Opportunity Zones: The Map Comes into Focus
- Posted: January 3, 2019
- Posted by: Travis Lynk
- Last Reviewed: February 27, 2019
On June 14, 2018, the U.S. Department of the Treasury finalized census tract nominations for the Opportunity Zone program. More than 8,700 Opportunity Zones across all 50 states, the District of Columbia, and five U.S. territories were certified.
State and territorial governors had the opportunity to nominate as many as 25% of their low-income communities for the Opportunity Zone program. The challenge, however, lay in choosing census tracts in areas that not only demonstrated a clear need for economic revitalization but had the capacity and potential to attract private investment.
The governors found a workable balance between economic need and potential for growth. With tax incentives favoring long-term investment, an influx of private capital is poised to jumpstart economic development in these distressed communities for years to come.
A Profile of an Opportunity Zone
Using five-year estimates based on data from the American Community Survey between 2011 and 2015, the following Opportunity Zone characteristics were identified:
- Over 31 million people in the United States live in an Opportunity Zone, a figure that jumps to over 35 million once Puerto Rico and the U.S. territories are factored in.
- Roughly 56% of Opportunity Zone residents are minorities, compared to 38% in the country as a whole.
- The Opportunity Zones are equally split between high-density urban neighborhoods (40%) and low-density rural ones (38%), with the remaining 22% in medium-density ZIP codes.
- Several states explicitly set aside tribal lands for inclusion in the program; over 290 Opportunity Zones contain Native American land.
Although federal guidelines established an economic baseline to qualify for Opportunity Zone status, most governors treated that baseline as an initial screen to identify the most underserved communities within their jurisdiction. Poverty rates in the Opportunity Zones average 31%, even after adjusting for demographic factors such as a high percentage of college students, a figure well above the 20% statutory requirement and almost 4% higher than the poverty rate across low-income communities as a whole.
Although the statute required a median family income of at or below 80% of the median family income for surrounding areas, the average median family income in Opportunity Zones was 59%. This is in line with the high average unemployment rate of 14.4%and high percentage of non-working adults of 38% in Opportunity Zones. The percentage of non-working adults in the U.S. as a whole is just 28%.
The governors successfully targeted areas deemed “severely distressed,” defined as communities with unusually high unemployment and poverty rates and exceptionally low median family incomes. In Georgia, for example, 99% of Opportunity Zone residents live in a “severely distressed” community, a figure that drops slightly to 94% in Florida.
Potential in Opportunity Zones
Gentrification was one of the most frequent concerns expressed by critics of the Opportunity Zone program. Detractors felt that development money would only flow to communities where gentrification was already underway, thus skipping over the neighborhoods that could benefit from the program the most.
Data suggests that this is not the case, however. According to data from the Urban Institute, just 4% of Opportunity Zones showed significant economic change between 2000 and 2016. The housing stock within the average Opportunity Zone is 50 years old, compared to 40 years in the country as a whole, and fully half of all Opportunity Zone communities are eligible for the Low-Income Housing Tax Credit.
This speaks to a critical need for revitalization and private investment within the certified Opportunity Zones and refutes the idea that development would displace current residents.
Opportunity Zone Selection
The Economic Innovation Group surveyed state governors about their approach to identifying and nominating Opportunity Zones within their respective jurisdictions. Officials from 41 states supplied answers. This information, combined with information published in local and national media outlets, provides unique insight into the selection process.
The information suggests that every state used data analytics to identify communities that aligned with their own economic priorities. Colorado was a trailblazer with its advanced analytics-based approach, and many other states borrowed its techniques.
Washington, D.C., and 29 states provided transparency in the process by publishing information about the selection process online. Over 30 states provided a platform for members of the public to provide input about the process. Four states and Washington, D.C., published selections for public comment before submitting them to the U.S. Department of the Treasury for approval. Ten states organized advisory panels made up of civic leaders and residents to review selected communities before sending them to the Department of the Treasury.
The majority of the states and territories relied on interagency collaboration and on the advice of state and national experts in making their selections.
Some governors applied rules of proportionality to the selection process to ensure a more equal distribution of Opportunity Zones across the state;others took a focused approach based on an overarching vision for development. For example, Massachusetts prioritized revitalizing the Gateway Cities, and Michigan prioritized selections that aligned with pre-existing planned development investments.
Now that the selection process is complete, efforts will shift toward attracting private capital. State and local leaders are taking steps to identify assets and asset classes to market to Opportunity Fund investors. Once the IRS and the Department of the Treasury issue guidance and clarification on certain issues surrounding Opportunity Zone projects, significant development will begin.
- What Are Qualified Opportunity Zones?Read MoreMay 14, 2019
- Opportunity Zones: A Tax Strategy for Capital GainsRead MoreFebruary 10, 2019