I often encourage my nonprofit clients to think big about the communities they serve and to become a catalyst for new development within these communities (e.g., grocery stores, place-based centers). But, nonprofits are limited in what they alone can do. And, unfortunately, it is challenging to get developers interested in these often-distressed neighborhoods. Although the social sector has tools for development to help with small business loans or new market tax credits, they aren’t the power tools it needs to really bring together nonprofits, developers and investors in a unified strategy for redevelopment. (Believe me, we have tried, but few deals have happened.) Nor do these tools help prevent unintended consequences, such as gentrification. But, there is a light at the end of the tunnel – the newly created Opportunity Zone tax benefit passed by the Tax Cuts and Jobs Act in December 2017. It provides federal tax incentives for long-term capital investments in low-income communities throughout the United States. And, this isn’t a small tax benefit – it is significant and has already motivated investors and developers to investigate opportunities.
This legislation is all about helping those left behind in our economy. While the ins and outs are complicated and still being determined by the Department of Treasury, enough is known for nonprofits and social entrepreneurs to dive in and work alongside the communities we serve to ensure these impact investments are truly beneficial. Here are the basics, along with some of the best sources for more information:
- What? Opportunities zones are distressed census tracts that meet eligibility requirements. Mayors and community leaders nominated zones, which were approved by each state’s governor and now have been certified by the Department of Treasury. You can find the final map here.
- How? Investors receive tax benefits for placing unrealized capital gains into Opportunity Funds. Unlike other programs, there are no monetary caps on investments, which makes it flexible and scalable. If you want more on the legal side of the policy, Polsinelli, a law firm, has done a marvelous job summarizing it. The IRS also has a good website on Opportunity Zones.
- When? Corporations and individuals can defer capital gains until December 31, 2026. And, if invested for at least 10 years, the gain on the investment (but not the deferred gain) is not taxable.
- What to do now? Most cities and states are starting work this spring to realize the potential power of Opportunity Zones by convening task forces to strategically guide development that balances social impact with wealth creation.
- Best case scenario – Needed development occurs in and is welcomed by the community. It drives important social goals, including living-wage job creation and increased economic mobility.
- Worst case scenario – Development occurs that leads to displacement of residents and gentrification.
If you have an opportunity zone in your geographic area, the best place to start is your local Chamber of Commerce and your local government’s office of economic development.
- How can the social sector be helpful? We need the brightest minds from the social sector working with banks, investors and developers. If discussions are happening already, join them and ensure that community-driven ideas are strongly considered. Consult on needs as well as possible ramifications of potential development projects. Convene the community and empower them to participate in co-creating the solutions. If discussions are not happening in your community, do what I did – create them yourself.
I recently worked with other well-respected colleagues in banking and law to convene our first action-planning session in Dallas that we called the “Meeting of the Minds.” Our goal was to serve as a catalyst for potential development projects within each Opportunity Zone as well as to balance potential development projects across all local Opportunity Zones to achieve the greatest impact for residents. We shared a number of ground rules that guided our discussion. These rules ensured that the process was inclusive, data-driven, collaborative, community-led, and focused on building wealth for both developers and community members alike. To speed the process along, we asked that all individuals who came were already well-versed in the ins and outs of Opportunity Zones. We learned a lot from the pilot session (click here to see our agenda and facilitator guide) that we will carry over into future action-planning sessions.
Whether or not you understand the complicated aspects of Opportunity Zones, I encourage you to join or start these discussions. Your voice is critical to ensuring that the right developments are created that will spur the right kind of economic development in the communities we serve. The light is there – we just have to follow it, lend our voice and those of our clients, and ensure it turns into opportunity for all. If you are already an active participant in your community’s discussions on Opportunity Zones, we’d love to hear your experiences and any lessons you’ve learned so far.
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