The Mall of America and the booming district around it are now considered “economically distressed” in the eyes of the federal government, qualifying the area for new tax breaks intended for the country’s poorest neighborhoods.

The eastern corner of Bloomington is one of the state’s 128 “Opportunity Zones” under a program Congress created in the 2017 tax code overhaul. The program aims to revive certain low-income areas by offering tax breaks to people who invest in them.

“Opportunity Zones have the potential to bring much needed investment to some of Minnesota’s lowest-income areas to spur economic development,” Shawntera Hardy, the state’s commissioner of the Department of Employment and Economic Development (DEED), said when Minnesota submitted its choices among eligible census tracts to Washington last year.

The list included some of the poorest communities around the state, such as Minneapolis’ Phillips area and the Red Lake Indian Reservation.

But the nation’s largest mall and its “South Loop” environs — boasting five new hotels and four more on the way — also made the cut. That new status is already aiding existing and potential developments there.

The census tract was eligible largely because of lower-income people living in older apartment buildings south of the mall, including some about a mile away. Areas nearest the mall are most likely to see redevelopment, however, based on five “opportunity sites” that Hennepin County officials submitted when recommending the zone to DEED. The mall owns two of them.

“Without knowing more about the facts on the ground [in Bloomington], we can say pretty unequivocally that there are many other places in the state of Minnesota that look far more deserving,” said John Lettieri, CEO of the Economic Innovation Group, the Washington, D.C.-based advocacy organization behind the Opportunity Zone idea. Lettieri said the public should examine why the decision was made and how state and local leaders will ensure it benefits the area’s lower-income residents.

The program, still in its infancy, has drawn criticism as a potential driver of gentrification. And the zones themselves have attracted scrutiny around the country. Minnesota chose other zones where high-profile development is already occurring, including the areas around Mayo Clinic in Rochester and St. Paul’s new soccer stadium.

Lettieri said that states, which winnowed down a list of eligible tracts, collectively selected zones that were needier than those they passed over. A study by the Brookings Institution, a think tank, ranked Minnesota among the top states in the country for choosing the most distressed eligible tracts for its zones.

Opportunity Zones had bipartisan support in Congress before inclusion in the 2017 tax bill. The program allows people with potential investment income — a growing stock portfolio, for example — to delay or avoid paying future capital gains taxes if they invest that money into an Opportunity Fund. Those funds can invest in real estate deals or new businesses in the Opportunity Zones. The tax break grows larger the longer the money stays invested and also applies to profits made in the zone.

Ed Goetz, director of the University of Minnesota’s Center for Urban and Regional Affairs, said Hennepin County and the city of Bloomington had reason to choose the mall area since they will benefit from a larger tax base. The state of Minnesota did not have that same incentive, however.

“That’s the level of government that really should have been watching this and making a judgment as to whether a place like this really fits the spirit of the legislation,” Goetz said.

DEED spokesman Shane Delaney said the agency submitted tracts that local leaders, like Hennepin County, ranked as a priority. The agency declined to make an official available for an interview.

‘An attractive incentive’

Backers say about $6 trillion in profits is parked in investments nationwide, and some investors are now pooling that money into multimillion-dollar Opportunity Funds.

Among them are local firms McGough Development and Olympus Ventures, which created a fund to help build a 402-unit apartment building — one of the largest housing projects in the region — east of the Mall of America. McGough has been developing an area around the Bloomington Central Station light rail in phases.

The city-owned former Thunderbird hotel site north of the mall is now featured on opportunityzonesadvisors.com, a website created by the commercial real estate firm Bloomington hired to market the land. Marketing materials dub the site “the Next Big Thing,” noting that its location in a zone offers developers and tenants “an attractive incentive.”

“I can tell you it has brought a lot of interest solely because it’s in an Opportunity Zone,” said John McCarthy with Newmark Knight Frank, the firm marketing the site.

The mall, which is owned by Canada-based Triple Five Group, owns two 30-acre lots adjacent to its existing building. It has plans to expand, aided by tax subsidies the Legislature approved in 2013 worth up to $200 million. But mall representatives said Opportunity Zone funding is not a part of a current proposal to construct a nearby water park.

“As we continue to look at future opportunities, we remain open to all options for financing additional or future developments, and we would explore the [Opportunity Zone funds] as a potential option to help attract financing,” mall spokesman Dan Jasper wrote in an e-mail.

The Opportunity Zone could also help the mall attract tenants, since the tax break extends to investments in new businesses that open within the zone.

DEED last year asked counties and some cities to rank their top Opportunity Zone choices. Hennepin County, after consulting with cities, ranked the Bloomington tract second among its seven “first-choice” tracts. Officials said the amount of land ready for redevelopment — 140 acres — made it an attractive choice.

“What we were trying to do is figure out what both serves the economically challenged census tract and provides the opportunity at a scale that the private market might react to,” said Kevin Dockry, the county’s director of community works.

Adam Looney, a co-author of the Brookings report, said there are many zones around the country that were picked largely due to development opportunities.

“Most Opportunity Zone neighborhoods are both poor enough to qualify but promising enough to attract investment — they might be already gentrifying, have significant commercial districts, or are adjacent to other development projects,” Looney wrote in an e-mail. “But that structure raises questions about how effective the program will be — will subsidizing a new establishment in the Mall of America benefit the poor community that lives a mile south?”