Opportunity Zones, a new and very different type of incentive created by the Tax Cuts and Jobs Act of 2017, are getting a lot of attention nationally and locally.
This new incentive is intended to encourage private investment, and ultimately inclusive economic growth, in low-income communities. Opportunity Zones, selected in each state by the governor, are Census tracts eligible to receive private investments through a qualified Opportunity Fund. Investors who direct capital gains into equity investments in Opportunity Funds receive federal tax benefits, which increase if the investment in maintained over five to 10 years.
Here in Rhode Island, the 25 Opportunity Zones selected by Gov. Raimondo present tremendous potential. Together, the zones are home to 111,000 people, representing diverse geographies, populations, and potential economic drivers.
Numerous zones are in old mill villages that have not yet recovered from the industrial downturn of the mid-late 20th century. Others are in coastal communities, where invisible pockets of poverty persist. For example, 19 of Rhode Island’s Opportunity Zones have been designated by the USDA as low access to grocery stores, 16 are high housing needs tracts, 17 surpass the regional average for people with disabilities, and 14 are above the average for households without a vehicle.
Targeted, focused capital could make an immediate, tangible difference for those communities and the state as a whole. And there is significant money at stake. U.S. households and corporations held an estimated $6.1 trillion of unrealized capital gains in 2017. Unlocking even a small portion of this would have a huge impact in Rhode Island.
As the state’s community foundation, the Rhode Island Foundation has a century of experience providing the vital link between the needs of Rhode Island communities and savvy, generous, philanthropists. So, as many in our state move forward to capitalize upon the promise of Opportunity Zones, we’d like to offer two suggestions:
First, investments made in Opportunity Zones should honor the spirit of this initiative – to improve quality of life and economic opportunity in low-income communities. Let’s be sure that this incentive doesn’t encourage activity that leaves out people who live in the zones, displaces residents or gentrifies neighborhoods. If this program lives up to its potential, it will provide the long-term, patient capital that real community development needs. If it goes wrong, it hurts the communities it was intended to help and provides people with a tax benefit for things they would have done anyway.
Second, doing this well will require local leadership and deep engagement of residents. This is designed to create a market. Left to its own devices, it won’t direct capital to the places most in need and the projects that respond to those needs. That’s going to take local knowledge and local leadership. Community development corporations, local officials, and resident leaders who understand the needs of their neighborhoods must be at the center of these discussions.
Already across the country, we are seeing first movers take advantage of the Opportunity Zone incentive. Here in Rhode Island, we must be ready if we want to see the kinds of investment that our communities truly need.
Jessica David is executive vice president of strategy and community investments at the Rhode Island Foundation.