An Opportunity Zone Guide for Governors and a Case Study of South Carolina

Brief

An Opportunity Zone Guide for Governors and a Case Study of South Carolina

Abstract

Created by the Tax Cuts and Jobs Act of 2017, the federal government’s latest economic development incentive, Opportunity Zones, is currently in the beginning stages of implementation. While it has the potential to stimulate significant cash flow across the country, its success partially depends on localized execution. Restrictions on what investments qualify are light compared to other federal programs.

Because of the limited federal accountability, state-level policy potentially has a large role to play in facilitating capital flow into projects that 1) do no harm to communities and 2) bolster investments in communities in ways that benefit low- and moderate-income residents. To better guide governors when implementing policy related to the Opportunity Zones, Urban researchers have determined a five-step process to create thriving and supported Zones.

Step 1: Select State-Level Guiding Principles

Before implementing any policies, it is critical to have underlying principles guiding state decisions. The following are suggested values for every level of government to heed:

  • Incorporate community voices, goals, and needs. Under this new incentive, little community input is needed to access federal resources. To ensure local needs are not ignored, governors should attempt to bring community voices into the conversation of policy related to the Opportunity Zones.
  • Promote transparency, monitoring, learning, and evaluation. Governors have the opportunity to mandate basic reporting requirements on projects they are involved with that would allow the incentive to be monitored and for public accountability.
  • Think and act locally. Zones have been selected in a wide range of areas. Governors should allow for localized flexibility and discretion to best serve the differences in interest within the Zones.
  • Do no harm. Rapid change in Zones, especially related to housing and air regulations, could leave many low- and moderate-income residents behind. Governors should be cautious of the potential damage from Zone investments.

Step 2: Create Support Systems for Projects and Investments

State governments have a few basic policy levers through which to shape how Opportunity Zones play out within their state.

  • Support community organizing, planning, and connecting. States provide grants and facilitate relationships between members of the communities and other individuals or organizations that may have a stake in their outcome.
  • Align Opportunity Zone investments with various other state programs and priorities. States can utilize preexisting programs and tax incentives to make Opportunity Zone investments in state priority areas (e.g. clean energy investments) more attractive.
  • Review and refine regulatory and permitting processes. States can use regulatory and permitting processes to fast-track projects aligned with local priorities.
  • Prepare projects and businesses for investment. Pre-investment support in the forms of legal programs and informative sessions can help entrepreneurs, especially those in formerly redlined districts, succeed.

Step 3: Assist Aspiring Opportunity Fund Managers

Governors should support locally-focused fund managers while allowing the private market to ultimately determine winners and therefore encourage long-term sustenance. Support can come in various forms:

  • Provide convening and ‘matchmaking’ assistance of fund managers. States can help connect market participants (fund managers, investors, communities, advisors, etc.) through tools like databases and third-party organizations working towards the same goal.
  • Aid fund managers through capacity-building and sharing of best practices. Many local fund managers have limited investing experience, so states can provide them with educational tools and technical assistance to ensure they contribute to a healthy overall investment ecosystem.
  • Align other state-level resources to support Opportunity Zone investments. States can use financial tools, such as state pensions funds, to invest in parts of the capital stack for Opportunity Zone investments.

Step 4: Create Support Systems for Projects and Investments

Individual or corporate investors can only place capital in projects if they know about the projects. States should help connect prospective investors and aspiring fund managers to projects that align with state priorities.

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