How Treasury Should Determine OZ 2.0 Tract Eligibility

JAJimmy Atkinson·February 9, 2026 · 5 min read

The census data that will likely inform Opportunity Zones 2.0 tract eligibility is now out, but how Treasury uses that data remains unresolved. How that data is interpreted, particularly with respect to margins of error and unreliable income estimates, will materially shape which communities are eligible for consideration.

Jason Watkins of Novogradac joins the show to discuss how Treasury should approach OZ 2.0 eligibility in this interim period before formal guidance is issued. The conversation focuses on why a purely mechanical approach would be a mistake -- and what a commonsense, policy-aligned framework could look like as Treasury prepares to define the eligibility universe for the next designation round.

Guest: Jason Watkins

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Episode Summary

With the release of the 2020–2024 American Community Survey (ACS) five-year data, the raw inputs that will likely inform Opportunity Zones 2.0 eligibility are now public. But how Treasury interprets that data — and how much discretion it exercises in doing so — remains unresolved. And that unresolved question will materially shape which communities are even eligible to be considered for designation in the next round.

In this episode of The Opportunity Zones Podcast, Jimmy Atkinson is joined by Jason Watkins, partner at Novogradac and chairman of the Novogradac Opportunity Zones Working Group, to walk through why a purely mechanical, spreadsheet-driven approach to census tract eligibility would be a mistake — and what a more commonsense, policy-aligned framework could look like.

Treasury's Narrow Window of Opportunity

Jason explains that the timing of this conversation is critical. The ACS data has been released, but Treasury has not yet issued formal eligibility guidance or transmitted an official list of eligible tracts to governors. Once that list goes out, the opportunity to correct for data limitations largely disappears.

This interim window — between data release and guidance issuance — is effectively Treasury’s one chance to decide how ACS data should be used, not just which data to use. Decisions made now will determine which tracts governors can even consider during the nomination process.

Why ACS Tract-Level Data Is Inherently Unreliable

A core focus of the discussion is the statistical nature of the ACS itself. Unlike the decennial census, the ACS is a rolling survey. Five years of survey responses are aggregated to produce tract-level estimates, including median family income. Because it is survey-based, every estimate comes with a margin of error.

Jason walks through why this matters:

Median family income estimates are just that -- estimates.
The reliability of an estimate depends heavily on the number of survey responses in a tract.
In many tracts, margins of error are extremely large.
In some cases, margins of error exceed 50% of the estimate itself.
When margins of error are too large, the Census Bureau does not publish an income estimate at all.

Jimmy adds context from his own nationwide analysis, noting that the average tract-level margin of error exceeds 26%, with many tracts far higher — and roughly 3% of tracts nationwide lacking median family income data altogether.

The Risk of Deserving Tracts Being Excluded

The danger, Jason explains, is that Treasury could treat ACS point estimates as definitive eligibility cutoffs. If that happens, genuinely low-income communities could be excluded from eligibility simply because their reported income estimate happens to land slightly above a statutory threshold — even when that difference falls well within the margin of error.

The result would not be a policy-driven narrowing of Opportunity Zones, but a statistical one: tracts excluded due to noise, not economic reality. Once excluded, those tracts could not be nominated by governors, regardless of local knowledge or historical conditions.

Jimmy and Jason walk through a concrete example from Alabama, showing how a tract that appears ineligible on paper could very plausibly qualify once its margin of error is taken into account.

Precedents Treasury Can Rely On

A key theme of the episode is that Treasury does not need to invent new concepts to address this problem.

Jason highlights two important precedents:

HUD’s approach to unreliable ACS data, where margins of error above certain thresholds render data unreliable and trigger the use of alternative methodologies or prior data vintages.
Treasury’s own OZ 1.0 designation process in 2018, which allowed governors to rely on two different ACS five-year datasets when nominating tracts.

The Working Group’s position is that Treasury can lawfully and reasonably adopt similar flexibility for OZ 2.0 — particularly in edge cases where data reliability is demonstrably poor.

Guardrails: Flexibility Without Abuse

Jason emphasizes that the Working Group is not advocating for expanding the overall number of Opportunity Zones or weakening statutory limits. The 25% cap on designations would remain intact.

Instead, the proposal focuses on targeted flexibility:

Allowing governors to scrutinize tracts with very high margins of error more closely
Applying different thresholds depending on whether a tract was previously designated
Allowing supplemental evidence where ACS data is missing or unreliable

The goal is not to grow the program, but to ensure that the eligibility universe accurately reflects economic conditions rather than statistical artifacts.

States With Few Eligible Tracts

The conversation also explores edge cases involving states like Wyoming and Vermont, which — based on current ACS data — may have fewer than 25 eligible tracts. The statute does not clearly address how Treasury should handle states that fall below that floor.

While statutory thresholds may be difficult to override directly, both Jimmy and Jason note that resolving margin-of-error issues alone could materially change eligibility counts in those states, potentially addressing the problem without altering statutory percentages.

Why This Decision Matters Before OZ 2.0 Tract Nominations Are Submitted

As states prepare for the July 1, 2026 nomination window, the clock is already ticking. Governors, counties, and cities will need time to evaluate eligible tracts, gather input, and rank nominations.

Jason closes by underscoring that eligibility mistakes made now cannot easily be fixed later. If Treasury adopts a commonsense framework at the outset — one that recognizes the limitations of ACS data — it will materially improve the integrity and credibility of OZ 2.0 before the first designation is even made.