For the past 30 years, federal tax policy has yielded a range of powerful incentives to attract private capital to projects that spark economic opportunity for millions of people–creating quality housing and growing businesses and jobs all across the country.
But many communities, especially in small cities and rural areas, have fallen through the cracks. Even in places where the regional economy is flourishing, there often isn’t enough capital to propel the kind of growth that benefits all Americans, regardless of where they live.
{mosads}So this summer, when the Treasury Department certified 8,700 census tracts as Opportunity Zones, it presented us with a game changer, part of the 2017 Tax Cuts and Jobs Act, Opportunity Zones offer investors the chance to defer or reduce their capital gains tax when they invest in housing and economic development in under-resourced communities.
Think of what that means: trillions of dollars of capital unlocked for investment where demand is high and talent is readily available (and that includes neighborhoods throughout the state of Michigan–from Detroit and St. Joseph to Lansing and Marquette). A deep pool of untapped American wealth can now find its way to projects that will help keep our economy competitive across the board.
With Opportunity Zones, Democrats and Republicans have also found an exciting tranche of common ground. Whatever other policy differences we might have, people across the ideological spectrum can agree on this: leveraging modest federal investments to drive private capital into communities that have been sidelined as our national economy booms is a win-win proposition.
We already know well that investment incentives in the tax code can be pivotal when they’re targeted to underinvested communities and populations. The Low Income Housing Tax Credit program, launched during the Reagan administration, attracts some $9 billion in private sector investments every year to support new and rehabbed affordable rental housing.
The New Markets Tax Credit program, created under the Clinton administration, has driven crucial economic development in high-poverty areas. Since 2001, NMTCs have fueled $80 billion of investments in small businesses, retail, and manufacturing and community facilities and generated more than a million jobs.
Opportunity Zones are poised to rev up those kinds of gains many times over. Take Kalamazoo, Mich. The economy in this city of 75,000 is expanding steadily—GDP for all industries in the metro area surged by nearly 27 percent between 2009 and 2016. But that growth hasn’t benefitted all residents. In Edison, a community southeast of Kalamazoo’s booming downtown, family incomes are 40 percent below the city average. Shuttered factories and homes speak to the loss of jobs, and people, over the years.
At one time, we might have read those as signs of irreversible decline. Not today. Nonprofits, businesses, colleges, hospitals, city agencies and residents have teamed up on an ambitious revitalization campaign. LISC is tapping Low Income Housing Tax Credit and New Markets Tax Credits to harness development capital, and providing grants and low-interest loans for job-training programs, small businesses, a new health center, safety programs and housing. LISC alone has invested more than $19 million in Edison as part of this coalition.
How do Opportunity Zone investments fit into that model? First, they could have a major multiplying effect, bringing more capital to places that have proven their ability to meet community goals and investor expectations for financial performance, but haven’t been able to attract significant private capital.
Opportunity Zones are also designed to appeal to new investors—institutions, individuals and funds–that don’t otherwise participate in community investing.
Finally, they can offer a scale of investing that could raise standards of living in concrete, meaningful ways. Better housing and vibrant businesses make streets safer and boost property values and tax revenues. A well-trained workforce encourages employers to put down roots and grow. Incomes rise as good-paying jobs expand.
There will be challenges on the path to aligning private sector investment decisions with what’s best for communities. As the Treasury Department continues to develop rules and guidance relating to Opportunity Zones investments, their focus should be not only on offering a clear framework for what qualifies as an eligible investment, but also on providing sufficient oversight to protect against program abuses and in collecting the necessary data to determine whether the incentive is working as intended. But unleashing great potential always entails thoughtful, hard effort and collaboration. We have every confidence that Opportunity Zones can deliver on their potent promise of opportunity for all. They’re a chance for every one of us to help build a better America. Now, it’s time to roll up our sleeves and get to work.
Rep. Fred Upton represents the Michigan’s 6th District. Maurice A. Jones is president and CEO of the Local Initiatives Support Corporation (LISC), a national social enterprise that has invested more than $18 billion in U.S. communities.