Opportunity Zones: An Imperfect Tool
By Rick Jacobs — CEO, Accelerator for America
October 30 — The Opportunity Zones component of the 2017 Tax Cuts and Jobs Act is far from perfect. Most recently, news reports have alleged that wealthy investors with connections to the Trump administration influenced the designation of some Opportunity Zones to benefit their personal real estate interests. Some of the facts are in dispute, but what is clear is that the implementation of the Opportunity Zone incentive has been severely flawed. Beyond the allegations of favoritism, the federal government has been slow to roll out regulations and has failed to establish the type of impact requirements and accountability needed to ensure the initiative creates positive change for people living in underserved communities. Put simply, all of the structures are in place to ensure wealthy investors can seize their tax benefits. Lacking are the structures necessary to ensure Opportunity Zones truly create opportunity for those who need it most.
Opportunity Zones were incorporated into the 2017 Tax Cuts and Jobs Act through a bipartisan effort championed by Republican Sen. Tim Scott of South Carolina and Democratic Sen. Cory Booker of New Jersey, who led a coalition of nearly 100 congressional cosponsors from both sides of the aisle. The Economic Innovation Group (EIG), co-founded by John Lettieri and Sean Parker, was essential to the creation of the Opportunity Zones component of the law, though they were unable to get all of the language into the legislation that they wanted. We owe EIG considerable gratitude for pursuing this massive policy shift designed to drive billions of dollars into over 8,700 census tracts, nearly all of which would benefit from the inclusive investment EIG mapped out.
Opportunity Zones are imperfect, but they are here. We can choose to sit on the sidelines and criticize. Or, we can try to make up for the federal government’s failings and make them work for those most in need. We have chosen the latter course.
Accelerator for America has developed tools and offers strategic support to local communities across the country to help them steer investment dollars to truly create opportunity in Opportunity Zones. We are working with communities nationwide, including Erie, PA, where a $33 million project in the North Park Row neighborhood — where 45% of residents live in poverty — will increase the number of locally-available jobs from roughly 40 to more than 300. Our friends in Birmingham, AL recently announced the $24 million redevelopment of the long-abandoned American Life building to create vital workforce housing, including a number of units set aside for those reentering society. And our work with the city of Lansing, MI has contributed to a total of $330 million directed toward investments advocated by the community — not originated by outside investors. There are similar stories nationwide.
To truly benefit from Opportunity Zones, local leaders should follow the important steps below:
Prepare for and understand what you have to offer and what you want from investors, many of whom may well be local. Accelerator for America has worked with 46 cities to prepare Investment Prospectuses, which enable cities, counties and states to communicate their competitive advantages, trigger local partnerships and identify inclusive projects that are ready for public, private and civic capital.
Use data. Our partner, the Mastercard Center for Inclusive Growth, just released its revolutionary Inclusive Growth toolkit, which blends open-source public data with a proprietary layer of aggregated and anonymized Mastercard data that, when complemented by local expertise, helps identify opportunities for revitalization and measure the outcomes of investments.
Seek patient, long term capital. By design, Opportunity Zones attract such capital because the full tax benefit is achieved only after a ten-year holding period.
Access “last mile” human capital that can translate between the public and private sectors. Together, with our partners at the Irvine Foundation, we have placed FUSE Fellows — mid-career private sector leaders who take a year off to work in government — in three communities. Ideally, we’d see dozens more across the country.
Encourage philanthropy off of the sidelines. By providing mission- or program-related equity or debt, as well as grants for human capital to de-risk investments, philanthropy can tip the scales to encourage meaningful investments, like the creation of a grocery store in a food desert.
We must recognize the Opportunity Zones legislation as a tool, not an end-all, be-all solution. It is driving private investment in these areas where little — other than extractive enterprises such as dollar stores and check cashing businesses — has come before. Indeed, one of the biggest impacts of the Opportunity Zones legislation is the discussion of equity, rather than just debt, in communities that traditionally receive affordable housing but no pathway to building wealth (read more here).
Without action by local governments, community leaders, and the investment and non-profit sectors, the Opportunity Zones legislation will make rich people richer – full stop. But we’ve already seen encouraging examples of how Opportunity Zone investments have benefited underserved communities across the U.S. — and this is just the beginning. If local communities proactively take steps to ensure capital is steered to the right places, we will continue to see positive effects in the places that the legislation was intended to help. We continue to stand ready to support local communities and step in where the federal government has failed.