-metro areas) (versus 80 percent in the original OZ provision).
Poverty rate of 20 percent or greater (unchanged), plus a newly established MFI cap set at 125 percent of the applicable state or metro median. The MFI cap closes a statistical loophole that allowed a small number of high-income census tracts to qualify for OZ status.
As of July 29, 2026, the O.Z. 2.0 Novogradac map (Exhibit 1) identified seven (7) eligible census tracts in Cathedral City. On August 3, 2026, GO-Biz released the draft of “recommended” eligible Census Tracts, which only included one of the seven eligible tracts in Cathedral City, Census Tract 06065044916. Advocacy for the inclusion of all seven census tracts is crucial for the city as each area could benefit from future development investments. In recent talks with developers, including those focused on affordable housing, O.Z. 2.0 could be a beneficial tool used to help realized community benefits including those related to affordable housing, ultimately helping with the capital formation needed for the project’s pro-forma.
Designation of these eligible census tracts would provide Cathedral City with an additional economic development tool that complements existing local, regional, state, and federal initiatives. Opportunity Zone designation does not provide direct funding to local governments, rather it creates a framework that encourages private capital investment into qualified projects and businesses located within designated areas.
Opportunity Zones encourage investment by providing a series of capital gains tax incentives for qualifying activities in designated areas:
Deferral: Investors may defer taxes on capital gains that are reinvested in a QOF for up to five years.
Basis step-up: After the five-year deferral, QOF investors receive a 10 percent reduction (step-up in basis) on their deferred capital gains tax liability (or 30 percent for investments in rural-specific QOFs).
Tax-free growth: Gains earned on investments in QOFs held for at least 10 years are permanently exempt from federal capital gains tax.
Opportunity Zones are unlike the traditional model of community development tax incentives, in which federal awards (e.g., grants or tax credits) are allocated and approved for specific projects by a federal authority. For communities, OZ designation does not guarantee investment, private investors must still find investment opportunities to deploy capital.
Selected zones have the potential to unlock capital at scale for places that truly need it.
Potential community benefits from the O.Z. 2.0 incentive include:
Increased private investment in commercial and mixed-use development Expanded opportunities for affordable and workforce housing Revitalization of aging commercial corridors
Redevelopment of underutilized or vacant properties
Support for small business growth and entrepreneurship Attraction of new employers and employment opportunities Increased investment in neighborhood-serving retail and services Enhanced economic resilience and long-term tax base growth FISCAL IMPACT:
There is no fiscal impact for the City.
FIVE-YEAR STRATEGIC PLAN:
Goal F –16: Develop and implement initiatives to proactively monitor the City’s commercial corridors to address visual blight and nuisance issues associate with vacant and underutilized properties and non-compliant commercial strips and centers.
ATTACHMENTS:
1.Exhibit 1. - O.Z. 2.0 Maps