SGA’s take on introduced opportunity zone reform bill

Last week, a bipartisan group of senators introduced a bicameral bill aiming to reform opportunity zones, the Opportunity Zones Transparency, Extension, and Improvement Act. Smart Growth America (SGA) views the opportunity zone reform bill as a necessary step to improve transparency and the likelihood of more equitable outcomes through opportunity zones, which have not benefited the historically underserved communities, nor the small, minority-owned and legacy businesses, as intended.  Additionally, SGA notes that opportunity zones are not designed to advance our goal of delivering more attainable housing near transit, a key aspect of  smart growth.

Our work on opportunity zones

SGA and LOCUS, our coalition of responsible real estate developers, have been leaders in the push to ensure that opportunity zones are used for development that directly benefits economically distressed communities and the people and businesses who reside in them.  The historic investment that accompanied the 2017 opportunity zone federal tax incentive was often touted as a tool to promote economic development, job creation, poverty reduction, and support for new businesses in areas of concentrated disinvestment. 

Despite the stated goals, our 2020 study, Unrealized Gains, found that opportunity zones were not having the desired outcomes. While opportunity zones have occasionally led to community revitalization, overall they have not been an effective tool for investment in Black and minority-owned businesses, nor have they effectively delivered benefits to low-income communities and communities of color.

To drive impact for the communities who would benefit most, SGA has also supported numerous city governments seeking to use opportunity zones with direct community support, helping to identify strategies to use the incentive to deliver outcomes that would support underserved communities.

What is an opportunity zone?

By providing strong tax incentives, this new federal program seeks to encourage investors to invest some of that capital to revitalize struggling neighborhoods and main streets. Investors can make long-term investments into new Opportunity Funds—which provide the equity for businesses or real estate projects within these newly designated Opportunity Zones—and receive a tax break after ten years.

Learn more about opportunity zones here

SGA and LOCUS call for opportunity zone reform

As currently implemented, the opportunity zones tax incentives have neglected the small, minority-owned, and legacy businesses that should be at the forefront of receiving the benefits. Reform is needed to guarantee that the benefits are reaching communities in tangible ways, including improving reporting guidelines, maximizing state and local oversight, center community benefit, and preparing businesses with the tools they need. 

Additionally, opportunity zones are not designed to facilitate decisions on a location-based basis and are therefore not a realistic tool to increase attainable housing development near transit. This is true in part because the census tract is a crude tool for location-based planning, especially given the varying sizes of census tracts and that areas within census tracts have different densities. (SGA joined 36 other organizations last fall opposing making this level of data the standard.) Further, opportunity zones can be difficult to use in conjunction with funding sources for affordable housing such as Low Income Housing Tax Credits and New Markets Tax Credits.

Despite the inherent downfalls in opportunity zones discussed above, SGA and LOCUS support this legislation as it will enhance transparency and reduce some of the inequitable outcomes arising from opportunity zones as they stand.  We see the opportunity zone bill as a step in the right direction, given that the bill:  

  • increases the transparency and impact assessment provisions, which will enable policymakers to better understand the impact of the incentive on the underserved communities within opportunity zones and make improvements accordingly;  
  • includes brownfield sites; 
  • offers more support to local governments to advance workforce development and investment in local businesses via the State + Community Dynamism Fund.

If passed, the Opportunity Zones Transparency, Extension, and Improvement Act would improve current outcomes, as the bill pushes opportunity zones to achieve more equitable outcomes for historically underserved communities and businesses as intended in the original legislation. It is also essential to note that, on their own, opportunity zones are not a sufficient tool for smart growth, as they do not often lead to more attainable housing near transit that would lead communities to be more economically prosperous, socially equitable, and environmentally sustainable.

More about the opportunity zone reform bill

Senators Cory Booker (D-NJ) and Tim Scott (R-SC) and U.S. Representatives Ron Kind (D-WI) and Mike Kelly (R-PA), introduced a bipartisan and bicameral bill aiming to reform opportunity zones, the Opportunity Zones Transparency, Extension, and Improvement Act. Alongside the bill’s main sponsors, Senators Mark Warner (D-VA), Chris Van Hollen (D-MD), Todd Young (R-IN), and Representatives Terri Sewell (D-AL-07), Dan Kildee (D-MI-05), and Jackie Walorski (R-IN-02) cosponsored and expressed support for the legislation.   

The bill contains numerous reforms including:

  • Reintroduction and expansion of reporting requirements: These requirements include reporting on the 6th and 11th year after enactment on socio-economic data points as well as job creation and new business starts.  
  • Introduction of a State + Community Dynamism Fund: A $1 Billion State + Community Dynamism fund would provide funding to states, which could then be re-granted to local governments and nonprofits, to build capacity in opportunity zones and ultimately drive capital to projects which build local capacity, enhance workforce development or increase investment in minority, women, and veteran-owned businesses.
  • Qualification of brownfield/industrial sites as opportunity zones: Zero-population tracts which include brownfields and are adjacent to opportunity zones would now be eligible for opportunity zone designation.
  • Modification tract parameters that qualify as opportunity zones: The legislation would sunset opportunity zones with a median family income at or above 130 percent of national median family income, and would grant states discretion to sunset others.
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