By Dane Strangler
Opportunity Zones are the new frontier of economic development. Authorized by the Tax Cuts and Jobs Act in 2017—and proposed several years earlier by the Economic Innovation Group—Opportunity Zones have caught the fancy of mayors, economic development agencies, private investors, philanthropic foundations, and, inevitably, consultants.
For good reason: Opportunity Zones offer perhaps the best chance for the United States to finally get place-based policy right. History is not encouraging: prior attempts, including Enterprise Zones and Empowerment Zones and others, were underwhelming in their impact (but not their cost). Economists and others had boiled down the experience with place-based policy to a simple dictum: invest in people, not places.
Yet Opportunity Zones might actually be different, thanks in part to their relative simplicity in terms of requirements. The enthusiasm with which they have been taken up all over the country is one indication of the high level of expectation. In a nutshell, Opportunity Zones open up a pathway for private investors to put money into economically-challenged communities, through a variety of tax benefits for the capital invested and gained, conditional on meeting certain requirements. Neighborhoods bereft of investment will (ideally) enjoy an influx of private capital, and investors will earn a nice return. Everybody wins.
There are, of course, skeptics. Some worry that only high-end real estate development will attract investment. Others worry that existing residents of designated Opportunity Zones will not benefit from the potential influx of new wealth and jobs. To allay these concerns, some people have established new entities to help match capital with opportunity, and help funnel investment to high-return projects in high-need areas that might be overlooked. In Alabama, for example, Alex Flachsbart established Opportunity Alabama to do exactly that.
What will really fulfill the economic development promise of Opportunity Zones is an on-ground mechanism to enable investors to support local entrepreneurs. New and young companies are the lifeblood of neighborhoods and cities—they are the principal source of new job creation and become the bedrock businesses for residents. Opportunity Zones could potentially fuel business creation and growth, offering a much-needed boost to economic dynamism in areas where dynamism has largely disappeared. If those new businesses are structured in a certain way—through employee ownership, for example—the social and economic returns would be considerable.
How can this be realized? How can the deal flow be aggregated for investors? And, most importantly, how can those local entrepreneurs be supported beyond just capital?
Original article from Forbes