America truly is the land of opportunity, where generations of families have worked for the benefit of themselves, their children, and their community. Our nation must provide for its citizens a firm foundation on which more success and prosperity can be built. When economic circumstances and misfortune trap people and prevent a path to achieve this, it is our duty to help them find a way to overcome and thrive.
Opportunity Zones are designated communities that, based on their challenging economic prospects, are eligible for special tax treatment on investments that spur growth and job development. They are the result of bipartisan legislation authored by Senator Tim Scott in 2016 and were passed into law through the Tax Cuts and Jobs Act 0f 2017.
Opportunity Zones use three tax incentives to spur investments in low-income communities. Capital gains reinvested into Opportunity Funds are temporarily deferred from counting as taxable income. Capital gains reinvested in an Opportunity Fund earn a step-up in basis and can earn up to an additional 15% tax exclusion after 7 years, and an investment held for at least 10 years earns an exclusion of gains accrued on investments made through the Opportunity Fund.
In the first three years of their existence, Opportunity Zones resulted in over $48 billion of investment for economically distressed communities. Fifty million people (about twice the population of Texas) live in challenged communities, and Opportunity Zones are providing them with new hope and new routes to financial stability.
The law allowed governors of each state to select low-income communities that needed increased economic development, and then designate them as eligible for these federal tax incentives for long-term, productive investments. Opportunity Zones put the decision-making in the hands of state and local leaders who know their communities best. Government bureaucrats in Washington DC do not run the program, and the taxpayer does not fund investments: the money comes from the private market, based on business decisions made by investors.
8,764 census tracts were designated as Opportunity Zones. The program was targeted specifically to assist struggling areas, and because of the local control mindset used in the formation of the legislation, was largely successful in doing so. The average poverty rate in Opportunity Zones is 28 percent, and the average median family income in Opportunity Zones is $47,000, almost $27,000 below the national average.
A November 2022 report from US Treasury economists reported that the total Zone investment was at least $48 billion by the end of 2020. This capital was raised from roughly 21,000 individual and 4,000 corporate investors and placed into almost half of the Zones. Studies also show that Zones were responsible for increased development in surrounding neighborhoods and cities.
Examples of Opportunity Zones success include:
Agile Space Industries of Durango, Colorado raised Opportunity Zone equity totaling $950,000, allowing them to hire another 50 people and create over 200 indirect jobs. They are also developing a workplace vocational training program with the local Southern Ute Indian Tribe.
Parramore Oaks in Orlando, Florida, is a new housing development providing a mix of affordable and market rate homes, some reserved for people with special needs and/or those transitioning out of homelessness. The Florida Housing Finance Corporation was able to leverage the Opportunity Zone tax incentive with other resources to achieve rents at levels affordable to neighborhood residents.
In Braddock, Pennsylvania, vertical farming company Fifth Season took advantage of Opportunity Zone status to raise $35 million dollars and will employ 60 community residents to grow over a half million pounds of produce for local stores and restaurants.
Many communities have embraced Opportunity Zones, and have made recommendations and suggestions to update and improve the program. Accordingly, bipartisan legislation is before Congress, again offered by Senator Tim Scott and his coalition, that will take the lessons learned over the last five years to refine the program and build on its already extremely successful start. The Opportunity Zones Transparency, Extension, and Improvement Act would enhance the program in several ways: reinforcing incentives for increased investment, adding additional reporting measures, and updating designation maps. These changes would allow for even more utilization, as they would create investment possibilities for smaller dollar investors while also increasing the appeal for larger investments, extend the program for an additional two years to facilitate assistance to communities suffering from pandemic economic disruption, and provide resources for local implementation efforts.