States are moving full speed ahead to finalize their maps for the second iteration of the Opportunity Zone economic development program before a late September deadline.

While it remains unclear which parts of Philadelphia will be included in the program that offers tax breaks to developers in certain areas, city officials have already provided their input on the matter.

Pennsylvania has 866 census tracts that the U.S. Treasury deemed eligible for the program. Gov. Josh Shapiro’s office has until Sept. 28 to pick which 217 will make the cut and submit them for the Treasury’s approval before the federal government’s final map goes into effect Jan. 1.

“There's political horse trading going on,” KPMG Senior Lead Tax Partner Joe Scalio said of the process playing out at the state level. 

“The amount of areas in 2.0 are going to be significantly less, so there's going to be some decisions that have to be made by the governors,” he added.

OZ 2.0 was written into law with last year’s One Big Beautiful Bill Act, extending and making permanent the program that President Donald Trump initially signed into law in late 2017. The opportunity zone program offers tax benefits to investors that put money into real estate projects and operating businesses in low-income areas. The new version of the program lowers the income threshold for areas to qualify. 

In Philly, roughly 30% fewer tracts are set to make the cut this time around, Philadelphia Department of Planning & Development Deputy Director Emily Persico said.

State officials are making the final determinations based in part on input from her office, which began generating recommendations in mid-May and submitted them about a month later.

The team collaborated with the city’s Department of Commerce, the Philadelphia Industrial Development Corp. and Mayor Cherelle Parker. Persico said the mayor was particularly hands-on and focused on using OZ 2.0 to further her HOME Initiative housing goals.

Commercial real estate players have made their wishes known to city officials as well, even if their feedback wasn’t explicitly solicited.

“We didn't actively go out and seek input, but we have been receiving it,” Persico said.

“Over the past year, we've been hearing from a lot of developers around what their priorities are. We know mostly anecdotally where opportunity zones are successful, and so we definitely considered that.”

Pennsylvania isn't among the more than half of U.S. states that have already completed the public input process for OZ 2.0. The commonwealth’s opportunity zone page says it will reopen its window for input on Monday, and it will remain open until 5 p.m. on Aug. 21.

The city’s recommendations for Shapiro’s office were crafted via a data-driven approach, Persico said.

That work was aided by a rubric provided by Accelerator for America, a nonprofit focused on improving economic mobility in underserved communities, she added.

A top priority was identifying neighborhoods already primed for successful redevelopment.

“Opportunity zones are really good for drawing new attention to underutilized areas and not necessarily closing large gaps,” Persico said.

“We wanted to look for census tracts where we knew that there was realistic economic opportunity,” she added. “We looked at things like vacancy. We looked at making sure there was actually permit activity happening in and around the census tracts.”

The OZ 2.0 map is slated to go into effect at the start of next year, but projects in OZ 1.0 zones will still be able to receive the program's benefits through 2028.

Scalio said a focus of his at the moment is helping clients field new investment for existing OZ projects via long-awaited new guidance from the IRS.

“We’ve been asking the Treasury, the IRS, to provide guidance on the fact that the original program was supposed to go to 2028,” Scalio said.

“This notice basically gives us transition relief over a couple-year period,” he added. “It’s called a working capital safe harbor plan.”

OZ 1.0 developers need to have 10% of their capital raised and 5% deployed by the end of 2026 to be able to field new investment for a project through 2028. Those new funds will be governed by the 2.0 guidelines.

But that doesn’t mean the pressure is off for OZ 1.0 investors, as many are still unsure whether their projects will be part of the new maps.

“There's going to be a little bit of a sprint between when we find out what's not designated and what is going to sunset,” Scalio said.