Many Americans see the 2017 Tax Cuts and Jobs Act as a windfall for the wealthy. But a piece of legislation within it, the Investing in Opportunity Act, has the potential to be a game changer for distressed communities in all 50 states. That promise can only be realized if the act works as intended, and some philanthropic leaders like the Rockefeller Foundation are keen to guide the law’s trajectory.
Investing in Opportunity
The Investing in Opportunity Act was designed to reduce geographic disparities and level economic growth. Philanthropy played a role in the origins of the law, which was conceived by the Economic Innovation Group, a D.C.-based think tank founded with support from tech winners Sean Parker and Ron Conway.
In two short years, the U.S. Treasury has certified 8,700 low-income, high-poverty census tracts across the country as Opportunity Zones (OZs). These areas are now in line to receive private investments through Opportunity Funds, pools of capital created to stimulate long-term community investments in exchange for significant tax incentives on capital gains.
The potential is huge: The Economic Innovation Group estimates that the pool of capital eligible for reinvestment could potentially reach $6 trillion. But the issues are many. The act became law before sufficient safeguards were in place to ensure it lifts the lives of the 30 million Americans residing within the zones. Gentrification can advance in areas that were already primed for development without accelerating growth in areas of extreme poverty—widening the gap between the haves and the have-nots.
Some impact investors see the law’s failure to include impact reporting requirements or objectives as a missed opportunity. And the law doesn’t specifically require investors to promote social good. Tax benefits exclude the development of golf courses and country clubs, but there are no incentives to build affordable housing over luxury hotels.
Transparency and reporting guidelines were also minimal, making cities blind to the investments being made. Nor was there guidance on zone development structures. Already stressed communities were left on their own to create the capacity to guide and receive investments.
(When the law was passed, it delegated broad authority to the U.S. Treasury to write rules to prevent abuses and ensure it achieves its stated goals—regulations that are still being developed.)
The Rockefeller Foundation was quick to recognize the challenges the act presents to under-resourced cities. Dedicated local teams will play a critical role in attracting responsible private investment, and attaching capital to the kinds of projects and people OZs were designed to help.
In May, the foundation announced a $5.5 million Opportunity Zone Community Capacity Building Initiative, which will ultimately reach six cities. Part of Rockefeller’s U.S. Jobs and Economic Opportunity program, the initiative provides two years of financial and human resources support, including funding to embed a Chief Opportunity Zone Officer and two community engagement specialists in local agencies. Cities will also receive guidance from a national Opportunity Zone Technical Assistance team.
Newark, New Jersey, was the first city selected. It received $920,000 in co-funding from Rockefeller and Prudential Financial, allowing it to build an on-the-ground team through the Newark Alliance, a local nonprofit that works in economic revitalization. A Chief Opportunity Zone Officer and two specialists will facilitate community engagement and ensure projects balance the interests of investors and residents. Nearly 16 percent of Newark’s population currently resides in the city’s 13 zones.
On July 31, the foundation announced the selection of a second city, Atlanta. Rajiv J. Shah, president of the Rockefeller Foundation, says Atlanta demonstrated a strong commitment to ensuring that investments were “designed with the most vulnerable in mind.” With more than 82,000 residents in 26 designated zones, that vulnerability extends to roughly 17 percent of the city’s inhabitants. Atlanta will receive the same $920,000 in grants and supportive services that Newark has, including $400,000 to embed an officer and two AmeriCorps VISTA members at Invest Atlanta, the city’s economic development authority.
Dr. Eloisa Klementich, Invest Atlanta’s chief executive officer, says the organization had one person in place to support OZs, who was working without a budget. She’s excited by the increased capacity and confident that a dedicated team of four will help the city find matches for projects that will increase economic development, create jobs, and even spur “amenity” investments in areas that are currently “food and retail deserts.”
Klementich realizes that investors aren’t required to come to them with plans. But Invest Atlanta hopes to add value for those who do, connecting them with tools and resources like small business assistance and guidance on state tax credits. Ultimately, they hope to create a two-way street that will drive sustainable success.
Foundations See Opportunity
Besides Rockefeller, other nonprofit leaders are stepping up to balance investors' interests with positive community involvement. The Kresge Foundation provided $22 million in investments to two Opportunity Zone Funds after managers agreed to voluntary reporting, metrics and transparency measures that center on community. The MasterCard Center for Inclusive Growth launched a million-dollar partnership with Accelerator for America to arm city leaders with data to attract investments. And the Beeck Center for Social Impact + Innovation at Georgetown and the U.S. Impact Investing Alliance developed a shared impact and reporting framework to help shape the market.
In June, the President’s Council on Impact Investing, a network of 20 leading private foundations within the alliance, published an open letter to legislators pushing for mandatory reporting requirements to prevent resident displacement and ensure benefit equality.
While all these steps are positive, concerted efforts must continue to balance competing interests and realize the promise of opportunity.