For the past year, US cities have been transfixed by Amazon’s intention to build a second headquarters. An incredible 238 cities prepared bids to woo the tech behemoth and, in many cases, offered a plethora of incentives, ranging from enormous tax abatements to infrastructure improvements, free land and special fiber broadband networks. New York City’s winning bid, in particular, has come under enormous criticism given the price-tag associated with attracting Amazon to Long Island City, the new burdens for already strained infrastructure and the opaqueness of the process.
What has garnered less attention from cities and urban observers is the confluence of timing between the Amazon headquarters rush and the enactment of the Tax Cuts and Jobs Act of 2017. The tax law provides a new incentive — centered around the deferral, reduction, and elimination of capital gains taxes — to spur private investments in low-income areas designated by states as Opportunity Zones. Not surprisingly, the new Amazon site in Long Island City is in an Opportunity Zone.
Unlike the Amazon competition, where, by definition, there could only be a handful of winners, all cities in the US have the potential to attract capital to their designated Zones for investable projects. And, unlike the Amazon competition, it’s not a zero-sum game; there is no statutory limit on the level of capital gains dedicated for the law’s purpose. All cities can be winners if they act with the same purpose and intentionality they brought to the HQ2 competition. The market for Opportunity Zones is still in its infancy. Pioneering cities that communicate their assets, identify investable projects and help to organize city stakeholders and the market in transparent ways will be rewarded for being first movers. There is also enormous local capital sitting on the sidelines in the United States that can be deployed in the very places where the wealth was made — even if that wealth was made a generation or two ago.
The evolution of the Opportunity Zones market also differs from the Amazon competition given the level of information and practice sharing that is already occurring across cities through city-focused organizations and intermediaries like Enterprise Community Partners, LISC, Accelerator for America and the U.S. Conference of Mayors. Cities are learning networks. One of the most exciting features of the Opportunity Zone tax incentive is that it is more a multi-purpose tool than a narrow program; it can be used to invest in big business and small business, workforce housing and market rate apartments, solar farms and schools. While the IRS will ultimately write the basic rules, the evolution of the Opportunity Zone tax incentive will take place via market norms and policy and practice innovations that are invented in one city and then replicated or adapted in rapid fashion across multiple communities. Unlike the Amazon competition, which was characterized by proprietary information and secretive bids, the city approach to Opportunity Zones is likely to be open-sourced, the grass roots creating a structured market.
The confluence of the Amazon competition and Opportunity Zones leads to an intriguing proposition. What if all cities that competed for Amazon used their bids to get smart about Opportunity Zones and entice tax advantaged capital for smart investments? What if all the coordination, focus, energy, and silo-busting that cities used to make an Amazon moonshot just became part of how cities do economic development? This would help cities, at a minimum, recoup the resources that were dedicated to preparing and marketing the bids. But it would also help cities create new ways of blending public, private and civic capital for similar projects like workforce housing, energy efficiency and the expansion of retail franchises and female- and minority-owned businesses.
In practical terms, the conversion from Amazon to Opportunity Zones would require cities to take five clear steps:
1. Continue Collaboration
Amazon bids were a product of intense collaboration across multiple institutions and sectors. Opportunity Zones similarly require collaboration across sectors to set priorities, mobilize capital and maximize economic and social impact. What if the Amazon teams morphed into Opportunity Zone Task Forces with the sole focus of maximizing the economic and social impact of this tax incentive in well-defined roles that fit each partner’s expertise?
2. Define Assets
Amazon bids compelled cities to make their best case about competitive assets and advantages. Opportunity Zones similarly require an evidence driven approach to market making as witnessed by the recent publication of Opportunity Zone Investment Prospectuses in Erie, Louisville and Oklahoma City. Every city should repurpose the intensive data collection and marketing efforts used for Amazon for a customized Investment Prospectus.
3. Identify Sites
Amazon bids identified sites for HQ2, sometimes on publicly owned land. Some of these sites are located in Opportunity Zones and could now be used for alternative, productive purposes. Newark’s and Philadelphia’s Amazon sites included adaptive reuses of parking and train tracks that sit in centrally located Opportunity Zones.
4. Align Resources
Amazon bids identified multiple sources of public funding to entice Amazon to locate HQ2. Some of these resources (e.g., tax abatements, TIFs) can and should now be used to enable smart, socially impactful investments to happen (e.g., workforce housing and advanced manufacturing) in Opportunity Zones. Counties, cities, and other governments worked collaboratively to identify and package publicly-owned parcels to help bring down the cost of development; many cities, including the second winner in Arlington, Virginia, offered to fast track the entitlement and approval process at each level of government.
5. Market Aggressively
Amazon bids were marketed aggressively via videos, social media and special web sites. The same marketing can now occur with Opportunity Zones, often building on the same platform. Philadelphia, for example, is remaking its #Philly Delivers website, originally constructed for the Amazon bid, to include an Opportunity Zones portal.
The Amazon competition reflected an old style of economic development, where companies play cities against each other and extract public wealth rather than build it. Opportunity Zones have the potential to be generative not only for a few winners, but for each of the 238 cities that made an Amazon bid — and more — that take advantage of new financial norms and models, and keep the moonshot alive.