Biden's Administration Plans Long-Awaited Opportunity Zone Reforms
As the presidential transition countdown continues, opportunity zones have been the object of renewed focus, both for their potential benefits and their weaknesses.
President-elect Joe Biden's campaign website includes a page, last updated on July 28, detailing how he would like to reform the opportunity zone program to prevent "billionaires [from exploiting] Opportunity Zones tax breaks to pad their wealth." As his inauguration draws nearer, experts in opportunity zone investing have praised Biden's plan, National Real Estate Investor reports.
Biden's reform plan has three main prongs: require more robust reporting on the community impact of opportunity zone investments; establish restrictions on what projects can receive the program's tax benefits based on impact data; and incentivize investors to bring in local community organizations and nonprofits to allow residents of the zones to enjoy the economic benefits of the new investment.
As presently constructed, the legislation that created opportunity zones leaves little hope for an honest accounting of their effectiveness, according to an October report by the Government Accountability Office. The GAO found that in order for community impact to be accurately assessed, more official oversight is needed.
A June study by the Urban Institute, which the Biden campaign cited in its plan, found that $10B of investment had flowed to opportunity zones between the program's inception and February of this year. An official review found that opportunity funds raised $75B of capital by the end of 2019, without specifying how much of that had been deployed.
Thus far, only a relatively small percentage of those dollars have gone to impact-focused projects, confirming what many critics have warned about the program from the start.
"As OZ incentives are not structured to encourage resident or community engagement, mission-oriented projects struggle to compete for attention with higher-return projects — for which OZs provide much larger subsidies because of the design of the incentives," the study read.
The unfettered free market has so far not delivered the level of community impact U.S. Sen. Tim Scott, a Republican representing South Carolina, may have anticipated when he promised to "kill" the program created by legislation he introduced in 2017 if it wasn't having its desired effect. But even ahead of any official changes Biden could implement, some encouraging news for impact investing may be on the way.
At the beginning of December, Scott launched a "virtual opportunity zones tour" designed to highlight exemplary projects funded through the use of the program. His first stop: the Hampton County Agricultural and Technology Campus in a rural part of his home state.
The $314M ATC is projected to create 1,500 jobs over the next five years to staff a massive greenhouse, distribution center and packing facility, among other buildings on the 1,000-acre site. Scott believes that "more marketing" of such projects could open more investors' eyes to the potential of impact investing within opportunity zones, he told Yahoo Finance.
One of the largest attempts yet at mission-based investing within the opportunity zone program was just launched by Los Angeles-based investment manager Martin Muoto's firm SoLa Impact. The Black Impact Fund is targeting a fundraising total of $1B, split equally between a Qualified Opportunity Fund and a separate vehicle for investments near, but not within opportunity zones.
The second fund is designed so that investors who already enjoy substantial tax breaks, like nonprofits and pension funds, can be involved in projects backed by Black Impact Fund. SoLa Impact will rely on its experience and network from managing three mission-based funds totaling $180M that focus on affordable housing in the South Los Angeles area.