Connecting state and local government leaders

Plenty for Local Leaders to Consider as Opportunity Zones Ramp Up

While "Opportunity Zones" are selected in all 50 states, experts think local leaders need to start looking for investors to attract to the areas.

While "Opportunity Zones" are selected in all 50 states, experts think local leaders need to start looking for investors to attract to the areas. Shutterstock

 

Connecting state and local government leaders

National Association of Counties members are told now is the time to get involved in attracting investment.

NASHVILLE — County leaders who gathered here over the weekend got some tips on what they should be thinking about as the recently created “Opportunity Zones” program takes shape.

The program offers tax incentives for investors to direct money toward economically distressed communities. It’s still in its early stages. But Jeremy Keele, a senior adviser with the “impact investing” firm Maycomb Capital, said that the roll out is at an “inflection point”—one where local leaders should be taking steps to learn about and plan for the program.

In June, the Treasury Department finalized the certification of 8,700 census tracts in all 50 states as Opportunity Zones that will be eligible to participate in the program.

Investors are taking interest. But they’re also awaiting further guidance from the Internal Revenue Service and the Treasury Department. Kevin Hassett, chair of White House Council of Economic Advisers, said last week he expects additional regulations to be issued this summer.

The zones were selected by governors. But Keele, along with an expert from the Urban Institute and a White House official who spoke to the National Association of Counties emphasized that local public officials are going to have an important part to play as the program unfolds.

Other people have made similar comments in recent weeks. But the county officials here for NACo’s annual conference indicated they have some room to make progress on this front.

When Keele asked 100 or so people attending a NACo Large Urban County Caucus session how many had heard of Opportunity Zones, most in the audience raised their hands. When he asked how many could succinctly explain the program, and how many were working on strategies to engage with nonprofits and investors on it, only a few hands went up.

Ja'Ron Smith, a special assistant to the president in the White House Office of Legislative Affairs, emphasized the role local government leaders can play in reaching out to businesses that want to grow in the zones, and might be able to attract investment through the program.

County officials, he said, have a chance to serve as a liaison, or convener, of sorts between these businesses and the investor community.

Prior to his time at the White House, Smith worked for U.S. Sen. Tim Scott, a South Carolina Republican, who along with U.S. Sen. Cory Booker, a New Jersey Democrat, championed the Opportunity Zones program, which was passed into law as part of last year’s tax overhaul.

Keele said the he expects to see a set of best practices emerge that will involve local governments finding ways to coordinate funding from other federal and local economic development programs, as well as philanthropic efforts in ways that bolster the eligible zones.

There are other policy options they could take to make the zones more attractive, as well. Like changes to zoning and planning codes, or workforce training to boost the pool of qualified workers in the zones. Partnerships with universities are another possibility.

Opportunity Zones will offer investors tax breaks on capital gains—such as those from investments like stocks or bonds—that they roll over into qualified “Opportunity Funds,” which will be used to invest in the distressed communities that have been selected for the program.

Institutions like banks, or investment firms, could be among those who establish funds. But local governments could do so as well. One of the program’s main goals is to drive investment toward small businesses and start-ups that lack access to venture capital, or bank loans.

Venture capital in the U.S. has become increasingly concentrated in a handful of places, such as New York City, California’s Silicon Valley, and Boston. At the same time, the consolidation of community banks has crimped the flow of loans to small businesses in some places.

Keele noted that firms like his will be ramping up efforts in the months ahead to raise money from private and institutional investors with capital gains. “You’ll see a lot of activity around that in third and fourth quarters of this year, as we get clarity from the regulators,” he added.

Unlike more traditional federal programs meant to support economic development in distressed areas, “dollars will not magically flow into these communities,” Keele pointed out. There will need to be viable investments in a zone for it to attract money.

Donnie Charleston, director of state and local fiscal policy engagement, for the Urban Institute pointed out that one concern with Opportunity Zones, as with past federal tax incentive programs, is that money will flow to places where people were going to invest anyway.

“Oftentimes what has happened is the capital has flown to those communities that had the best upsides,” he said.

He also highlighted that new real estate construction in low-income communities involving the New Markets Tax Credit did not necessarily provide permanent, well-paying jobs for local residents. And that once the economy starts to rev up in a neighborhood it can lead to gentrification, increased housing costs, and long-time residents getting displaced.

The nation has no lack of unrealized capital gains eligible for the program. They amount to about $6.1 trillion, according to some estimates. How much of that total could get funneled into Opportunity Zones in the coming years remains an open question.

“Even if you can get a very small fraction of that money flowing into communities that have suffered from decades of disinvestment,” said Keele, “I would argue that this has the potential to become one of the largest community development tools in the toolbox by far.”

Bill Lucia is a Senior Reporter for Government Executive's Route Fifty and is based in Washington, D.C.

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