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​Opportunity Zones New Regulations Favor Investors with Less Explicit Focus on Poverty

​By Rich Tafel is the Director of raffa social capital advisors—marcum llp

in a recent newsletter, i wrote an article entitled “​What are Opportunity Zones and Why are they Important to Raffa?”. Here’s what’s new.

New Guidelines Favor Investors over Poverty Reduction Requirements
In late October Treasury wrote out new guidelines for opportunity zones that cleared up some unanswered questions for investors and nonprofit’s addressing poverty. originally, those we’ve worked with in the social poverty sector hoped that the treasury would put in some guidelines as to what type of programs the opportunity fund would need to invest in and demonstrate they were focused on alleviating poverty.  instead, these guidelines gave the potential $100B in private investments much greater freedom without demonstrating poverty reduction. Their underlying assumption is that simply investing in these depressed areas will diminish poverty.
We see three areas of concerns that need to be addressed.

  1. Pushing Low Income People Out of their Communities
    It is true that the infusion of new investment to low income areas has potential for tremendous good. The Economic Innovation Group (EIG) reports,  The average Opportunity Zone (excluding U.S. territories) has a 29 percent poverty rate …” However, with no measurement of social impact, there is a risk of gentrification in some areas forcing the poorest people out. For example, if new luxury apartment buildings are built, they may attract renters from wealthier regions nearby pushing current residents out of the area. EIG does not believe this is a major concern, “… a small fraction of newly-designated Opportunity Zones are indeed at risk of experiencing downsides of reinvestment as they emerge from long periods of decline. Those downsides must be managed through proactive, community-focused local policymaking.”
  2. Investors Pile On to the Same Zones
    Another concern is that investors will follow each other in choosing the “safest” zones. A recent article in “Recode,” describes Opportunity Zones as the “hot new thing in the land of the mega wealthy,” and the hottest dinner conversation topic of the tech millionaire community. If the “safest” Opportunity Zones will get the bulk of investments, others will be ignored. For example, regions around Silicon Valley or Manhattan that are designated zones could have multiple funds competing to invest, while poorer rural areas might get left further behind.
  3. Diminished Role of Local Political Leaders
    The other question is the diminished role of local communities, mayors, city councilors and governors to have some say in the process. Local political leaders we’ve spoken to privately share concerns that investors will work around them, not with them.  EIG disagrees saying, “Local policymakers have influence over the upside, too: stipulating that investment flow towards affordable housing, zoning such that local entrepreneurs get rights to new storefronts, layering extra incentives to remove blight, and easing permitting for that new daycare center.”

Local communities might also use the power of zoning approval to direct funds.  Philadelphia’s Director of Planning and Development, anna fadullon, stated,  “if [developers] are close to being able to pencil [a project] but need a little assistance and are willing to do something with community benefits, then we would like to talk to developers to help get those deals done,”

the impact investment role
impact investors who are focused on both social impact and getting a financial return, could also play a role in opportunity zones. our team recently met social entrepreneurs located in opportunity zones looking at how to capture some of the new funding that would come into their area. their willingness to focus on both return and social impact, could make investing in more difficult oz’s a mission oriented focus.

foundations and nonprofits are looking at what role they can play to partner with specific opportunity zones making them more attractive to potential investors. on november 29th, the kresge foundation announced a grant to calvert impact to support opportunity zones incubators. there are at least five other such partnerships emerging from the foundation world. they hope to advise investors in zones to provide social good.

“we want to fill gaps to more efficiently move money into these communities,” said beth bafford, vice president of syndications and strategy at calvert impact capital.  “this is an incentive that defers heavily to the market in its implementation, and early movers will define it. we want to show investors what good can look like.”

opportunity zones is one of the greatest bipartisan efforts to address poverty in modern times. for those of who fight for those without a voice, we’ll need to do all we can to make sure these investments alleviate poverty for those most at risk.

if you have questions about opportunity zones or how we can help your organization, please contact rich tafel at rich.tafel@marcumllp.com.

marcum raffa merger
also, last month marcum accounting and advisors, the 16th largest accounting firm in the usa merged with raffa. marcum has a top notch business accounting service team already deeply engaged with investors wishing to set up an opportunity zone fund or invest in one. you can read about the expertise of liliana abourafeh, senior manager, alternative investment group - tax & brandon blitzer, senior manager, alternative investment group – tax, HERE. With our previous work engaging potential investors, social ventures and government; we now have national expert partners leading in this area to partner with.