Although much has been written about how to structure Opportunity Zones (OZ) funds and project investments, comply with regulations, or measure impact, less has been heard from those working on the ground to coordinate efforts to ensure the incentive’s capital is deployed in a way that will truly benefit communities.

The OZ tax incentive was designed to drive long-term equity investments to real estate projects and operating businesses in historically disinvested communities throughout the nation. Recent analyses from the Council of Economic Advisors and the Milken Institute, among others, show that it is the most significant federal incentive for community development created in decades. However, to work more effectively, strategic collaboration across local stakeholders – investors, developers, businesses, entrepreneurs, local government, philanthropy, and community leaders – is just as critical to harnessing and realizing the potential of this tool.

By design, OZ capital is not channeled via a centralized government entity like other federal community development incentives. This has great advantages but also emphasizes the importance of intentional collaborative efforts to connect with relevant actors across industries and geographies. Such efforts yield greater impact, result in new relationships, reveal new investment opportunities, and expand the pathways to investors beyond the traditional community development banking and government partners.

Jurisdictions across the country have embraced the OZ program to leverage this new community economic development tool. Approaches range from the assignment of a key government point person to the creation of a new statewide organization to housing an OZ program within an existing regional entity. Here is a guide to creating a collaborative effort to support OZ in a local geography.

VALUE OF CENTRALIZED COLLABORATION

The OZ tax incentive is a valuable tool to deploy on a deal-by-deal basis, but it promises greater impact when local stakeholders are working together through a centralized, collaborative approach to reach a collective vision. Whatever form the collaboration takes, it can add value on the ground.

For example, many municipal and philanthropic leaders are interested in directing investments to existing community development priorities, while investors want to ensure their investments are adjacent to economic activity. If OZ investments can be made strategically alongside government or philanthropic investments, a greater possibility exists for a return on investment, while moving the needle on social change.

Other benefits include the ability to:

•    More quickly identify and communicate investor trends,
•    Coordinate promotion of an area’s pipeline of OZ opportunities to attract capital,
•    Collaborate to leverage local assets and economic development tools,
•    Centralize information gathering to understand the particulars of OZ deals getting done in a region’s footprint, and
•    Avoid duplication of efforts.

WHERE TO BEGIN TO LAUNCH A GROUP

To be successful, a localized collaboration approach and strategy must be catered to the specific jurisdiction, building on the area’s assets and recognizing its gaps. Organizers should start the dialogue by understanding what is unique about their community development landscape; what are the relevant strengths and weaknesses; and where do the opportunities for collaboration lie. For example, does the area have robust community development assets such as economic development agencies, locally engaged philanthropic organizations, and community plans? Or, is there a need to start with a collaboration around uncovering the area’s assets, competitive advantages, and investment opportunities?

Not all communities will be in the same place or start with the same organizing premise. For example, Chicago’s strong interest in collaboration was driven by a shared concern in organizing around a local strategy, leveraging existing assets and coordinating to attract OZ capital to projects with community impact. It makes more sense to have a centralized voice to represent the interests of a collective group versus duplicating uncoordinated efforts by multiple entities.

For organizers looking to establish a centralized coordination approach to facilitating OZ investments, understanding the starting point for collaboration as well as the sequencing and prioritization of needs is key, in addition to defining the geographic area of focus.

ENGAGEMENT AND PLANNING

A first step in the process of creating a local collaboration group is to determine the participants to engage from the area’s community development landscape. Many stakeholders need to be involved in the conversation to be able to set meaningful parameters and guardrails. Participants should be collaboration-oriented rather than turf-focused and be in decision-making roles within their respective organizations. Additionally, organizational diversity is important with the inclusion of representatives from all community development sectors: public, private, non-profit and philanthropic.

Including foundations and government from the start can highlight the collaborative nature of the undertaking as well as philanthropic and public sector interests that may yield support for the staffing of the initiative once an action plan is in place. Continued engagement in the group may allow for further coordination and expansion of priorities.

Other voices at the table should reflect the community, technical experts, local investors, and financial intermediaries like community development financial institutions and community development corporations which may have complimentary debt products and knowledge of other local partners and pipelines.

To facilitate dialogue around exploring an OZ collaboration, a thoughtful planning process is essential. Each planning session should have a focus and goal outcome, with an action plan being the culmination of the process. The meetings should be convened to answer a set of strategic questions so that the group can quickly align on a path forward. Some planning guidelines might include:

•    Meeting 1 – Focus on the area’s landscape. The initial meeting can be organized around a discussion to understand the area’s current landscape and overall goal-setting. What is already happening? What gaps exist? Is there interest or need for ongoing coordination?

•    Meeting 2 – Focus on initial framework and due diligence. Building on the needs identified in the initial meeting, the second conversation can tackle a discussion of vision for collaborative work, frame working, and additional due diligence including what questions still need to be answered to move ahead.

•    Meeting 3 – Focus on strategy development. The focus of the next meeting can pivot to a discussion of options for strategy development. What can be learned from approaches or collaborations used in other jurisdictions? What strategies should the group pursue to achieve the collective vision?

•    Meeting 4 – Focus on priorities and action plan. The culminating meeting can yield the development of an action plan. Synthesizing the work of the preceding discussions, a dialogue around an action plan will confirm alignment on mission, vision, goals, strategies, priority activities, and governance structure.

To sustain engagement and momentum, making the process engaging is key. In addition to facilitating a robust dialogue and fostering ownership of the process by the participants, including informal opportunities for group networking will help to build long-term relationships.

OPERATIONAL IMPLEMENTATION

Once an action plan is approved, the work begins by implementing the organizational structure, executing agreements regarding roles and responsibilities, and putting systems in place for work streams and ongoing communication regarding the coordination of work. A transition phase may be needed to get the plan up and running, particularly if the effort includes hiring of a director or other new member, or seeking funding support for elements of plan implementation.

An organizational framework should be designed to support continued engagement and ongoing collaboration. Based on experience, recommended strategies can be divided into three categories: 1) roles, responsibilities, and oversight; 2) engagement and coordination of work; and 3) ongoing communications and accountability.

ROLES, RESPONSIBILITIES, AND OVERSIGHT

Formalizing the collaboration through Memorandums of Understanding (MOUs) or other agreements is important to ensure everyone is on the same page. An MOU can acknowledge support for the collaboration’s mission, vision and core goals; clarify the roles and responsibilities of member organizations; and outline additional provisions specific to the group. For example, some groups may benefit from information sharing or confidentiality agreements, or a process for avoidance of conflict, depending on the group’s role.

Building and maintaining trust that the partnership is working on behalf of all of its members is key. If the collaborative effort is not structured as a stand-alone organization with its own board of directors, then it is recommended to establish a multi-partner leadership committee to meet regularly to oversee implementation of the strategic vision and progress of the effort. An Oversight Committee can provide a sounding board and high-level strategic guidance to the director, without micro-managing efforts so that they move forward efficiently. The Oversight Committee also serves as an ad-hoc hiring and performance evaluation committee for the director to ensure that multiple member voices guide the work, rather than only the host organization.

ENGAGEMENT AND COORDINATION OF WORK

The action plan should be operationalized to create pathways for member engagement, input, and coordination, while respecting that all members have time constraints from their “day job.” The collaboration should establish a regular meeting schedule, and either organize into sub-committees or topical working groups based on member interest or expertise. It can have quarterly meetings of the full group, with working groups that meet on specific issues and report out at full meetings. Full collaboration meetings are an opportunity to report on progress toward shared goals, discuss successes and challenges, and engage in cross-member dialogue about questions related to effective marketing or deployment of the OZ tool.

ONGOING COMMUNICATIONS AND ACCOUNTABILITY

Communication is essential to managing the partnership. Establishing a regular communication schedule outside of quarterly meetings keeps members updated on work streams, events, or emerging opportunities, including those for collaboration. Part of that communication should include regular reporting on progress toward shared goals, without burying members in too much information.

STRATEGIES AND TOOLS IMPLEMENTATION

Once a local group has coalesced around pursuing a coordinated collaboration approach with an action plan in hand and the operational framework in place, several strategies and tools can be deployed to support OZ activity.

BUILD AND CONNECT A PIPELINE

Building and maintaining a pipeline is crucial to tracking opportunities and connecting with prospective investors, and this can be accomplished in a few ways:

•    Inventorying projects in approval pipelines of planning agencies and local partners such as community development financial institutions or community development corporations.
•    Reviewing existing community plans.
•    Understanding local economic development programs, priorities and incentives.
•    Marketing opportunities including the use of online OZ platforms, and matchmaking via direct outreach to prospective investors.

CULTIVATE OPPORTUNITIES

While OZs offer potential access to new capital sources, understanding this incentive is complex with varying levels of understanding across diverse interested parties. To help equip and support communities and local stakeholders with knowledge of this incentive, a variety of tools can be helpful such as:

•    Establishing a resource network comprised of professional services providers knowledgeable of OZ regulations, compliance and deal structuring.
•    Providing technical assistance to support early due diligence by small businesses and smaller-scale developers.
•    Creating educational tools including collateral, webinars, and websites.

INVEST IN COLLABORATION AND OPPORTUNITIES

Sustaining a coordinated collaboration approach requires investment which in turn helps to support local OZ investments. Strategies may include:

•    Involving foundations in the planning process to gather early support for a collaborative approach.
•    Aligning with public and philanthropic investment efforts to integrate OZs into the toolbox.
•    Mapping investor pathways, and facilitating access to OZ funds, using the knowledge and relationships built through the collaboration; whether to pursue the creation of an OZ fund is an early organizing decision for discussing during the planning stages.

Everyone involved in community development – investors, tax advisors, grassroots leaders, local economic development officials – recognizes that the Opportunity Zones tax incentive is but one tool in the toolbox. Strategic collaboration across stakeholders, however, can sharpen the tool’s impact and reach to deliver returns on investment and contribute to greater social impact in local communities.

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