Governing Opportunity Zones

Bruce Katz · September 20, 2018


As Jeremy Nowak and I wrote in a previous newsletter, realizing the full potential of the Opportunity Zone tax incentive will require a broad group of urban institutions to act with purpose and discipline. To that end, we began to ponder a set of steps cities could take to create a suite of modern institutions with the capital resources, public sector relationships, community standing, and private sector credibility to effect change.

Here are the steps we were considering:

Conduct an institutional scan: To maximize the economic and social impact of the Opportunity Zone incentive, cities and their sub-geographies (e.g., central business districts, hospital districts, university districts, residential areas) should conduct a frank institutional scan and self-examination. The goal of this exercise should be to (a) assess the professional/managerial competence and fiscal capacities of the current institutions that affect economic development and social outcomes within disparate urban neighborhoods; and (b) determine whether existing institutions need to be reformed or new institutions need to be created. By these means, a city can ensure that it has a network of smart institutions that have the wherewithal to design, finance and deliver sophisticated initiatives and quality products.

An institutional scan should subject each Opportunity Zone to some basic questions:

Place maker: Is there an entity with the authority and capacity to create a unified vision or even a master plan for the Opportunity Zone? Is there an entity which is empowered to negotiate with owners and tenants and a diverse array of businesses (e.g., tech companies, developers) to deliver a collective vision? Do entities take actions for the long rather than short term? How is the right mix of market and social uses (e.g., affordable housing) ensured?

Place manager: Is there an entity with the authority and capacity to manage the collective places or the shared spaces of the Opportunity Zone? What is the quality of the basic infrastructure (e.g., roads/transit/water/ wastewater/storm water/broadband) in the Zone? How is the quality of public amenities, parks and gathering spaces maintained, programmed and animated?

Place marketer: Is there an entity with the authority and capacity to design and communicate a unified narrative and investment pitch for the Opportunity Zone? Is there an entity which maintains evidence on the existing profile and assets of an Opportunity Zone (e.g., ownership, uses, vacancy) and keeps score to assess performance over time? To what extent does marketing reflect the authentic assets and attributes of a place?

Entrepreneurial Catalyst: What entities (e.g., incubators, accelerators, co-working spaces, informal or formal technology associations) are working to accelerate the formation and growth of entrepreneurs and the pace of product and process innovation? Do these entities focus on particular sectors or are they sector agnostic? Do they work together or compete? To what extent are they connected to major technology companies, national entrepreneurial initiatives or multi-city networks of entrepreneurial intermediaries?

People Connector: Which entities — public schools, charter schools, community colleges, special skills intermediaries — are responsible for equipping young adults with the education and skills necessary to participate productively in the labor market? To what extent do leading companies and sectors inform, participate in (via apprenticeship programs) or even oversee the disparate skills efforts? To what extent is there a direct link between the labor needs of major employers or sectors and the schools/skills system? To what extent has the nature and scope of labor demand and labor supply needs been assessed and converted into tangible initiatives?

Design Modern Institutions: The need for new types of intermediation can be accomplished in multiple ways. In some cases, a new organization will be needed; in other cases, an existing organization can reconfigure its structure and functions to take on new activities.

Erie represents the best recent example of a city creating a new institution to fill a widely recognized gap. Like many cities, key anchor institutions (e.g., Erie Insurance Company, Gannon University, UPMC Hamot, the city and county governments) are all located within walking distance of each other (and Lake Erie) in a walkable, historic downtown. A group of business and community leaders recognized that the regeneration of the downtown required an “all-of-the-above” focus: mixed use development, company growth and attraction, quality place making, activation of public spaces, affordable housing and a commitment to quality architecture, historic preservation and streetscape re-design. In 2017, the Erie Downtown Development Corporation was formed to bring strategic focus and professional capacity to these disparate efforts. Modeled, after Cincinnati’s successful Center City Development Corporation (C3DC), the EDDC has been built and backed by private and civic capital.

Philadelphia represents the best recent example of an organization that has evolved over time to take on new responsibilities. In 2011, Philadelphia’s University City District established the West Philadelphia Skills Initiative (WPSI) to help resolve a complex challenge: “too many unfilled or high turnover jobs at some of Philadelphia’s largest employers and too unemployed West Philadelphians.” Employers in West Philadelphia partner with WPSI when they need to resolve recruitment, high turnover or performance quality issues. WPSI then creates training cohorts of eligible residents and designs a customized curriculum that responds to specific hiring needs. In the process, the University City District has been transformed from a traditional business improvement district organization (ensuring that the university district was “clean and safe”) into a multi-purpose entity that designs and delivers best in class workforce development and skills training to local residents.

Explore new governance structures: As organizations are built or repurposed, attention should be paid to establishing the right governance structure and mix of public, private and civic ownership and responsibilities. Urban governance circa 2020 fits along a broad continuum between the public and private spheres, enabling new financing mechanisms and execution capacities.

Some institutions are public, quasi-public or public/private. They are established by the government to carry out public purposes and generally have a portion of their board members appointed by elected officials. The Philadelphia Industrial Development Corporation is an example of such an entity.

Some institutions are private/public. Non-profit conservancies and business improvement districts have been deputized by local government to be civic managers of public spaces and have been delegated powers pursuant to public law. Business improvement districts, for example, are given the authority to assess property owners in their area and to file municipal liens and judgments against property owners who fail to pay.

Some institutions are private/civic. They are established and capitalized by private and civic organizations (e.g., corporations, philanthropies, universities) and work with rather than for the public sector. The Central Indiana Corporate Partnership is an example of such an entity.

Irrespective of governance structure, smart institutions are a product of sustained resources that are predictable and sustained (e.g., dedicated tax revenues or private fees) and allow an institution to organize and execute for the long haul.

As Jeremy and I recognized — and as Evan Weiss and I write about in an upcoming policy brief — ensuring that the Opportunity Zone tax incentive triggers transformative impact rather than just a series of transactions requires more than hiring a smart tax advisor or finding the right Opportunity Fund manager. Remaking urban governance is the true recipe for success, the gift that will keep on giving.

Bruce Katz · September 5
Stirring Market Demand