Within the recently enacted Tax Cuts and Jobs Act of 2017, the Opportunity Zones legislation (originally sponsored by Sens. Cory Booker and Tim Scott) was authorized into federal law. This program allows for Governors in each state to nominate up to 25% of low-income census tracts that have at least a 20% poverty rate, and have a median family income of up to 80% of the area median income. Nationwide, there are 8100 eligible tracts that can be nominated to the U.S. Treasury, and to date several states are still submitting nominations after filing extensions to nominate their Zones. The number of Zones represents a population of roughly 32 million residents in low-income communities.
The funds (via fund managers) will hold investments for projects located within the Zones, and are required to hold at least 90% of the investments towards businesses, residential, and other financing projects related to job creation, reducing poverty, and new business starts. The funds will be designed to attract between $2 trillion and $6 trillion in private capital into zone projects, and in turn, investors will see a tiered discount on federal capital gains tax rates at 5 and 7 years within the fund. Or if investors leave their capital in the fund for 10 years, there will be no capital gains charged on the earnings from the Zones’ investments. The types of investments include: stock in domestic corporations within Zones; capital or profit interest in domestic partnerships (LLCs and others); and tangible property used in trade/business that improves the property. The following recommendations are meant to ensure equitable implementation and address concerns of massive displacement pressures:
Cities & States should:
- Enact do no harm policies that govern fund operation within zones: no net loss of housing units; no loss of jobs; and no small business displacement.
- Create investment and public benefits strategies for Opportunity Zone's such as:
a. Community project pipelines/lists developed by key equity-minded stakeholders
b. Inclusive community engagement processes in selection process of fund investments
c. Develop performance-based metrics that ensure projects serve residents, improve lives and transform place
- Create Publicly-Owned/Managed “Equitable Opportunity Funds”
Progressive Foundations should:
- Provide Influential Leadership - Foundations have the financial and knowledge resources to fund place-based investment strategy, development, and organizing efforts to protect the zones from harm
- Open/Operate “Equitable Opportunity Funds” in partnership with community leaders and organizations
- Pool and Leverage PRI dollars – Foundations’ program-related investments (PRIs) can be pooled into place-based funds and returned to Opportunity Funds in the form of grants, to be used by vulnerable populations to spur their own wealth creation.
- Provide Staff Capacity for locally-controlled Opportunity Zones/Funds.
- Capacity Building - Provide funding to support fund management literacy for local communities and advocates.
Investors & Developers should:
- Leverage this initiative to help build more wealth for developers and investors of color and underrepresented groups in the investor and/or developer community.
- Ensure residents’ voice are prioritized in selection for investment
- View this as an opportunity to diversify the fund management community and incorporate local representation into fund management & leadership.
- Prioritize funding for projects that have clear direct benefits for local residents that have participated in the investment decision process
- Prioritize projects near public transit options that expand opportunity to the most vulnerable and the most disconnected
- Establish and share an Equitable Development Investment Framework and Strategy
- Provide Annual Assessment of Investments with metrics on how the most vulnerable low-income residents and businesses have or will benefit from funds.