High-stakes race for tax breaks that could help low-income communities

There is a high-stakes race afoot for America's nearly 32,000 underinvested communities. State officials are fast app...

Posted: Mar 18, 2018 2:20 PM
Updated: Mar 18, 2018 2:20 PM

There is a high-stakes race afoot for America's nearly 32,000 underinvested communities. State officials are fast approaching a March 21 deadline to determine which communities will have the chance to attract trillions of dollars in untapped capital and the new housing, businesses and jobs it could support.

That is both the promise and the challenge of Opportunity Zones, a part of the Tax Cuts and Jobs Act that gives investors the chance to reduce their capital gains tax when they invest in distressed parts of the country. But states can only name 25% of their low-income neighborhoods as Opportunity Zones. Once designated, decisions are locked in for 10 years, creating some difficult choices -- and some clear winners and losers.

Nationally, the demand for capital is clear. More than 50 million Americans live in places with high rates of poverty and unemployment. Meanwhile, from 2010-14, just five metro areas produced as many new businesses as the rest of the country combined

Opportunity Zones can help change that, but only if they build on the already-proven community investment system of tax incentives, lending and grant programs, and follow the best practices that we know through decades of experience create the most impactful and equitable community investments.

The current lineup of interconnected public and private programs aimed at improving low-income communities has been under-resourced yet highly successful. They show us what could be achieved with the additional capital of Opportunity Zones, and demonstrate why it is so important to prioritize the needs of existing residents so they aren't displaced by rapid cost-of-living increases.

In Brockton, Massachusetts, for instance, a local health provider, Brockton Neighborhood Health Center, wanted to open a new clinic in a high-poverty community. In doing so, it hoped to support efforts to reduce blight, create jobs and improve quality of life. It teamed up with a family-owned grocery store and planned to build a new clinic and market, side-by-side on an abandoned corner. Together, the two developed a strategy to take on diabetes and other prevailing community health challenges.

Most investors who considered this project deemed it too risky for investment. To make the vision a reality, the duo needed capital from a different source. Our organizations -- the Local Initiatives Support Corporation and The Kresge Foundation -- teamed up with Morgan Stanley, and together leveraged the federal New Markets Tax Credit program to attract millions of dollars to the development. We made additional grants and loans to help construction move forward.

Today, that once dark corner is a hub of activity. The Brockton Neighborhood Health Center supports more than 19,000 patient visits a year, and has joined a busy grocery store -- Vicente's, which offers healthy food geared toward the local Cape Verde population -- to provide opportunities for people to live better.

This is just one corner in one community, but with proper investment in Opportunity Zones, there could be many more like it. What we've found, through our organizations' combined $20 billion in community investments, is that transformative efforts like this one in Brockton have several things in common, all things that Opportunity Zone investors should take to heart.

  • Patient, flexible capital. These aren't tech startups sprinting toward a big windfall; they are small towns, urban neighborhoods and farming communities that are a vital part of America's economic backbone. Investors need to take a real-world view of what level of profitability is possible and how quickly it can be realized. When done right, with thoughtful plans and committed partners, community investments can deliver both financial return and impact.

  • Strong social infrastructures. There is no substitute for boots on the ground. When it comes to community investing, it takes solid networks of nonprofits and socially motivated for-profit enterprises to lead revitalization efforts. It's one of the reasons that Kresge and LISC have focused so heavily on building the expertise of community-based organizations and supported their strategic planning. Without that demonstrated capacity to meet the expectations of both residents and investors, capital is likely to gravitate toward opportunities that don't add value to the community, or to look to other places altogether for investment.

  • Comprehensive community plans. A single development project, on its own, isn't generally enough to spur significant change. Instead, investments should be part of broader place-based strategies to support jobs, entrepreneurship, education, health and safety - all in the same place at the same time. Each investment reinforces the others. Family incomes rise. Businesses flourish. People live better.

  • A bedrock of public-private partners. This kind of investing is not new; it rests on a time-tested ecosystem of community-based organizations, businesses, foundations, intermediaries, investors and government agencies, all working together to test promising ideas and drive programs that spur economic mobility.

Opportunity Zones are not a panacea for the challenges communities face. But because of the volume of capital they could attract and their flexibility to respond to a diverse range of needs, they could prove to be a powerful catalyst for change. They can advance bold economic development strategies and give millions of Americans a new chance to thrive.

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