How States Can Maximize Opportunity Zones

Co-authors: Bruce Katz, Jeremy Nowak, Jamie Rubin, Dan Berkovits

The Tax Cuts and Jobs Act of 2017 provides a new incentive—centered around the deferral of capital gains taxes—to spur private investments in low-income areas designated as Opportunity Zones. Given the significant interest among investors, it is possible that this new tax incentive could attract tens of billions of dollars in private capital, making this one of the largest economic development initiatives in U.S. history.

Download How States Can Maximize Opportunity Zones

This policy brief lays out a plan of action for states to realize the full economic and social potential of this unique tax incentive. Governors have already played a critical role by selecting Opportunity Zones in their states from an eligible group of low income census tracts in accordance with the law. But state involvement should not begin and end with designation. States can play multiple roles to enhance the attractiveness of Opportunity Zones for market capital and ensure that social benefits within and beyond these communities are maximized.
To this end, we recommend that states create Opportunity Plans. These Plans should primarily focus on how states can help communities identify and amplify local advantages and design actionable strategies that align with local priorities and needs. Opportunity Plans should contain, at a minimum, seven concrete actions for states to develop and implement:

1. Help communities design and market an Investment Prospectus to showcase the distinctive assets of and investable projects in their Opportunity Zones;
2. Maximize the economic impact of public institutions of higher learning;
3. Maximize the economic impact of state assets that are located in or near Opportunity Zones;
4. Ensure that Zone related infrastructure is of high quality and meets performance standards;
5. Align state investments and decisions with the distinctive competitive assets and advantages of different Opportunity Zones.
6. Help local residents obtain skills or competencies necessary to meet existing or likely labor demand; and
7. Support the production and preservation of affordable/workforce housing.

States will need to use discretion in designing and delivering these actions: the location, market profile and institutional capacity of different Opportunity Zones will likely require interventions that differ by type, shape and scale. States will also need to collaborate with a broad array of stakeholders, both within and outside the state borders. To carry out these actions, we recommend that States establish a special Opportunity Zone Unit with the authority to coordinate actions within the government and the capacity to engage with communities, companies and investors.