The promise of opportunity zones
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As I prepare to testify on Opportunity Zones to the Joint Economic Committee, I am struck by the incredible benefits that new private investments could bring to distressed communities nationwide. A few common-sense, nonpartisan public policies will help this new tax benefit achieve its goals: increase opportunity for people across the country, provide direct and sustained community benefits, and foster inclusive economic growth.

Opportunity Zones were originally introduced in the bipartisan Investing in Opportunity Act and then included in the tax reform bill passed late last year. Designed to drive long-term investment in distressed communities, this new tax incentive encourages investors to place unrealized capital gains into Opportunity Funds – a new vehicle to channel pooled money into equity investments in businesses and real estate in designated communities – in return for a variety of graduated benefits, including deferred or reduced tax liabilities.

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Enterprise Community Partners, the organization I lead, has deep experience with proven public-private partnerships – such as the Low-Income Housing Tax Credit (Housing Credit), our country’s main tool for developing affordable rental housing, and the New Markets Tax Credit (NMTC), which encourages investment in facilities like schools and health clinics – that improve communities. Opportunity Funds can be a powerful complement to those programs. 

Because there is no cap on the amount of money that can be invested into Opportunity Funds, they have enormous potential to revitalize communities. If even a fraction of the estimated $2 to $6 trillion of unrealized capital gains held by individuals and corporations were directed into effective Opportunity Funds, to finance affordable homes and invest in businesses creating living-wage jobs, the results could be transformative.

The key to making sure that Opportunity Funds produce direct, sustained and equitable benefits is knowing how the Funds are investing in communities. Otherwise, it will be impossible to measure their efficacy and understand if taxpayers are getting their money’s worth from the taxes given up.  

The U.S. Department of Treasury and the IRS are developing guidance on Opportunity Funds and the final Opportunity Zones law. Enterprise has identified two key priorities that should guide effective and efficient implementation:

Promote Transparency. The conference report included alongside last year’s tax legislation called on Treasury to send annual reports to Congress on the investment activity and local outcomes of each Opportunity Fund, starting five years after Opportunity Zone implementation. I strongly encourage the Treasury Department and IRS to follow this clear guidance from Congress and report who the fund manager is; the state in which the fund is registered; and transaction-level information, such as where the fund has invested, how much and in what (e.g., real estate, affordable housing, or other projects). Treasury should make this information public and allow stakeholders to comment on funds’ investments. This level of transparency will enable the public and Congress to evaluate the impact these funds have on residents and businesses in Opportunity Zones.

Ensure Accountability. Because Opportunity Zones provide a federal tax benefit for investing in some of the nation’s most vulnerable communities, it is critical that these investments demonstrate a direct and sustained benefit for current residents and businesses, and result in inclusive economic growth. Every community has its own challenges, so “direct and sustained” will look different in different areas, and state and local governments will need to implement policies that both encourage investment and prevent displacement. Nonetheless, one thing should remain constant: the explicit prohibition of Opportunity Fund investments that would disproportionately harm low-income residents and local businesses. For example, investments should not result in the net elimination of affordable housing, because an affordable home is vital to accessing opportunity.

Opportunity Zones have the potential to fuel investments in affordable housing, businesses that create living-wage jobs, and other resources crucial to creating sustainable and prosperous communities. Smart public policymaking will enable the private market to make the most of Opportunity Zones, and fulfill the promise they hold to benefit millions of lower-income people across the country.

Terri Ludwig is Chief Executive Officer of Enterprise Community Partners.