by Liz Longley, October 21
The Investing in Opportunity Act, consisting of a handful of pages slipped inside the 2017 Tax Cuts and Jobs Act, incentivizes private investment in Opportunity Zones—qualified areas in some of the nation’s poorest communities—by offsetting capital gains. But the act galloped into law before guardrails were in place to ensure it works as intended.
Since then, Opportunity Zones have become increasingly polarizing. Some see the legislation as a potential windfall that can unlock $6 trillion in capital, bringing the nation’s most distressed communities into the economic mainstream. Others see them as a handout to the 7 percent of Americans who even report capital gains, wealthy bad actors who are perverting the process by investing in shiny luxury projects in areas that were already in line for gentrification, and displacing the very people OZs were intended to help.
Absent additional legislation that delivers greater transparency and accountability, skepticism is growing. Meanwhile, though, a growing number of foundations and nonprofits are working with local governments and businesses to make the best of the new law—including in Alabama.
Opportunity Alabama (OPAL) was created at the same time as the state’s zones, in September of last year. While other states watched activity take off in urban areas, Alabama saw “a big chance” for the entire state. Zone legislation gave Alabama an opportunity to bridge critical gaps in community development financing across the state, which had been underdeveloped for decades. According to Alexander Flaschbart, a former attorney and OPAL’s founder and CEO, Alabama had seen just one Community Development Entity (CDE) since 2007.
OPAL developed a comprehensive strategy to turn Alabama into a “national epicenter” for OZs by laying the groundwork to “ignite place-based development.” The organization takes a data-driven approach to aligning investors, projects, communities and institutions through partnerships with organizations like Accelerator for America, which help city leaders prove the investment value of their geographies, and make the best possible cases for achieving long-term growth. A new toolkit developed by the Mastercard Center for Inclusive Growth can also help organizations like OPAL ensure that growth is happening in an equitable way by providing metrics-based scores to inform decision-making.
Flaschbart sees investors, projects, communities and institutions as four points on a compass that, united, can generate “real returns while improving economic vitality and quality of life.” He believes OPAL brings value to all four groups:
For investors, it highlights the ins and outs of tax benefits, like the fact that there’s no tax on appreciation if they hold the investments for 10 or more years.
For projects, it’s developed a pipeline management process working with organizations like The Opportunity Exchange, a national hub for high-impact projects.
It involves the community by building significant local relationships with partners like banks, feeders for high-net-worth investors, insurers who can underwrite risk, and companies like Alabama Power, which operates in every community across the state, and was the first to help OPAL develop a PRI-MRI strategy.
It also engages institutions like higher ed as project sponsors. Support from the Lumina Foundation allows OPAL to gather critical input on institutional ecosystem amenities, data that can prove valuable in investor analysis models.
Opportunity Alabama is working in 158 census tracts spread throughout 67 counties across the state. Sixty percent have a downtown area or commercial district in the neighborhood. Fifty-seven percent are anchored by institutions like schools, hospitals or military bases. Flaschbart says OPAL is seeing about a 50/50 mix between national and local investors—from developers who want to upsize, to “five buddies” who get together and choose their own projects. As in other places, investors are gravitating to larger projects first, a safety-in-numbers approach.
Flaschbart and his team of four do significant outbound networking, from appearing at investor conferences to cold calling. Given their success, Flaschbart thinks further legislation isn’t required for OZs to work. He and his team of four are firm believers in “sweat equity,” and think “bootstrapping on the ground” can create a structure that elevates projects.
Opportunities for Philanthropy
Flaschbart credits OPAL’s partners with the success they’ve had thus far, and says that the organization “wouldn’t be here,” without support from Alabama foundations that both fund them and “help them think,” including Alabama Power, Regions Bank and Protective Life Insurance.
Meanwhile, OPAL is eager to engage philanthropy further, including community foundations, partners that it says can make program- or mission-related investments in qualified Zone projects, grants to help develop needed infrastructure, or even manage funds. Given that a growing number of community foundations are getting involved in impact investing, OPAL’s hopes seem well-timed.
So are other states following suit, and considering state-wide, holistic models? And can the concerted efforts of partners on the ground get investors to follow their better angels?
“We’re getting calls,” Flaschbart says.
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