This post originally appeared on Crain’s Cleveland Business’ blog on October 7, 2019.
In less than two years’ time, Opportunity Zones have had an impressive fall from grace. In the minds of many, they’ve gone from being the most promising economic development tool in decades to just another way for the rich to get richer and the poor poorer.
It’s true that in the short period since this federal tax incentive was introduced, Opportunity Zone-related activity has not been as robust as many had predicted or hoped, nor has it led to dramatic reinvestment in low-income communities.
But what if true success is not the amount of reinvested capital gains, or the number of newly formed Qualified Opportunity Funds, or even the number of Opportunity Zone transactions in each community? What if Opportunity Zones are not the vehicle to catalyze growth or build wealth in underserved communities? Maybe the question we should be asking is: What else might they accomplish?
For one, Opportunity Zones have the power to stimulate new collaboration. There is a gravitational force around Opportunity Zones that is resulting in historically siloed actors coming together and practicing more collaborative, transparent economic development. Communities vying for the attention of national investors have formed cross-sector partnerships, done deep dives into neighborhoods in order to build prospectuses, and created public-facing portals for both residents and investors to view potential projects. These efforts are noteworthy in that they have yielded stronger working relationships and lent some transparency to a policy that requires none.
Second, the intense and very public pushback on Opportunity Zones has encouraged many communities to get serious about how they quantify social impact. It’s no secret that Opportunity Zone legislation is devoid of any substantial reporting requirements or guardrails to ensure that investments drive positive outcomes for communities. Accountability is the chief complaint of Opportunity Zone opponents and for good reason. Without parameters on how deals will affect neighborhoods, it’s a fair assertion that most projects will focus more on internal rates of return than, say, the number of family-sustaining jobs created.
In response, cities across the country are building frameworks, assessment tools and rubrics to determine the potential impact of a given project in their communities. Here in Cleveland, the Fund for our Economic Future and our colleagues at Opportunity CLE have partnered with the Urban Institute to pilot an Opportunity Zone Assessment Tool that we’re using to determine which deals can have the biggest social impact on our community. The tool uses a series of questions to analyze potential Opportunity Zone investments, rating them on metrics related to quality jobs, affordable housing and improvement of workforce connectivity, among other factors, and then provides a score based on anticipated outcomes and whether the deal presents real potential to improve racial equity.
Rarely have we seen such shared, public metrics on projects under consideration. A tax incentive isn’t required to make this kind of systemic change, but if the allure of attracting capital gains is the impetus, we should welcome it. There is no reason assessment tools need to be limited to Opportunity Zone transactions; we would like to see them woven into the fabric of all publicly-supported investments.
Across the country, leaders are grappling with how to do inclusive economic development. For all their shortcomings, Opportunity Zones could be a “Rosetta Stone,” establishing a shared language that enables private, public and philanthropic actors to align around more collaborative, transparent and community-centric practices. If maintained, the momentum around and resources allocated to spurring growth in these 8,700 designated census tracts can ensure it’s not business as usual anymore. (If you’d like to learn more, I hope you’ll join an upcoming forum hosted by the Urban Institute, JPMorgan Chase & Co. and the Fund, on Thursday, Oct. 10, at 2 p.m. at Red Space in Cleveland.)
Maybe it’s time to see Opportunity Zones in a different light — not as a panacea or a too-good-to-be-true promise gone bad, but as a wake-up call, driving our community to focus our efforts on building a system that leads to the outcomes Opportunity Zones were meant to achieve. We’ve already had some success.
Davy is director of regional engagement for the Fund for Our Economic Future.