Community Foundations Can Help Make the Most of Opportunity Zones
Interest is growing in a new tax incentive meant to spur growth and economic opportunity in the nation’s most distressed communities. “Opportunity Zones” were included in the 2017 tax bill after a bipartisan push to spur private capital into places that continue to fall further and further behind since the Great Recession.
Briefly, the benefit encourages private investors to put their capital into new and growing businesses inside designated low-income census tracts across the country. Maybe you’ve already heard a bit about the investors lining up to take advantage of a tax break, or maybe you noticed that a neighborhood in your area was selected. Maybe this is the first you’re hearing about it, but regardless you’re probably asking how this could help a place you care about and how you might be able to take part.
Community foundations are particularly excited about the prospect of a new wave of place-based and patient investment capital. Some estimates say as much as $100 billion will flow in the coming years, and to reap the full benefit, Opportunity Zone investors will need to hold their investments for at least ten years. That could be a boon for places in need, but it’s also going to take a coordinated effort from local stakeholders for most Zones to attract capital and reap the rewards.
So let’s look at a few ways place-based and community foundations can get involved.
- Set the table for a community conversation.
Initiating a conversation about Opportunity Zones with your local stakeholders will help prepare the community for potential investment. Bringing together donor advisors, grantees, residents, and government partners will seed a conversation about the role that this new type of community investment capital could play within your local context. It might also identify some missing tools or shared question about how to proactively and effectively engage investors.
- Help build an investment ecosystem.
It’s important to remember that an investor can claim the benefit from investing in any one of the 8,700 designated Opportunity Zones nationwide. Unfortunately, many of the selected communities don’t have strong networks in place to train entrepreneurs and connect them with capital. Community foundations and their donors should think about whether they could catalyze investment into the area by supporting CDFIs, accelerators, and other players in a community investing ecosystem to help generate a pipeline of investible opportunities.
- Promote local priorities for investment.
Investors have tremendous flexibility about what businesses they support inside an Opportunity Zone. One way to ensure they pick opportunities that benefit residents is to proactively identify community needs – like affordable housing or access to healthy food – and find ways to lift up investment opportunities that meet those needs. This could be financial, such as by funding a feasibility study or making an impact investment to get the project off the ground. Or it could mean using your voice as a local leader and champion to highlight the opportunity for others.
At the U.S. Impact Investing Alliance, we have been working with our members to understand how impact investors can ensure this policy achieves its goals and benefits communities in need. Across hundreds of conversations, a consistent theme is the critical importance of local context and empowering local stakeholders – such as community foundations – to be proactively engaged. We’re excited by the potential, and even more so if we have you and your peers working alongside us.