You may have noticed the hoopla; you may have heard the hubbub: Everyone is talking about federal Opportunity Zones.
In 2017, the Tax Cut and Jobs Act created federal Opportunity Zones (OZ), which are designed to provide long-term investment in economically distressed areas. The incentive provides tax relief on capital gains if invested into Opportunity Zones through qualified Opportunity Funds. It is a private market solution for the entrenched public sector problem of long neglected communities.
This program is rare common ground for both the political right and left, which is why a bipartisan think tank, called the Economic Innovation Group, introduced the idea back in 2015. It is also why the original legislation, Investing in Opportunity Act, was co-sponsored by both parties (Senators Corey Booker and Timothy Scott as well as Representatives Tiberi and Kind). At its core, it is a bipartisan effort to invest in previously forgotten communities.
Fast forward 18 months later, legislation has passed. The Treasury Department has released draft regulations and in some cases, they ask more questions than provide answers. Federal hearings have started and other rounds of guidance have been announced and subsequently delayed. Every week there are numerous webinars, conferences, panel discussions, and events, mostly targeted towards developers and investors, who are moving at breakneck speed to create Opportunity Funds and find qualified projects.
So what does this mean for the public sector and the communities that will be affected by the program? What should government and elected officials be doing to prepare? Is this really a big deal?
In a recent Washington Post article, it was cited that there are over $6 trillion in unrealized capital gains in the United States. If even just a sliver of that is directed towards Opportunity Zones, it could make a huge impact on distressed communities. The question is, will it ultimately be deployed to the places that need it most? Some cite concerns that 75 percent of all venture capital dollars wind up in three localities: Silicon Valley, New York City, and Boston, Massachusetts. Will this private capital follow a similar path? How, specifically, can lesser known areas attract their share of Opportunity Zone investments? And do so in a way that doesn’t promote gentrification and displacement?
ESI is currently working with several municipalities and private sector clients across the region to help them develop OZ strategies. We understand the perspective of the developer, property owner, and government administration, and can help bridge the gap between community need and Opportunity Fund. While every strategy must be tailored to the individual locality, there are some high level initiatives that are important for our municipal clients:
- Aggressively marketing itself by pumping up its economic development tools (website, OZ investment prospectus, other digital and print marketing documents);
- Aligning its own resources to demonstrate “skin in the game” (i.e. infrastructure improvements around development sites, grants, other financing tools); and
- Minimizing barriers such as aligning stakeholders, as well as streamlining the development review and permitting process.
Despite the hullabaloo, I don’t think this is a fad in community development. I expect that the Opportunity Zone program will have far reaching impacts on economic development across the country. As a result, communities must be proactive and figure out how to maximize Opportunity Zone investment for local goals. You don’t want the capital to pass you by. You also don’t want to be the recipient of OZ investments that are misaligned with community needs. It is a fine balance, but one that municipalities will be well-served to figure out, and quickly.
ESI provides a comprehensive suite of advisory services for Opportunity Zone (OZ) investments. We offer development strategies, investment strategies, communications services, and impact evaluation. With our advanced quantitative skills, extensive development expertise, and first-hand local government experience, we offer unique insights for OZ solutions. Learn more about our capabilities by clicking here.
Brittany N. Forman is a director at Econsult Solutions, Inc (ESI). At ESI, Ms. Forman leads projects on public policy and community and economic development. She helps clients assess municipal budgets and policies, evaluate programs and operations, and manage projects from inception to their successful completion.