Year after year, Administration after Administration, there have been attempts to revitalize low-income areas through the creation of “zones.” Some of these zones have provided contracting incentives or have directed federal funding to specific areas. These have been thoughtful programs. They have made an impact in economic development. They are important pieces of the puzzle.
But the United States needs something more. Opportunity Zones can be the key.
The Opportunity Zone provision was included in the Tax Cuts and Jobs Act of 2017. It came from Senators Scott and Booker and Congressmen Tiberi and Kind. They initially introduced the concept in the Investing in Opportunity Act. This bipartisan group of leaders saw a vision of economic expansion through targeted investments.
Taking from the Investing in Opportunity Act, the tax bill included the creation of “Opportunity Zones.” State governors selected these Opportunity Zones from low-income census tracts, which the U.S. Department of Treasury certified. In total, 8,700 Qualified Opportunity Zones have been designated.
Investors receive tax benefits for investing capital gains in “Qualified Opportunity Funds.” Those Funds are used as investment vehicles to provide funding to specific projects within Qualified Opportunity Zones. These could include industrial, equity, real estate or housing development, community development, or impact investing.
Opportunity Zones can be different. How?
Previous federal zone designations provided government funding directed to low-income communities. The Opportunity Zone provision is not a federal program. It is a tax incentive that relies on private capital through capital gains. This incentive can be significant. The Economic Innovation Group was the catalyst for the Opportunity Zone provision. They estimate the potential capital eligible for reinvestment in Opportunity Zones is more than $6 trillion.
$6 trillion throughout the United States can mean necessary economic growth for distressed communities in ways that public funding alone cannot provide.
In order to take advantage of these capital gains dollars, it takes effort. Opportunity Zone communities should not just expect investors to find them.
They need to develop a plan. Investors are looking for shovel-ready projects, so communities need to highlight those. They need to provide resources to get projects to the point of the investment. They need to coordinate all relevant stakeholders. This includes local governments, community leaders, elected officials, economic development professionals, developers, landowners, and investors. This targeted, local engagement is important to ensuring the vitality of the tax incentive.
Opportunity Zones can also be different because investors have the ability to aggressively combine the incentive with other zones or federal tax benefits. Investors could take advantage of Opportunity Zones and at the same time the New Markets Tax Credit. Communities can also reap benefits of HubZone or Promise Zone designations. Investors will only come if there is a very clear opportunity for success (pun intended), and an additional tax incentive might sweeten the deal.
Finally, Opportunity Zones can be different because of the coordinating role that the White House is taking. In December, the Trump Administration signed an Executive Order developing the White House Opportunity and Revitalization Council or “the Council.” The Council is chaired by the U.S. Department of Housing and Urban Development, Ben Carson. It aims to coordinate federal funding to Opportunity Zones. It includes members from 16 federal agencies.
In their implementation plan, the Council outlined their areas of focus. They aim to “stimulate economic development, encourage entrepreneurship, expand educational and workforce development opportunities, and promote safe neighborhoods.” They have already identified 100 federal funding programs in those areas and have targeted funding to go to Opportunity Zones. They plan to identify 160 programs in total.
These include federal grant opportunities from the U.S. Department of Agriculture to the Department of Education. The programs can uniquely support these communities. They are widespread in their focus and impact.
Being in an Opportunity Zone alone does not guarantee you will receive these grants. You have to put together a successful grant application. You need to petition the government and highlight what makes your area unique. You likely need a base of champions at the federal and state governments. But if you are successful, the result is more funding for economic development in the community.
Opportunity Zones can be different. The combination between private investment, tax and zone layering, and the federal governments’ targeted support to these communities makes this special. It allows for multiple sources of funding to come into an underserved community, instead of just one.
Combined, this can make a significant economic impact.
This post was written by Ridge Policy Group associate Zaida Ricker. RPG partners with several clients in the traditional and technology based economic development fields. They have developed an expertise in Opportunity Zone policy. They are adept in the catalog of federal domestic assistance opportunities available to help support the Zones and provide grant application assistance to help secure this funding.