An interesting piece of legislation included in 2017’s Tax Cuts and Jobs Act is the Opportunity Zones program. We’ve been digging in with colleagues across the country on how this can drive investment into neighborhoods that need it.
So what’s the scoop?
The Opportunity Zones program is a once in a lifetime legislative change to the federal tax code. The goal is to incentivize investment in critically under-invested areas of the country.
- Community development program included in the Tax Cuts & Jobs Act of 2017
- Objective to encourage long-term investments in low-income communities, urban and rural, nationwide
- Individuals can defer capital gains tax by investing in approved Opportunity Funds comprised of place-based investments in designated low-income census tracts
- State Governors could nominate up to 25% of their low-income census tracts to the US Treasury Secretary for approval as Opportunity Zones by March 21, 2018
Why haven’t I heard anything about this?
Quite a number of changes were being made to the legislation simultaneously. Honestly, mostly community development nerds like us were reading and talking about this.
The New York Times has a good summary of the bigger policy context: Tucked into the tax bill, a plan to help distressed America
What is California doing about Opportunity Zones?
California created a strategy to winnow down eligible census tracts that Governor Brown could nominate to the Secretary of the Treasury. The state chose to focus on three criteria:
- Low-income census tracts
- With a minimum of 30 businesses so that there could be economic activity to support with investment
- Geographic diversity. At least two census tracts per county, with some extra weight for contiguous areas
The US Treasury approved Opportunity Zone recommendations for 18 states, including California on April 9. In San Diego, this covers a dense area from Barrio Logan and National City on the West, East along the 94 corridor to include Southeast San Diego, Oak Park, Mount Hope, and the Diamond neighborhoods, then North into City Heights, with a sprinkling in Normal Heights and North Park. Chula Vista, El Cajon, Escondido, and Vista also have small pockets designated as Opportunity Zones.
See where Opportunity Zones have been approved in this interactive map.
The IRS is still working on guidance for IRC 1400Z-2, including certification of Qualified Opportunity Funds and eligible investments in Qualified Opportunity Zones. Still TBD what financial structures will qualify, but they will need to deal with property/real estate.
Mission Driven Finance is exploring with partners how to support intentional investment in these communities.
Should I be worried about anything? And how do we approach this the right way?
The spirit of the law was to lift up communities that haven’t had adequate resources. However, without thoughtful approaches to investment and development, the program could also displace marginalized communities with gentrification and higher costs of living.
Some of our favorite thoughts on the matter:
- California Reinvestment Coalition — CRC members raise concerns that Opportunity Zones will facilitate displacement of low-income communities and communities of color
- Rip Rapson, President & CEO of The Kresge Foundation — Opportunity Zones need responsive, transparent and long-term investments
- Adam Looney, Senior Fellow at the Urban-Brookings Tax Policy Center – Will Opportunity Zones help distressed residents or be a tax cut for gentrification?
- Lisa Hall, Senior Fellow at the Beeck Center for Social Impact + Innovation at Georgetown University — In the Land of OZ (Opportunity Zones) who will benefit?
UPDATE 12/4/18: We’re now publicly committing to develop an impact-first fund for small businesses in Opportunity Zones. Check it out: Mission Driven Finance is launching a Qualified Opportunity Fund.