By Anayat Durrani
A coalition of more than 200 Opportunity Zone program stakeholders have authored a letter to urge congressional leaders to enact the Opportunity Zones Transparency, Extension, and Improvement Act, a bipartisan bill introduced in the House (H.R.7467) and Senate (S.4065) on April 7.
“The bill includes a number of proposals, chief among them is instituting data collection and transparency measures,” says Rachel Reilly, founder of Aces & Archers. “Opportunity Zone stakeholders, policymakers, and even the Government Accountability Office have urged Congress to take action on reporting requirements because we need to know if the policy is working as originally intended and move our understanding of market activity from anecdotes to data.”
Impact of the Opportunity Zones Transparency, Extension, and Improvement Act
If passed, the legislation would improve Opportunity Zones by reinstating and expanding the reporting requirements, sunsetting Opportunity Zones that are not impoverished, establishing pathways for smaller-dollar impact investments, provide operating support and technical assistance to high-poverty and underserved communities through a State and Community Dynamism Fund, and extend the tax incentive for two years to facilitate continued investment.
“This bill takes a good thing and makes it better for all stakeholders,” says Clint Edgington, CFA, a partner of Nest Opportunity Fund. “It will help the low income communities it’s intended to serve by improving transparency and accountability by the OZ Funds, making sure the census tracts truly are “low income,” and providing more capital to continue to invest. It will help investors by incentivizing additional capital; and it does this in a simple, balanced way; by extending the deferral period for two years, which is about the amount of time it took to get final regulations.”
The letter is addressed to Senate Majority Leader Charles E. Schumer (D-N.Y.), Senate Minority Leader Mitch McConnell (R-Ky.), House Speaker Nancy Pelosi (D-San Francisco), and House Minority Leader Kevin McCarthy (R-Bakersfield).
“The people who signed our letter are individuals and organizations that represent a variety of stakeholder groups within the national Opportunity Zones ecosystem, including investors, real estate developers, project issuers, service providers, advisors, and community leaders,” says Chris Cooley, director and lead connector at OZworks Group.
He says the letter was penned to give policymakers a more complete national narrative on the OZ landscape “by highlighting an engaged and diverse collective voice that is supportive of the incentive.” He notes that reporting for OZ Funds (QOFs) and OZ Operating Businesses (QOZBs) “is currently a voluntary process and the letter provides a unique lens for policy makers to see the viewpoints of community leaders and organizations on a national scale.”
Letter shows powerful support among Opportunity Zone stakeholders
There are more than 8,700 census tracts nationwide and in the District of Columbia, and U.S. territories designated as Qualified Opportunity Zones. The letter notes that most OZs are located in communities with the highest-need across a range of socioeconomic metrics. It also cites 2019 census data, adding that residents experience an average poverty rate of 26%, have a median family income less than two-thirds the national level, and average life expectancy three years less than the national figure.
Nita Black, OZB Consulting, Inc. says OZ legislation and the potential social impact in distressed areas is only now being understood.
“Since it took two years for the law to be clarified, it seems only fair that at least some of the deadlines for tax incentives be extended for at least two years,” says Black. “Some of us who want to help people living and working in OZs to have improved probability for economic success support the current proposed amendments—it just gives us more time to make the impact that was originally intended by the OZ bill.”
The coalition noted that since the Opportunity Zone program passed into law in December 2017, the incentive has fueled investment of tens of billions of dollars into low-income communities and that more than $28 billion of capital was raised by QOFs through March 31, 2022, according to Novogradac. The coalition said they project that close to $100 billion of equity has been generated by OZ projects thus far.
Coalition highlights the benefits of the Opportunity Zone incentive
The letter also highlighted several community-oriented OZ case studies that illustrate how beneficial the program has been, such as case study about Donna Gambrell, Opportunity Appalachia, a program of Appalachian Community Capital (ACC), which “democratizes access to Opportunity Zone funding by providing technical assistance, new investment, and jobs in OZs throughout Central Appalachia (OH, VA, and WV).” The letter said their portfolio expects to close on $200+ million of OZ projects, and create some 1,000 jobs in coal-impacted rural communities.
“The timing is critical to continue the momentum made to incentivize private equity to look at otherwise overlooked communities,” says John Berlet, CEO, general partner, Coastal Bend OZ Fund, in Rockport, Texas. “I am developing in a county that has 85% of the area designated and in fact the lowest 25% income levels in the whole state of Texas, yet it is a favorable destination for families to vacation and the number one fishing destination in Texas.”
Berlet says enactment of the bill will achieve, “continued private equity capital gain deployment into our Coastal Bend area of SE Texas, where Hurricane Harvey made landfall in August 2017, wiping out the city hall, the county courthouse and a large percent of homes.”
The letter reiterated that OZs should remain a part of the economic relief and recovery discussion post-pandemic but also noted the legislation is also “about changing investor behavior and improving how private capital markets serve low-income communities.” The group said enacting the bill “would significantly improve the guardrails and impact of this incentive without resulting in undue disruption to communities or market participants.”
“The Opportunity Zone program initially had a tidal wave of interest from an extreme amount of private capital and is arguably the most successful place-based economic incentive program ever legislated, notwithstanding the delay in issuance of the final regulations and the onset of COVID,” says Ashley D. Tison, founder and president of OZ Pros.
The group noted that the bill has support from six Democrats and four Republicans at its introduction. The letter, dated June 2, is pressing congressional leaders to take action.
“We are hoping to help bring attention to lawmakers and the voting public about the importance of the legislation and get it passed,” says Tison.
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