Since the inception of the Tax Cuts & Jobs Act of 2017, opportunity zones have served as incentives for investors to bring development to highly-distressed, or low-income communities. The purpose is to spur economic development and job growth within the community according to the IRS.
But lack of accountability and reporting has largely attracted criticism from many impact-investment experts. While on the surface the opportunity zone program seems righteous, critics believe it’s simply a way for the wealthy to protect their dollars. Wealthy can invest in opportunity zones and receive a massive tax-break because they are ostensibly helping a community in need.
“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.”
In order to invest in said opportunity zones, the applying entity must prove how it will bring about a positive impact in the community. The vague outlining of the legislature that created opportunity zones leaves very little room for an ‘honest account’ from an incoming entity.
The Biden Administration was slowly releasing information online about a possible reform but updates ceased. They cited a study conducted by the Urban Institute that reported a flocking of $75-Billion to opportunity zones. However, it wasn’t able to show what percentage, if any, was actually allocated to community-impact initiatives.
“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.
Republican Senator Tim Scott introduced the legislation in 2017 following his vow to ‘kill’ the program if it does not deliver on its mission to help low-income zones. With reform on the horizon, Scott believes that further marketing of the ideal projects that should go into opportunity zones is key to getting it right.
He offered a virtual tour of opportunity zone projects where exceptional developments ideal for the program were highlighted. For example, he shed light on a South Carolina Agricultural and Technology Campus (greenhouse and packing operation), a $314-Million development that is projected to create over 1,500 jobs in Hampton County. Marketing projects like this could trigger influence over investors and hopefully shift the culture of OZ investing.
