SPRING / SUMMER 2019

Evidence Matters

Transforming Knowledge Into Housing and Community Development Policy

PLACE-BASED

INCENTIVES

IN THIS ISSUE

Place-Based Tax Incentives for Community

03 Development

Evaluating Place-Based Incentives

13

Shaping Investment in Opportunity Zones

18

Photo courtesy of state of Arkansas

Message From the

Assistant Secretary

HUD Secretary Benjamin Carson serves as chairman of the White House Opportunity

and Revitalization Council (Council), which was established to spur public and private investment in economically distressed areas, including designated Opportunity Zones.

Its members include senior White House officials and representatives from 17 federal

agencies and federal-state partnerships. An important part of the Council’s work is to coordinate the efforts of federal agencies and partner with state, local, tribal, and territorial governments and the private sector to maximize the power of the new Opportunity

Zone tax benefits, which serve as an incentive to invest private capital in thousands of low-income neighborhoods across the United States. The Council has outlined an implementation plan focused on economic development, entrepreneurship, safe neighborhoods, education and workforce development, and measurement. To date, member agencies

of the Council have taken more than 130 actions designed to benefit residents, communities, and economies. Some of these changes will complement Opportunity Zone investment, some will incentivize Opportunity Zone investment when it might not have happened otherwise, and others will improve outcomes regardless of the amount of investment. At its core, these tax benefits have the potential to transform neighborhoods by encouraging the long-term flow of capital into economically distressed communities, bringing economic growth and job creation to areas that need them most.

Using local and federal tax incentives to bring private investment to distressed communities is not a new idea; a substantial body of research, in general, shows positive effects. This research provides some insights into how we can harness the benefits of Opportunity Zones and minimize uncertainty. To further this effort, HUD, the U.S. Census Bureau, and the White House Council of Economic Advisors are challenging technology developers to create digital tools and resources that will connect investors with community leaders, entrepreneurs, and workers in Opportunity Zones. By enhancing access to consoli-dated sources of data, technology developers can help overlooked communities better understand and market their resources and potential to Opportunity Zone investors. These tools might also be useful to researchers examining the impact of these tax incentives.

In addition to collaborating with other governmental entities, HUD has also taken direct steps to enhance the Opportunity Zones incentive and ensure that residents benefit from the new investments in their neighborhoods. Among other actions, we have reduced application fees for multifamily mortgage insurance in Opportunity Zones and designated our most senior underwriters to ensure expedited reviews of these applications, added preference points to competitive grants for activities within Opportunity Zones, and are helping our grantees understand how to use our grants in Opportunity Zones. We have also established Opportunity Zones as automatically eligible for mortgage insurance for the new construction or substantial rehabilitation of mixed-use housing projects in urban renewal areas, code enforcement areas, and other areas where local governments have undertaken designated revitalization activities.

Moreover, the Council’s Executive Director Scott Turner has been traveling across the country — visiting more than 25 cities so far — to hear from Opportunity Zone stakeholders firsthand and bring their thoughts and ideas back to Washington, DC.

During each visit, the executive director meets with community leaders; investors; and state, local, and tribal officials to discuss best practices for Opportunity Zone revitalization.

The Office of Policy Development and Research (PD&R) will support both HUD and the Council in its approach to Opportunity Zones. PD&R has gathered insight from previous place-based initiatives, as summarized in this issue of Evidence Matters. PD&R will also continue to coordinate program experts to recommend changes to existing policies and programs.

And, although data were imperfectly and infrequently collected in the past, HUD’s geospatial analysts will be tracking numerous indicators in real time. One top priority of PD&R is to ensure that adequate data for an evaluation can be collected from the start. We hope that an issue of Evidence Matters 10 to 15 years from now will summarize the outstanding work of researchers that was made possible by these early efforts.

This is the first issue of Evidence Matters to be published since I was confirmed as assistant secretary of PD&R. I hope you enjoy it as much as I have.

— Seth D. Appleton, Assistant Secretary for Policy Development and Research

2

Editor’s Note

Enacted as part of the 2017 Tax Cuts and Jobs Act, Opportunity Zones represent a potentially transformative effort to incentivize investment in economically distressed areas. This issue of Evidence Matters places the new initiative into the context of other place-based tax incentives aimed at fostering community development and examines how state and local governments are positioning themselves to maximize benefits for their jurisdictions.

The lead article, “Place-Based Tax Incentives for Community Development,” reviews past and current place-based tax incentives and the evidence of their effectiveness and concludes with an introduction to Opportunity Zones. The Research Spotlight, “Evaluating Place-Based Incentives” by Daniel Marcin, discusses the methodological challenges of evaluations of past place-based tax incentives and suggests methods for evaluating Opportunity Zones. Finally, the In Practice article,

“Shaping Investment in Opportunity Zones,” discusses how Maryland, Indiana, Michigan, Louisville, and Oklahoma City are attracting investment and spreading the word about Opportunity Zones through partnerships, online portals, and investment prospectuses.

We hope that this edition of Evidence Matters provides a helpful overview of this critical topic. Our next issue will focus on

factory-built housing. Please provide feedback on any of our issues at www.huduser.gov/forums.

— Eileen Faulkner, Acting Director of Research Utilization Division Place-Based Tax Incentives for

HIGHLIGHTS

ture

Community Development

n Many communities nationwide

fea

suffer from disinvestment and under-

Although national measures of underinvestment. For various reasons, investment, resulting in high rates economic health indicate that

investors have not found these markets

of poverty and unemployment.

the United States has largely recovered

to be attractive. In response, the federal

n State and federal place-based tax

from the Great Recession, the country

government has implemented policies

incentives such as Enterprise and

still exhibits considerable geographic

and grants, such as the Community

Empowerment Zones and New

variation in economic vitality. Many

Reinvestment Act and HUD’s Commu-

Markets Tax Credits have previously

areas — rural, urban, and suburban

nity Development Block Grant (CDBG)

attempted to attract capital invest-

— continue to show signs of economic

program, to direct more capital into

ment to eco nomically distressed

distress, such as high poverty and un-

distressed areas and benefit low-income

areas.

employment rates. For example, in the

residents. Place-based tax incentives

n A new federal place-based tax incen-

lowest-performing quintile of counties

represent an additional policy ap-

tive, Opportunity Zones, builds on

in the United States, the unemployment

proach designed to increase the flow of

past experience and research and

rate is 10.7 percent compared with 5.8

investment capital to distressed areas.

aims to boost economic development

in designated census tracts.

percent in the top quintile, and the me-

The literature evaluating tax incen-

dian household income is less than half

tives offers important context for the

that of the top quintile.1 Such disparities

design and lessons that can inform the

significantly impact the lives of these resi-

implementation of Opportunity Zones,

dents. Living in economically distressed

a new tax incentive aimed at helping

households or individuals wherever

areas is associated with negative health,

low-income communities.

they live and work, place-based strategies

education, and other outcomes.2

provide aid to designated geographic

Past and Current Federal

areas that are economically distressed

Several different dynamics contribute

Place-Based Tax Incentives to improve conditions and increase

to these persistent economic dis-

Unlike people-based policies that pro-

available opportunities for low-income

parities, including disinvestment and

vide aid or opportunities to low-income

residents.3

3

Photo courtesy of Baltimore Development Corporation

Governors designated Opportunity Zones in their states with strategic considerations. In Maryland, for example, selections aim to leverage proximity to anchor institutions to attract investment.

Empowerment Zones, Enterprise Com-

EZ and EC programs awarded grants

related to capital gains exclusions.

munities, and Renewal Communities.

and tax incentives to promote devel-

Round I ECs received much smaller

In the 1980s, many state governments

opment in economically distressed

grants of $2.95 million each and were

began implementing “enterprise zones” communities. State and local govern-

eligible for tax-exempt bond financ-

— designated low-income communities

ments nominated communities in

ing.7 Round I and II EZs and Round III

eligible for tax credits for hiring local

census tracts with high poverty and

rural EZs and ECs also received grant

residents, tax abatement, and other

unemployment rates, and those com-

funding, whereas Round III urban EZs

credits for economic activity to encourage

munities then developed and submitted

and the RC program were eligible only

economic growth.4 Evidence supporting

strategic plans. In the first round, 6

for tax incentives.8

the efficacy of these programs is mixed,

urban areas (with 2 areas added later)

with most studies finding modest or no

and 3 rural areas became EZs, and

By 2006, Round I EZs and ECs had

effects on employment and some find-

another 65 urban areas and 30 rural

expended 85 percent of the $1 billion

ing positive effects on housing prices.5

areas became ECs. Each Round I urban

allocated for grants, but insufficient

Building on these state programs, the

EZ received $100 million in block

data existed to determine how much

federal Omnibus Budget Reconcilia-

grants, and the rural EZs received $40

additional funding had been lever-

tion Act of 1993 introduced a series of

million each. Businesses located in the

aged.9 Administrators of the urban EZs

place-based policies that would even-

EZs received tax credits for wages paid

reported $643 million in facility bonds

tually include Empowerment Zones

to employees who lived and worked in

associated with 40 projects. From 2002

(EZs), Enterprise Communities (ECs),

the area; tax credits for new hires from

through 2008, RC administrators reported

and Renewal Communities (RCs).

groups with high unemployment rates,

more than $1.7 billion in commercial

The initial legislation established EZs

such as youth ages 18 to 24, who live in

revitalization deductions, approximately

and ECs, and Congress authorized an

the area; an increased expensing de-

half of the total that could have been

additional round of EZs and ECs in

duction for depreciable property; and

allocated. Although the Internal Revenue

1997 and 1999, respectively. Congress

tax-exempt bonds for loans to qualified

Service (IRS) could not break down

authorized a third round of EZs and

businesses for financing eligible prop-

use of employment credits by area, in

established the first RCs in 2000. The

erty.6 Congress later added incentives

aggregate, EZs and RCs filed for $675

4

million in credits on Form 1040 returns

incentives through which enhanced

of the project averages to 60 percent

for years 1997 through 2008 and $2.6

LIHTCs are available for Difficult De-

of AMI.13 Projects are required to meet

billion in credits on Form 1120 (for

velopment Areas and Qualified Census

investment regulations for 15 years and

corporate filers) for the same period.10

Tracts. In those areas, recipients can

affordable rent requirements for 30

claim credits for 130 percent of the

years.14

Low-Income Housing Tax Credits.

project cost rather than the usual 100

Low-income housing tax credits

percent of costs.12 Qualified projects

LIHTCs are awarded through state

(LIHTCs) were created through the

must pass either the 20-50 test or the

governments. States receive an al-

Tax Reform Act of 1986. The LIHTC

40-60 test. For the first test, at least 20

lotment of LIHTCs based on their

program awards two types of credits

percent of units must be rent restricted

population; in 2019, this allotment was

to help finance affordable housing

and occupied by households earning

set at $2.76 per person with a minimum

development: 9 percent (awarded com-

incomes at or below 50 percent of the

state allocation of $3,166,875 (the

petitively and usually reserved for new

area median income (AMI); in the

Consolidated Appropriations Act

construction) and 4 percent (awarded

second, at least 40 percent of units

of 2018 increased allotments by 12.5

noncompetitively and usually used

must be rent restricted and occupied

percent through 2021). State housing

for rehabilitation projects and new

by households earning incomes at or

finance agencies allocate credits to

construction financed with tax-exempt

below 60 percent of AMI. Since 2018, a

rental project developers according

bonds). The 9 percent credits subsidize

third test, the income averaging rule,

to federally required but state-created

70 percent of a project’s qualified costs,

has been in effect; this test allows a

Qualified Allocation Plans (QAPs). Al-

and the 4 percent credits subsidize

single project to have units at various

though federal law mandates only that

30 percent.11 Although the LIHTC

income levels (defined at 10 percent

states prioritize projects that target the

program generally is not a place-based

increments) up to 80 percent of AMI

lowest-income households and have the

policy, the program includes place-based

provided that the overall affordability

longest period of affordability, states

Opportunity Zones are designed to attract long-term investment in communities that have historically suffered from disinvestment.

5

can use their QAPs to pursue various

of California–Berkeley’s Terner Center

Businesses (QALICBs). QALICBs are

housing-related policy goals, such as en-

for Housing Innovation, however, many

similarly certified by their presence in

couraging the development of housing

of these rent-burdened tenants nev-

low-income communities. Although

with supportive services or housing for

ertheless value living in a LIHTC unit

qualifying projects must occur in “dis-

veterans. Awardees either can claim the

because of the stability and quality of

tressed” census tracts, the CDFI Fund’s

credit themselves or, more commonly,

the housing.17 In recent years, LIHTC

evaluation criteria for CDEs prioritize

sell the credits to a corporate investor.

has helped finance approximately one-

“very distressed” census tracts, similar

The investor claims the majority share

third of all new multifamily housing

to the way state LIHTC allocating au-

of equity but remains a passive actor,

developments.18

thorities can target LIHTC investments

allowing the developer to retain control

through the scoring criteria in the QAP.

over decisionmaking.15

New Markets Tax Credits. The New

Markets Tax Credit (NMTC) program,

NMTCs have supported the develop-

Through 2014, LIHTCs have financed

first authorized by the Community

ment of affordable housing. Program

the development and preservation of

Renewal Tax Relief Act of 2000, awards

rules permit financing NMTC projects

more than 2.1 million units in more

individuals or institutions federal

consisting entirely of residential units

than 28,000 projects. In 2016, the cost

income tax credits for investing equity

for sale; if the units are for lease, rent

to the government in foregone tax

in Community Development Entities

revenue can represent no more than

revenue was $7.9 billion. Nearly half

(CDEs). Investors receive a cumulative

80 percent of project revenues, which

of LIHTC households are considered

reduction in their federal income taxes

effectively requires such projects to

extremely low–income (earning less

equivalent to 39 percent of the total

be mixed use. In the case of for-sale

than 30% of AMI), and another one-

Qualified Equity Investment amount

housing, allocatees must sell at least 20

third are considered very low–income

applied over a seven-year period. The

percent of their units to buyers with a

(earning between 30% and 50% of

program is administered and regulated

debt-to-income ratio of 38 percent or less,

AMI). The median annual income of

by the IRS, and the Community Devel-

and these units must be owner-occupied

a household in a LIHTC-assisted unit

opment Financial Institutions (CDFI)

by households earning incomes at or

is $17,470; approximately 58 percent

Fund certifies credit-receiving entities

below 80 percent of AMI.19 With rental

of households in LIHTC-assisted

and makes the allocations. As with

housing, for the duration of the seven-

units make less than $20,000 per year.

the LIHTC program, these credits are

year NMTC compliance period, at least

Despite the program’s limitations

awarded competitively. CDEs function

20 percent of an allocatee’s units

on rents, 37 percent of households

as a financial intermediary, aggregating

must have rents that do not exceed 30

in LIHTC units are rent burdened.16

funds to invest in projects proposed by

percent of the adjusted family income

According to a study by the University

Qualified Active Low-Income Community

at 80 percent of AMI, and they must

be occupied by households earning

incomes at or below 80 percent of AMI.

Although housing projects make up

only 5 percent of all NMTC projects,

these projects account for 37 percent of

total project dollars because many of the

largest NMTC projects involved housing.20

For-profit nonfinancial institutions

were awarded the highest share of

NMTCs until 2006; about 60 percent

of recipient QALICBs were for-profit

institutions, almost 40 percent were

nonprofits, and about 2 percent were

government or tribal entities. Between

2002 and 2010, the CDFI Fund issued

664 awards to 350 CDEs, allocating

$12.9 billion in tax credits over 9 al-

location rounds. Between 2003 and

2015, the NMTC Coalition reported

$42 billion in NMTCs, generating more

U.S. Department of Housing and Urban Development

than a million jobs, with more than 72

Opportunity Zone investments could potentially be combined with LIHTC investments to fund affordable housing.

percent of these investments occurring

6

U.S. Department of Housing and Urban Development

From left to right, Denise Cleveland-Leggett, Region IV Regional Administrator; Scott Turner, executive director of the White House Opportunity and Revitalization Council; Secretary Ben Carson; and officials from Birmingham, Alabama, participated in a roundtable discussion on Opportunity Zones.

in severely distressed communities.21 An

programs have achieved these outcomes.

2.6 percentage points), but this study

estimated 30 to 40 percent of projects

Overall, the research suggests that the

has been criticized for its selection of

probably would not have proceeded

incentives have produced mixed results

comparison areas, which exaggerates

without NMTCs; approximately 10 per-

in each outcome area. In addition,

the impact of these programs.24 Over-

cent probably would have proceeded

methodological concerns, such as insuf-

all, however, research on EZs’ impact

without NMTCs but at a different loca-

ficient data and difficulty establishing

on employment has demonstrated

tion or on a delayed schedule. Roughly

appropriate comparisons, have made

mixed results, with other studies, such

20 percent of projects did not demon-

evaluations difficult.

as Hanson (2009), finding (depending

strate conclusive evidence of needing

on the methods used) a positive effect

NMTCs to proceed, and the evidence

Employment. A few studies tied EZs

on the employment rate of 2 percent-

was inconclusive for 30 percent of

and ECs to increased employment.

age points or no effect and Hanson

projects.22

The 2001 HUD Interim Report on EZs

and Rohlin (2013) finding that EZs

found that total employment grew in

simply reallocate economic activity into

Efficacy of Place-Based

five of the original six EZs between

the zones from other economically

Tax Incentives

1995 and 2000, and Busso et al. also

similar areas.25 NMTCs have also been

Past place-based tax incentives were

found that EZs had positive impacts

associated with job growth. The Urban

designed to foster broad economic

on wage increases and employment.23

Institute’s evaluation of NMTCs found

development, including job creation,

Ham et al. found positive, statistically

that in 60 percent of NMTC project

increased incomes, and real estate de-

significant impacts on unemployment

areas, employment levels increased by 33

velopment. Researchers have attempted

rates from EZs (a decrease of 8.7

percent or more compared with levels

to evaluate how successfully these

percent) and ECs (a decrease of about

before the projects.26

7

Poverty and income. As with employ-

points.27 The U.S. Government Ac-

impact on increasing neighboring

ment, Ham et al. and Busso et al. found

countability Office (GAO) found that

property values and reducing crime

that EZs had a positive impact on poverty

poverty rates declined in most Round I

rates in distressed neighborhoods and

and income. For EZs and ECs, Ham

EZs and ECs but that those changes

small negative effects on property

et al. found decreases of 8.8 percent-

might be attributable to other factors,

values (and no impacts on crime) in

age points and 20 percentage points,

and Reynolds and Rohlin (2014) found

higher-opportunity neighborhoods.

respectively, in the poverty rate, and

no effect of EZs on impoverished resi-

Freedman cautioned, however, that

increases of 20.6 percent and 12.7 per-

dents.28 For the LIHTC program overall

residents of neighboring areas may

cent, respectively, in average income.

(not the QCTs specifically), Diamond

experience reduced employment and

Busso et al. also found positive impacts

and McQuade (2016) found evidence

business investment as companies relo-

on wages of 8 to 13 percent for zone

that LIHTCs reduce poverty rates in

cate operations to qualified areas.30

residents employed within the zone and

high-poverty neighborhoods.29

3 to 5 percent for zone residents gener-

Limitations of the evidence. The

ally, without increases in rents. On this

Other neighborhood impacts. Evalua-

divergent findings on place-based

measure, Hanson found (depending on

tions of place-based policies have also

tax incentives reflect several method-

the methods used) a positive effect on

found evidence of broader neighbor-

ological and data challenges. As GAO

the poverty rate of 2 percentage points

hood impacts. For example, LIHTC

noted, establishing a causal relation-

or a negative effect of 2 percentage

projects can have a modest positive

ship between specific development

Although the areas designated as Opportunity Zones have suffered from underinvestment, they have many assets that will be attractive to investors.

8

projects and economic growth in a

difficult. Evidence of new jobs within

community is difficult.31 An EZ commu-

the zone, for example, could simply

Enacted as part of

nity may be benefiting from additional

represent the movement of jobs from

economic development grants, incen-

one area to another.36 Limitations on

the 2017 Tax Cuts

tives, and policies, making it difficult

systemic data have also complicated as-

to isolate the impact of the various

sessments of LIHTC impacts, as has the

and Jobs Act, OZs

programs.32 For example, investors also

wide latitude states have in designing

aim to direct some of

claimed Community Reinvestment Act

the QAPs, which complicates compari-

credits in 76 percent of NMTC projects

sons. Despite these limitations on the

the estimated $6.1

between 2002 and 2006.33 In a similar

evidence base, research on previous

way, NMTCs can be used in conjunction

place-based tax incentives and experi-

trillion in unrealized

with historic preservation tax credits.34

ence have informed the design of the

GAO reported that insufficient data on

new place-based tax incentive, Op-

capital gains into

the use of program tax benefits limited

portunity Zones (OZs), and can offer

qualified low-income

researchers’ ability to evaluate EZs,

lessons for its implementation.

ECs, and RCs effectively.35 The nonran-

and contiguous cen-

dom selection of zones makes researchers’

A New Opportunity:

choice of control areas important but also

Opportunity Zones

sus tracts.

Enacted as part of the 2017 Tax Cuts

and Jobs Act, OZs aim to direct some of

the estimated $6.1 trillion in unrealized

rate of 31.75 percent (compared with

capital gains into qualified low-income

21.12% for eligible nondesignated

and contiguous census tracts.37 The Op-

tracts and 16.61% for all tracts), and an

portunity Zones initiative offers different

unemployment rate of 13.14 percent

levels of tax benefits on unrealized

(compared with 9.26% for eligible

capital gains that are reinvested in OZs.

nondesignated tracts and 8.12% for

Investors can defer taxes on capital

all tracts).40 All OZ investment must

gains invested in an OZ until December

flow through an Opportunity Fund, an

31, 2026, or when they dispose of the

investment vehicle that pools private

investment (whichever comes first);

capital to invest, with a minimum of 90

reduce their tax liability by 10 percent if

percent of assets being held in qualified

they hold the investment for 5 years or

OZ property.41

by 15 percent if they hold it for 7 years;

and exclude from taxation capital gains

The development of OZs was informed

earned on the appreciation of an OZ

by past experiences with EZs, ECs, and

investment held for 10 years or longer.38

NMTCs, with which they share certain

Governors and executives of the 50

features. Like these previous incentives,

states, 5 territories, and the District

OZs offer preferential tax treatment for

of Columbia nominated OZs in their

investments in low-income neigh-

jurisdictions; from these, the U.S. Depart-

borhoods. They share the goal of

ment of the Treasury designated 8,764

broad-based economic development,

OZs. Eligible zones had to consist of

aiming to increase employment and

census tracts with an individual poverty

income as well as increasing invest-

rate of at least 20 percent or a median

ment in real property. OZs, however,

family income that was less than 80

also have some crucial differences from

percent of AMI. Up to 5 percent of the

past place-based tax incentives. The OZ

OZ tracts could be contiguous census

incentive has no cap, and Opportunity

tracts as long as their median family

Funds can “self-certify,” eliminating

income did not exceed 125 percent of

some of the regulatory burden and

AMI.39 An Urban Institute analysis of

obligations of the older programs.42

the designated zones showed that the

Unlike EZs, OZs do not combine tax

chosen zones have a median household

benefits with grants, although locali-

income of $33,345 (compared with

ties may target other grants, such as

$44,446 for eligible nondesignated

CDBG and CDBG-Disaster Recovery, in

Art Wager / iStock.com

Although the areas designated as Opportunity Zones have suffered from underinvestment, they have many assets that will be attractive to investors.

tracts and $58,810 for all tracts), a poverty

OZs. Some of these differences reflect

9

State and city governments, such as Louisville, Kentucky, have been proactive in marketing the investment potential of their Opportunity Zones.

insights derived from experience. The

“the quality of local governance,”

successes to strategic partnerships with

architects of OZs believed that the EZ

including the capacity and capability

employers, strong marketing of EZ

and EC employment incentives, for

of local agencies and organizations in

incentives to businesses, and collabora-

example, were too small or inefficient

marketing, collaboration, and policymak-

tion with other state and city economic

to effectively increase employment.

ing, “distinguished the performance of

development agencies.45 Localities that

They also argued that the programs

the revitalization initiatives….”44 They

emphasize collaborative partnerships

and their regulations were too com-

found that the city of Baltimore had

and capacity in their OZs may also be

plex, contributing to underutilization.

greater success with EZs than some

more successful at achieving their goals.

The regulatory flexibility incorporated

of its peers due to the quality of its

University of California–Irvine professor

into OZs reduces the barriers that OZs’

collaborative, capacity-building imple-

David Neumark suggested that policy-

architects felt impeded broader par-

mentation. One of the six Round I

makers should target place-based tax

ticipation in EZs, and the absence of a

urban EZs, the city established the

incentives to ensure that the initiative’s

cap removes an additional barrier that

Empower Baltimore Management

benefits go to residents of the designat-

restricts greater investment in NMTCs.43

Corporation (EBMC) to coordinate EZ

ed zones rather than people relocating

implementation. EBMC helped facilitate

to the zone and that existing residents

Lessons from previous place-based

approximately $1.2 billion in public and

are not displaced.46

tax incentives can also shape the

private investment in the Baltimore EZ

implementation of OZs. One such

from 1995 to 2000, creating an esti-

Because OZs are a new tax incentive

lesson is the critical importance of

mated 5,700 new jobs, placing 11,000

whose regulations are still being final-

local governance in determining out-

residents in jobs, reducing crime by 60

ized, investors’ response to them is

comes. In their analysis of the original

percent, and increasing homeowner-

largely undetermined. Examining how

urban EZs, Rich and Stoker find that

ship by 6 percent. EBMC credited these

previous tax incentives have been used,

10

primary investors in LIHTCs, do not

Innovation Group, localities should

frequently have capital gains to invest,

ensure that their affordable housing

said Novogradac, when they do — for

toolbox is well stocked before invest-

example, after the sale of a subsidiary

ment begins. Regardless of whether

— they may invest in LIHTCs in OZs.48

the OZ investment itself is intended to

From an affordable housing standpoint,

support affordable housing, localities

said Kathie Soroka of Nixon Peabody,

need to be sure that they have a policy

“the greatest promise of Opportunity

framework in place to preserve existing

Zones is to bring in another kind of

affordable housing and encourage the

funding to low-income housing invest-

production of additional affordable op-

ment that can increase competition

tions to prevent current residents from

and pricing in LIHTCs and provide

being priced out.52 State and local gov-

an alternative to LIHTC funding for

ernments can provide tax abatement

affordable housing.” She noted that

for low-income residents so that rising

some of these potential investors, such

property values and tax assessments do

as family offices (in-house managers of

not force them from their homes. Local

the investments of wealthy families),

governments can also reform their zon-

initially might need help navigating

ing and permitting processes to remove

these markets, which could come from

barriers to affordable housing construc-

syndicators in the well-established

tion. (For more on reducing regulatory

LIHTC investment infrastructure.49

barriers, see the Spring 2018 issue of

Evidence Matters.) Fikri also suggested Both federal and state governments can

that local actors play a proactive role

take steps to encourage OZ investment

in advocating for the kinds of develop-

in LIHTC projects. HUD has launched

ment that the community wants and

a Federal Housing Administration pilot

will benefit from, which may include

program to encourage investment in

affordable housing.53

OZs by accelerating the financing of

LIHTC projects. Novogradac noted that

LIHTCs, particularly 4 percent LIHTCs,

The regulatory flex-

Photo courtesy of the Louisville Urban League

combined with OZ incentives could

State and city governments, such as Louisville, Kentucky, have been proactive in marketing the investment potential of their Opportunity Zones.

work well with HUD’s Rental Assis-

ibility incorporated

tance Demonstration conversions of

however, may offer some clues about

public housing.50 State housing finance

into OZs reduces

how OZs will be received. Slightly less

agencies that award LIHTCs can also

the barriers that

than two-thirds of NMTC projects relate

encourage OZ investment. For example,

to real estate or construction projects,

the state of Mississippi is committing

OZs’ architects felt

which may portend the types of invest-

12.5 percent of its LIHTC allocations

ments that result from OZs. NMTC

from 2018 to 2021 to award credits to

impeded broader

investment has been geographically

projects in OZs beginning in the 2019

participation in EZs.

concentrated in distressed areas, which

cycle.51 Policymakers can align various

may be similar to the patterns that

state incentives and allocations with

OZ investments take, although Lester

OZ projects without displacing invest-

argued that OZs’ lack of Opportunity

ments associated with other policies such

Some early signals suggest that at least

Fund certification by a government

as the Community Reinvestment Act.

some funds will voluntarily adopt

entity may encourage a different distri-

guidelines to commit to community

bution of investments.47

Some critics are concerned that invest-

engagement and will approach OZ

ments in OZs will fuel gentrification

investing as impact investing, seeking

OZs, like EZs and NMTCs, will intersect

and drive up rents and other costs

social good from their capital, said

with other housing and development

that threaten to displace the very low-

Fikri.54 The U.S. Impact Investing Alli-

policies. Michael Novogradac, manag-

income residents that the incentives are

ance and the Beeck Center, for example,

ing partner at Novogradac, said that

designed to help. Local governments

have been convening investors and local

LIHTC projects will attract investment

and other stakeholders can take several

leaders to develop a framework for

from OZ funds under the right circum-

steps to mitigate these potential impacts.

measuring needs and outcomes and for

stances. Although banks, which are the

First, said Kenan Fikri of the Economic

conducting community engagement to

11

ensure that OZs have a positive impact

6 U.S. Government Accountability Office. 2006. “Em-

Distribution of Household Income: Evidence from the

on communities.55 Fikri also expected

powerment Zone and Enterprise Community Program:

Federal Empowerment Zone Program,” Unpublished

Improvements Occurred in Communities, but the

manuscript, Kent State University.

that “local capital is going to move

Effect of the Program Is Unclear, ” 7–8; Michael J. Rich 29 Rebecca Diamond, and Tim McQuade. 2017. “Who

first” — if philanthropies and other

and Robert P. Stoker. 2014. Collaborative Governance for

Wants Affordable Housing in their Backyard? An Equi-

Urban Revitalization: Lessons from Empowerment Zones,

librium Analysis of Low Income Property Develop-

local entities, together with locally com-

Ithaca: Cornell University Press, 33.

ment, ” Stanford GSB.

mitted investors, support projects that a

7 U.S. Government Accountability Office.

30 Matthew Freedman. 2013. “Targeted Business Incen-

community wants and needs, that sup-

8 U.S. Government Accountability Office. 2010. “Infor-

tives and Local Labor Markets,” Journal of Human

mation on Empowerment Zone, Enterprise Commu-

Resources 48, 311–44.

port may attract additional capital from

nity, and Renewal Community Programs.”

31 U.S. Government Accountability Office 2010, 27.

Opportunity Funds farther afield.56

9 Ibid., 11.

32 Rebecca Lester, Cody Evans, and Hanna Tian. 2018.

10 Ibid., 24–5.

“Opportunity Zones: An Analysis of the Policy’s Impli-

Making the Most of

11 Congressional Research Service. 2019. “An Introduc-

cations,” State Tax Notes 90, 226.

tion to the Low-Income Housing Tax Credit,” 1.

33 Abravanel et. al., x.

Opportunity Zones

12 Ibid., 2–3.

34 Ibid., 73.

OZs have the potential for widespread

13 Mark Shelburne and Thomas Stagg. 2018. “Imple-

35 U.S. Government Accountability Office 2010, 7, 10–1.

positive economic impacts by incentiv-

mentation of LIHTC Income Averaging, ” Novogradac 36 Neumark 2018, 85.

Affordable Housing Resource Center.

izing capital investment in communities

37 Economic Innovation Group. 2018. “Opportunity

14 Corianne Payton Scally, Amanda Gold, and Nicole

experiencing disinvestment and

Zones: Tapping into a $6 Trillion Market.”

DuBois. 2018. “The Low-Income Housing Tax Credit:

38 Lester et. al., 224.

underinvestment. To ensure that these

How It Works and Who It Serves, ” Urban Institute, 2.

39 Ibid., 222.

15

incentives benefit the low-income

Congressional Research Service, 2–3.

40 Brett Theodos, Brady Meixell, and Carl Hedman.

16 Scally et al., 2.

residents who live and work in OZs,

2018. “Did States Maximize Their Opportunity

17 Carolina K. Reid. 2018. “The Links Between Afford-

HUD has issued a formal Request for

Zone Selections?” Urban Institute, 8. Statistics cited

able Housing and Economic Mobility: The Experi-

indicate an average or average percentage based on

Information for input on how it can

ences of Residents Living in Low-Income Housing Tax

Community Development Financial Institution Fund

Credit Properties,” Terner Center.

optimize its policies and support to

and Urban Institute analysis of 2012-16 U.S. Census

18 Jill Khadduri, Carissa Climaco, Kimberly Burnett, Lau-

Bureau American Community Survey.

maximize their impact. HUD notes

rie Gould, and Louise Elving. 2012. “What Happens to

41 Lester et. al., 224.

that 38 percent of public housing units

Low-Income Housing Tax Credit Properties at Year 15

42

and Beyond? ” Prepared for U.S. Department of Hous-Ibid., 227.

are located within OZs.57 Two of the

ing and Urban Development, xi.

43 Jared Bernstein and Kevin A. Hassett. 2015. “Unlock-

possibilities HUD is considering are

ing Private Capital to Facilitate Economic Growth in

19 CDFI Fund. 2019. “NMTC Compliance & Monitoring

Distressed Areas,” Economic Innovation Group.

prioritizing grants and other assistance

FAQs,” 15–6.

44

20 Martin D. Abravanel, Nancy M. Pindus, Brett Theodos,

Rich and Stoker, 226–7.

for distressed areas and creating an

Kassie Bertumen, Rachel Brash, and Zach McDade.

45 U.S. Department of Housing and Urban Develop-

information portal. HUD also requested

2013. “New Markets Tax Credit (NMTC) Program

ment. 2005. “Capturing Successes in Renewal Com-

munities and Empowerment Zones,” 149–50.

more open-ended input on how the

Evaluation: Final Report, ” Urban Institute, 39.

21 New Markets Tax Credit Coalition. 2018. “Fact Sheet:

46 Email correspondence with David Neumark, 12 April

department should evaluate the im-

The New Markets Tax Credit (NMTC) Extension Act.”

2019.

pact of OZs and “how HUD can ensure

22 Abravanel et. al, xviii–xix.

47 Lester et. al., 228.

existing residents, businesses, and

23 Scott Hebert, Avis Vidal, Greg Mills, Franklin James,

48 Interview with Michael Novogradac, 28 March 2019.

and Debbie Gruenstein. 2001. “Interim Assessment of

49

community organizations in Opportu-

Interview with Kathie Soroka, 2 April 2019.

the Empowerment Zones and Enterprise Communi-

50 Michael Novogradac. 2018. “Three Ideas to Build on

nity Zones benefit from the influx of

ties (EZ/EC) Program: A Progress Report,” prepared

RAD’s Success,” Novogradac Journal of Tax Credits IX:V.

investment.”58 HUD support, along with

for the U.S. Department of Housing and Urban

51

Development; Matias Busso, Jesse Gregory, and Patrick

“Governor Approves Mississippi Home Corporation’s

strong, collaborative local partner-

Kline. 2013. “Assessing the Incidence and Efficiency

Special Opportunity Zone Cycle for Low Income Tax

Credit Program,” NCSHA website (www.ncsha.org/

ships, can make the most of this new

of a Prominent Place Based Policy,” American Economic

Review 103, 897–947.

hfa-news/governor-approves-mississippi-home-corpo-

opportunity to promote investment

rations-special-opportunity-zone-cycle-for-low-income-

24 John Ham, Charles Swenson, Ayse Imrohoroglu, and

tax-credit-program/). Accessed 8 April 2019.

and development in low-income

Heonjae Song. 2011. “Government Programs Can

52 Interview with Kenan Fikri, 25 March 2019.

communities.

Improve Local Labor Markets: Evidence from State

Enterprise Zones, Federal Empowerment Zones, and

53 Ibid.

Federal Enterprise Communities,” Journal of Public

54 Ibid.

Economics 95, 779–97; David Neumark. 2018. “Rebuild-

55 Lisa Green Hall, Fran Seegull, Chelsea Amelia Cruz,

1 Ryan Nunn, Jana Parsons, and Jay Shambaugh. 2018.

ing Communities Job Subsidies,” in Place-Based Policies

and Adrian Franco. 2018. “Opportunity Zones: Mov-

“The Geography of Prosperity,” in Place-Based Policies for Shared Economic Growth, Shambaugh, Jay and Ryan

ing Toward a Shared Impact Framework.”

for Shared Economic Growth, Jay Shambaugh and Ryan

Nunn, eds., 87.

Nunn eds.; The Hamilton Project, Brookings, 12.

56 Interview with Kenan Fikri.

25 Andrew Hanson. 2009. “Local Employment, Poverty,

57

2 Ibid.

and Property Value Effects of Geographically-Targeted

U.S. Department of Housing and Urban Develop-

ment. 2019. “Review of HUD Policy in Opportunity

3 George Galster. 2017. “People Versus Place, People and

Tax Incentives: An Instrumental Variables Approach,”

Zones,” Federal Register 84:74, 16030.

Place, or More? New Directions for Housing Policy,”

Regional Science and Urban Economics 39, 721–31;

Housing Policy Debate 27:2, 261–5.

Andrew Hanson and Shawn Rohlin. 2011. “The Effect

58 U.S. Department of Housing and Urban Develop-

of Location-Based Tax Incentives on Establishment

ment. 2018. “HUD Announces Request for Informa-

4 Gerry Riposa. 1996. “From Enterprise Zones to Em-

tion on Maximizing the Positive Impact of Opportu-

powerment Zones: The Community Context of Urban

Location and Employment across Industry Sectors,”

nity Zones,” 12 April press release.

Economic Development,” American Behavioral Scientist

Public Finance Review 39:2, 195–225.

39:5, 542–3.

26 Abravanel et. al., xviii–xix.

5 David Neumark and Helen Simpson. 2015. “Place-Based

27 Hanson 2009.

Policies,” in Handbook of Regional and Urban Economics,

28 U.S. Government Accountability Office 2006;

Volume 5B, Gilles Duranton, J. Vernon Henderson, and

C. Lockwood Reynolds, and Shawn Rohlin. 2013.

William C. Strange, eds. Oxford: Elsevier, 1230.

“The Effects of Location-Based Tax Policies on the

12

HIGHLIGHTS

Evaluating Place-Based Incentives

n The nonrandom selection of Em-

data collection.5 To measure the effect

powerment Zones and Enterprise

spotlight

Although the Opportunity Zones

initiative is new, place-based

of the UK Enterprise Zones, research-

Communities presented evaluation

challenges in past studies because

ch

incentives are not. In the United

ers counted jobs and firms, examined

Kingdom (UK), Margaret Thatcher’s

land prices, and surveyed managers.6

isolating the effect of the designation

government introduced Enterprise

In general, the researchers found that

on housing prices and job growth

was difficult.

Zones in 1981 to mixed success.1 Al-

only 25 percent of new jobs in the

resear

though the UK government phased out

zones were attributable to the designa-

n Evaluations of Opportunity Zones

the program in 1999, it was revived in

tion; the rest were merely relocations.

can employ the same indicators for

2012 and 2016.2,3 UK Enterprise Zones

In addition, researchers estimated the

neighborhood change used to evaluate

were originally formed from “vacant,

program cost per job at £23,000 to

Empowerment Zones and Enterprise

Communities such as job and business

unoccupied, or deteriorating indus-

£50,000.7 In the United States, several

creation; changes in land prices,

trial land.”4 Over the next 10 years,

states tested the Enterprise Zone con-

home values, and rents; and vacancy

new rules exempted Enterprise Zone

cept, and Empowerment Zones were

and poverty rates.

properties from property taxes and the

explored at the national level. This ar-

n Administrative and survey data at the

Development Land Tax, and develop-

ticle reviews evaluations of the impacts

census tract level are widely available

ers in Enterprise Zones received a 100

of some of these place-based interven-

and can support the effective evalua-

percent tax deduction for spending on

tions and discusses findings that could

tion of Opportunity Zones.

buildings and became exempt from

inform the evaluation of Opportunity

some permitting requirements and

Zones.

benedek / iStock.com

A study of Texas Enterprise Zones found positive effects on employment growth.

13

The Philadelphia-Camden bistate Empowerment Zone was one of the six Round I urban zones designated in 1994.

State Enterprise Zones

that enterprise zone assignment in

vacancy rates in marginally qualified

Early adopters of state enterprise zones

Texas was automatic; any area meeting

zones were 4 percent lower than those

in the United States included Indiana

the standards received the designa-

in zones that marginally did not qualify.

and New Jersey.8 The state enterprise

tion. This rule allowed researchers to

zones typically offered relief or com-

compare nearby census tracts that were

Empowerment Zones

plete exemption from property taxes

nearly identical before designation. For

Jack Kemp, first as a congressman and

along with wage tax credits in return for

example, researchers could compare a

later as HUD Secretary from 1989 to

data reporting.9 Papke presents results

tract with a poverty rate higher than 21

1992, strongly advocated for creat-

from some studies of these early efforts,

percent, which qualifies for the des-

ing a federal program based on the

finding that the cost per job for most

ignation, against a nearby tract with a

enterprise zones. Although no such

of these programs ranged from $4,500

poverty rate of 19 percent, which does

program was created under his watch,

to $13,000 annually; in some cases,

not. Although the difference between

in 1994 the federal government des-

the cost reached $30,000 to more than

poverty rates of 19 and 21 percent may

ignated the first Empowerment Zones

$100,000 per zone resident job.10

not be economically significant, the

(EZs), which included significant tax

assignment of EZ status would be.

breaks with a large federal block grant

In the case of Texas, Freedman found

to six urban and three rural targeted

that enterprise zones had positive

Freedman found that housing prices

communities. Unlike enterprise zones,

effects on employment growth.11 One

in zones that barely achieved enter-

prospective EZs had to compete for

important feature of the Texas study

prise zone designation increased by 10

the designation. (See “Place-Based

design that offers insights to research-

percent more than those in zones that

Tax Incentives for Community Devel-

ers studying Opportunity Zones was

barely missed designation, and home

opment,” p. 3, for more information

14

on EZs, Enterprise Communities, and

on owner-occupied housing and the

The zones that were designated were

Renewal Communities.)12

effect on rental housing. The authors

probably the ones most likely to show

speculated that longtime owners who

significant improvement without the EZ

Considerable research has examined

have not experienced a recent market

designation.

the effects of EZs on various outcomes.

transaction may greatly overestimate

Early HUD-sponsored research com-

the effect of EZ designation or the

Hanson noted that the runner-up

pared areas awarded EZ designation

resulting neighborhood changes on

applicants for EZ designation were

with those not awarded EZ designation.

the value of their house. On the other

also highly qualified areas. Although

It used as metrics job creation by zone

hand, renters who moved to the EZ

they were probably less well positioned

employers, business formation and

more recently saw greater rent in-

for wage growth or poverty reduction,

expansion in zones, employment of

creases, suggesting that rents do rise,

they were more promising in those

zone residents by zone businesses, and

although only over a longer period.14

areas than a random area in the same

business ownership by zone residents.

city as an EZ with similar demographic

The study’s findings on the impact of

EZ Designation Was

statistics.

the EZ program were inconclusive.

Not Random

Specifically, the researchers found that

EZs and Enterprise Communities (ECs)

By comparing runner-up areas to the

job growth in EZs outperformed that in

were not randomly chosen. Their selec-

selected areas, Hanson found that EZ

comparison areas and that the number

tion was based on applications, which

designation raised median property

of new resident- and minority-owned

encouraged localities to provide regula-

values by more than $100,000, which

businesses increased within the zones,

tory relief and take additional action.

is both statistically and economically

but they could not determine a general

Therefore, any effect of EZs and ECs on

significant. Other studies showed large

trend of economic improvement from

the housing market is either indirect or

increases in employment and reduc-

these numbers. In addition, job growth

a consequence of an optional state ac-

tions in poverty in EZs but did not

was correlated with EZ activity in only

tion, which makes isolating the effect of

correct for the endogenous, or nonran-

three of the six EZs. In the remaining

EZ designation difficult. For example,

dom, selection of EZs described above.

three, job growth could have occurred

a locality might have chosen to invest

For example, Busso, Gregory, and Kline

because of other incentives or trends.13

in sewer and transportation upgrades

found that employment in EZs in-

in certain areas to win EZ designation.

creased between 12 and 21 percent and

Using mostly decennial census data,

Any housing development occurring

wages increased by 8 to 13 percent.16

Busso, Gregory, and Kline examined

there is more likely the result of local

An evaluation commissioned by HUD

the effects of EZs on economic indica-

government investment rather than

showed similar results.17 However, this

tors. In particular, the authors studied

the estimated changes in rents and

home prices in EZs relative to a com-

The state enterprise zones typically

parison group of rejected EZ tracts

and future applicant EZ tracts.

offered relief or complete exemption from

Using different estimation strategies,

property taxes along with wage tax credits

the authors found that EZ designa-

in return for data reporting.

tion was correlated with an increase

in home values of approximately 30

percent between 1990 and 2000, as

self-reported in the decennial census,

federal tax relief. On the other hand,

study found that, after accounting for

whereas rents increased by only 2 to 3

designation, or the competition for

the nonrandom selection of EZs, EZs

percent during the same period. The

designation, often will spur localities to

may have had zero effect on employ-

authors found this result striking and

take actions that may be beneficial and

ment rates and slightly increased

looked more closely at new residents or

long overdue.

poverty rates.

those who had last moved less than five

years prior. These residents’ responses

Hanson critiqued previous studies

Some EZ Designations

indicated that in EZs, home prices were

that had assumed that EZ designation

Came Later

15 to 20 percent higher, and rents 4 to

was random.15 Cities submitted ap-

Krupka and Noonan estimated a simul-

6 percent higher, than those in com-

plications, and EZ designations were

taneous equations model based on the

parison tracts. Although these gaps

assigned based on the merits of the

different rounds of EZ designations and

were smaller, a sizable difference still

applications. Many zones qualified for

hedonic analysis of housing markets.18

existed between the effect of EZs

the designation, but few were approved.

Hedonic analysis takes the characteristics

15

of an item into account when determining

These explanations have radically dif-

What About Renters?

its price; for example, hedonic analysis

ferent implications. If the demolition

Reynolds and Rohlin examined block

in housing will estimate house prices

hypothesis is correct, then median home

group data in EZs and ECs.19 Rather

based on characteristics such as square

prices may have increased, but the

than examining means and medians,

footage, number of bathrooms, year of

realities for people living in the remain-

the authors plotted the distributions of

construction, school district, and distance ing homes would not have changed.

rents and home values. Although the

to public transportation, among others.

A national program to demolish vacant

distribution of rent changed, the mean

houses would increase median home

and median changed little; the per-

Across six different formulations of the

prices in the absence of any tax or

centage of households paying $600

analysis, the authors found that EZs

regulatory change, but such a program

or more per month in rent greatly

increased home prices between 10 and

is unlikely to deliver real economic

increased, and the percentage of

40 percent. Because they used the he-

benefits to the country. If the commer-

households paying $350 to $550 per

donic approach, the authors could note

cial real estate hypothesis is correct,

month decreased. Although EZs were

several potential explanations. One pos-

then economic activity may indeed have

intended to benefit residents of low-

sibility is that density decreased in EZ

increased within EZs. Further study is

income communities, this finding

neighborhoods. The authors hypoth-

needed to see whether the increased

appears to show that EZ designation

esize that local governments spent grant

economic activity is primarily the result

substantially increased their rents.

money to demolish housing, which

of existing businesses and business

These changes, however, occurred

would increase the median value of the

activity relocating to EZs. If the goal of

over a 20-year period, and some of this

remaining homes. The authors note,

the EZ designation was to improve out-

increase may be attributable to infla-

however, that a more likely explanation

comes for EZ residents, then it would

tion. The remainder of the distribution,

is that the demand for commercial real

matter whether those relocating firms

however, remains stable. In addition, the

estate increased, because commercial real brought their employees with them or

home value distribution showed that

estate in EZs would qualify for tax cuts.

hired locally.

post-EZ home values were much more

Future evaluations of Opportunity Zones could examine neighborhood impact, including changes in home values and rents, using administrative datasets.

16

heavily concentrated over $100,000,

so they may be biased, and only a small

that the number of residential units in

and even over $300,000.

set of data points are available.

an Opportunity Zone has increased,

it would be helpful to know whether

Evaluating Opportunity

The administrative data points that

Qualified Opportunity Funds were invest-

Zones

HUD makes available capture the

ing in residential property developments

As the research above shows, future

annual mobility of assisted housing ten-

in neighborhoods that reflect this impact.

evaluators of Opportunity Zones have

ants; because these data are constantly

two major tasks:

updated as tenants move, they can be

Both survey and administrative data

an early indicator of neighborhood

at the census tract level are more

n Identify a comparison set of census

change. In addition, data from the

available now than in the past. With

tracts. To qualify as an Opportunity

U.S. Postal Service are updated every

careful controls to identify comparison

Zone, a census tract must be either a

quarter and can capture changes in

neighborhoods and data on investments

low-income community as defined by

long-term vacant addresses, increases in

to help explain any findings (or non-

the Internal Revenue Service or con-

total residential and business addresses

findings) of impact, effectively evaluating

tiguous to a low-income community.

(a sign of building permit activity), and

the impacts of Opportunity Zones should

However, the governors of each state

changes in active addresses (a sign of

be possible.

selected only a subset of census tracts

residential and business lease-up).

meeting the criteria for a low-income

— Daniel Marcin, HUD Staff

community. Moreover, each governor

Other administrative datasets that HUD

likely used different criteria in his or

and other researchers have used to

1 PA Cambridge Economic Consultants Ltd. 1987. An

her selection. In other words, as with

measure neighborhood change include

Evaluation of the Enterprise Zone Experiment, London:

Department of the Environment, HMSO.

EZs, the selection of Opportunity

Home Mortgage Disclosure Act data,

2 Leslie E. Papke. 1993. “What Do We Know about

Zones was not random. Any evalua-

which can show change in mortgage

Enterprise Zones?” in Tax Policy and the Economy 7,

James M. Poterba, ed. Cambridge, MA: MIT Press, 48.

tion will have to carefully consider

activity, characteristics of those apply-

3 “About Enterprise Zones,” HM Government website

how to adjust for this nonrandom

ing for and receiving mortgages as

(enterprisezones.communities.gov.uk/about-enter-

selection. Based on past methods,

well as the amount borrowed; county

prise-zones/). Accessed 28 May 2019.

techniques such as propensity score

records data, which can show property

4 Papke, 46.

5 Papke, 46–7.

matching of nearby tracts or compar-

sales transactions, changes in property

6 Papke, 47.

ing tracts that were narrowly selected

values, and foreclosure activity at the

7 Papke, 48.

for designation with those that were

census tract level; and data on employment 8 Papke, 50, 61.

narrowly rejected may be options.

from unemployment insurance records.

9 Papke, 49.

10 Papke, 61.

11 Matthew Freedman. 2013. “Targeted Business Incen-

n Identify data that can be used to

New sources of data should also be ex-

tives and Local Labor Markets,” Journal of Human

track neighborhood change. The

plored, such as “scraping” the Internet

Resources 48:2, 311–44.

research on enterprise zones and EZs

to gather information on advertised

12 Michael J. Rich and Robert P. Stoker. 2006. “Lessons and

focused on employment rates among

rents; using posts from social media

Limits: Tax Incentives and Rebuilding the Gulf Coast

after Katrina, ” Washington, DC: Brookings Institution.

area residents; the creation of jobs

sites such as Twitter to measure levels of

13 Scott Hebert, Avis Vidal, Greg Mills, Franklin James,

and businesses in the area; changes

happiness, sadness, and fear at small-

and Debbie Gruenstein. 2001. “Interim Assessment of

in land prices, home values, and

area geographies; and collecting credit

the Empowerment Zones and Enterprise Communi-

ties (EZ/EC) Program: A Progress Report, ” U.S.

rents; and changes in vacancy and

card company data that could show

Department of Housing and Urban Development,

poverty rates. These variables will

changes in retail purchasing patterns

Office of Policy Development and Research.

14

likely be the same ones examined for

or even the creation of retailers at the

Matias Busso, Jesse Gregory, and Patrick Kline. 2013.

“Assessing the Incidence and Efficiency of a Promi-

Opportunity Zones.

neighborhood level.

nent Place Based Policy,” American Economic Review

103:2, 897–947.

15

Researchers may want to examine ad-

One important source of data will be

Andrew Hanson. 2009. “Local employment, poverty,

and property value effects of geographically-targeted

ministrative data in addition to American

Qualified Opportunity Funds — in

tax incentives: An instrumental variables approach,”

Community Survey data. Administrative

particular, the activities in which they

Regional Science and Urban Economics 39:6, 721–31.

16

data are more available than they have

are investing and the location of those

Busso et al., 921–2.

17 Hebert et al.

ever been. Administrative data have two

investments. At the time of publica-

18 Douglas J. Krupka and Douglas S. Noonan. 2009.

big advantages over survey data: they

tion, final regulations on reporting

“Empowerment zones, neighborhood change and

are not subject to sampling error, and

requirements had not yet been issued.

owner-occupied housing,” Regional Science and Urban

Economics 39:4, 386–96.

the data can generally be obtained and

If investment data are made available,

19 C. Lockwood Reynolds and Shawn M. Rohlin. 2015.

analyzed much more quickly. These data

they will help researchers understand

“The effects of location-based tax policies on the

also have two major flaws: they are not

the impacts of specific types of invest-

distribution of household income: Evidence from

the federal Empowerment Zone program,” Journal of being collected for statistical purposes,

ments. For example, if research indicates

Urban Economics 88, 1–15.

17

Shaping Investment in

HIGHLIGHTS

ctice Opportunity Zones

n Through capacity building, technical

assistance, and regional summits,

pra

in

Across the United States, local offi- OZs will attract more than $1 billion in Maryland’s Opportunity Zone Lead-cials striving to revitalize distressed

capital by the end of 2026 and create

ership Task Force and Indiana’s

communities are looking to the Op-

between 1,000 and 2,000 jobs per year

Opportunity Investment Consortium

portunity Zone (OZ) initiative to attract

for the next several years.

spur investors, developers, and local

2 Within the

officials to share resources, identify

investment. Although OZs are relatively

149 census tracts designated as OZs

projects, and market their communities.

new, some states and cities have already

in Maryland, the average poverty rate

laid the groundwork for the initiative

is 22.63 percent, 8 percentage points

n Michigan strives to support new

by partnering with various stakehold-

higher than that in eligible nondesig-

businesses in economically disad-

vantaged areas through an executive

ers, establishing online portals to share

nated tracts. The unemployment rate

directive that encourages state de-

project information with potential

in designated tracts is 10.86 percent,

partments and agencies to increase

investors, or creating programs to align

nearly 2 percentage points higher than

contracts with businesses in Oppor-

OZ incentives with other tax incentives.

that in eligible nondesignated tracts.

tunity Zones.

Maryland, for example, established an

The median household income in

n Louisville and Oklahoma City were

Opportunity Zone Leadership Task

designated tracts is $47,504 compared

among the first five cities to collabo-

Force, which offers guidance to local

with $80,607 in all state census tracts.

rate with Accelerator for America to

officials and developers, hosts regional

A total of 42 of the state’s OZs are

use a template to write their invest-

summits across the state, and partners

in the city of Baltimore, and 29 are

ment prospectuses and target projects

with local governments. Indiana de-

located within the Capital Beltway. Nearly

ready for investment.

veloped the first statewide consortium

30 percent of renter households in

of public-private partners for OZs that

designated tracts are severely rent bur-

maintains an online portal for cur-

dened compared with approximately

according to Luell, is to educate com-

rent development projects and offers

24 percent in eligible nondesignated

munities, local officials, developers, and

workshops on OZs and Qualified Op-

tracts. More homeowners reside in

other stakeholders about the techni-

portunity Funds for local officials and

eligible nondesignated tracts (56.86%)

cal aspects of financing projects in

developers. In January 2019, Governor

than in designated tracts (44.04%), and

OZs. The task force fields comments

Gretchen Whitmer of Michigan issued

the median home value in designated

and questions daily, and it also hosts

an executive directive outlining state

tracts is about $178,000 compared with

regional summits across the state that

support for businesses within OZs.

$298,000 across all state tracts.3

allow citizens and stakeholders to share

Some cities have also created invest-

resources and identify opportunities

ment prospectuses to attract investors.

Spreading the Word

for investment.6 At the first regional

Louisville Forward and Oklahoma City’s

In his 2019 State of the State address,

summit in March 2019, MDHCD and

Alliance for Economic Development

Governor Larry Hogan announced

other task force members learned that

played critical roles in developing their

that Maryland is striving to create the

community members have different

cities’ prospectuses. Other stakehold-

most competitive OZs in the country.4

levels of understanding about OZs. As

ers can learn from these examples to

On January 3, 2019, Governor Hogan

the state’s lead agency on OZs, MDHCD

identify the best practices that are most

issued an executive order establish-

strives to explain the benefits of OZs in

feasible to implement in their own

ing the Maryland Opportunity Zone

simple terms and apply lessons learned

communities.

Leadership Task Force, chaired by

at future summits.7 The task force is

Lieutenant Governor Boyd K. Ruth-

also charged with devising a community

Attracting Investment in

erford and composed of several voting

marketing strategy, an economic devel-

Maryland’s Opportunity

members, including the department

opment policy brief for OZs, and policy

Zones

secretaries for MDHCD and Commerce

recommendations.8

OZ incentives can boost economic

as well as officials from the University

growth, employment, and housing in

System of Maryland, the Maryland

MDHCD also manages the Maryland

Maryland communities that have not

Economic Development Corporation,

Opportunity Zone Information Ex-

previously benefited from private-sector

and other local associations. The task

change (Information Exchange), an

investment.1 According to Sara Luell,

force is responsible for developing a

interactive online tool for investors,

director of communications at the

State Opportunity Plan that will outline

fund managers, property developers,

Maryland Department of Housing and

broad goals for OZs in keeping with the

new businesses, and other stakehold-

Community Development (MDHCD),

state’s economic conditions and current

ers. The tool, considered the “first

the state estimates that investment in its

priorities.5 One of its major responsibilities, comprehensive, interactive resource of 18

its kind in the nation,” shows projects in

market projects to investors, bringing

credits for companies within an OZ,

need of investment as well as those that

current investments to $12 billion.

and establishes the Opportunity Zone

already have investors.9 As a virtual meet-

Maryland’s Information Exchange beat

Enhancement Program within the

ing place, the Information Exchange

40 other nominees from across the

Department of Commerce.14 In Janu-

offers up-to-date investment activity, a

nation to win the State IT Innovation

ary 2019, Governor Hogan proposed

project and business locator, and an

of the Year award in May 2019 at the

additional initiatives, including legisla-

accompanying description. Businesses,

StateScoop 50 Awards.12

tion to supplement the Maryland

project developers, and investors can

Department of Labor’s Employment

also request to be added to the Infor-

Current Initiatives

Advancement Right Now workforce

mation Exchange by completing an

Several efforts are underway to create

development grant program with

online form.10 An “incentive lookup”

state programs to support small busi-

additional funding to establish Oppor-

geographic information system map-

nesses and job creation in Maryland’s

tunity Works, a job training program for

ping tool allows users to take advantage

OZs. “It is really easy to see how real

businesses located in OZs. The gover-

of program overlap. Users can select a

estate deals take advantage of the Op-

nor’s proposals will also help MDHCD

box on the toolbar to show locations

portunity Zone incentives, so a lot of

allocate funding for other initiatives in

eligible for other state tax credits,

what we are doing is helping small busi-

OZs, including Rental Housing Works,

grants, or local incentives. The map will

nesses,” Luell stated. The state’s overall

a program to build and renovate af-

then highlight the selections to help users

strategy is to attract investment in OZs

fordable housing; small business loans

determine whether a particular OZ

regardless of whether the projects use

through the Neighborhood Business

is located in an area with other incen-

federal tax incentives.13 In April 2019,

Works program; and the statewide

tives.11 As of May 2019, the Information

Governor Hogan signed into law the

Strategic Demolition Fund, which sup-

Exchange lists 96 development projects,

Economic, Housing, and Community

ports site acquisition and demolition

including 29,000 housing units and 45

Development — Opportunity Zone

of derelict buildings as well as redevel-

million square feet of commercial

Incentives Act (Senate Bill 581), which

opment.15 These initiatives will provide

development, in Maryland’s OZs. The

extends the More Jobs for Maryland-

vital gap financing to move projects

Information Exchange has helped

ers Program by two years, offers tax

forward in OZs.

Maryland Governor’s Office / Anthony DePanise

Maryland Department of Housing and Community Development Secretary Kenneth C. Holt (left) and Lieutenant Governor Boyd K. Rutherford (right) answer audience questions at the regional meeting of Maryland’s Opportunity Zone Task Force in Salisbury.

19

Roughly one-quarter of renters in

the designated tracts are severely cost

burdened. Approximately 46 percent

of residents in the designated tracts are

homeowners compared with approximate-

ly 58 percent in eligible non-designated

tracts and about 67 percent in all state

tracts.17 The designation of OZs and the

development and implementation of

Qualified Opportunity Funds provide

distressed neighborhoods in Indiana

with a financing tool to complete social

impact projects, according to Samantha

Spergel, director of real estate production

at the Indiana Housing and Community

Development Authority (IHCDA).18

Forging Partnerships

In late fall 2018, representatives from

Local Initiatives Support Corporation

(LISC) Indianapolis and Cinnaire, a

nonprofit community development

financial institution, met with IHCDA

to discuss creating an online portal for

investors and developers to locate and

post projects in OZs.19 The portal offers

a virtual space for developers to pitch

their project ideas for affordable hous-

ing, commercial, industrial, or small

business projects.20 Investors, who must

pay to access the portal, have exclusive

rights to review potential projects and

contact developers to determine wheth-

er a project would be lucrative with

Qualified Opportunity Funds.21 LISC

manages the portal, and the Fifth Third

Foundation contributed $100,000 to

fund the portal and support informa-

tion sharing, capacity building, and

technical assistance.22 Following discus-

The Platform

The Opportunity Zones initiative can help revitalize buildings such as Chroma in Detroit, Michigan.

sions with LISC and Cinnaire, IHCDA

collaborated with other state agencies,

including the Indiana Economic

Establishing an Investment

stakeholders weighed communities’

Development Corporation, the Indi-

Consortium in Indiana

potential opportunity for investment

ana Bond Bank, and the offices of the

From the outset, Indiana’s state

and demonstrated need.16 Designated

governor and lieutenant governor, to

government has taken a collabora-

tracts in Indiana struggle with poverty

form the Opportunity Investment Con-

tive approach to OZs, bringing local

and unemployment. The poverty rate

sortium of Indiana and identify ways to

officials and citizens to the table.

is nearly 30 percent in designated tracts

support the portal.23 The consortium

Governor Eric J. Holcomb convened

compared with approximately 23 per-

serves as a platform for stakeholders

an external advisory group composed of

cent in eligible nondesignated tracts.

such as investors, developers, and local

representatives from nonprofit organi-

The unemployment rate is also higher

officials to learn more about identifying

zations and municipal governments to

within designated tracts (10.96%)

potential projects and marketing their

designate 156 census tracts in Indiana

than in eligible nondesignated tracts

communities.24 In addition to LISC,

as OZs. During the nomination process,

(9.82%) and in all state tracts (7.85%).

Cinnaire, and IHCDA, the consortium’s

20

John Amrhein, Michigan State University Extension

OZ workshop attendees in Grayling, Michigan, learned the basics of OZs, how to market attributes of their community to investors, and potential impacts of OZ incentives.

primary partners include the state’s

vital to its success. As of February 2019,

Partnerships with nonprofit organiza-

Office of Community and Rural Affairs;

users have submitted 14 potential deals

tions, including Prosperity Indiana, that

Prosperity Indiana, a statewide mem-

through the portal. Of these 14, 3 are

have their own networks across the state

bership organization that promotes

in Indianapolis, and the rest are in

have also been critical for spreading

comprehensive community development;

smaller communities. “We are seeing a

the word about the benefits of OZs,

the Indiana Economic Development

wide range of not just types of projects,

especially in rural areas. According to

Association; and other economic devel-

but [a] wide range of where the projects

Spergel, one of the key outcomes of OZs,

opment agencies, foundations, and

are coming from, which is indicative of

aside from the potential for develop-

associations.25 The consortium’s part-

how we have been able to utilize the

ment, is that they spur discussion and

ners also include law and accounting

consortium in our education on what

information sharing among developers,

firms that help investors navigate the

this is and how this can be used,” said

investors, local officials, and community

transaction process.26

Spergel.29

organizations that might not otherwise

have occurred.30

After the portal went live in November

In addition to the portal, the consor-

2018, consortium membership grew,

tium is focusing on statewide capacity

Often, disparate stakeholders attend

as did the number of interested inves-

building by training local government

trainings, each seeking different types

tors, resulting in more deals, Spergel

and development officials in using

of information on OZs depending

noted.27 This strong public-private

Qualified Opportunity Funds, offering

on their role. Some organizations are

partnership is vital to establishing a

workshops to learn about OZs and

more familiar with how these incen-

standardized platform that provides

their possible impacts, and providing

tives work than others, whereas other

guidance to communities.28 Spergel

resources on how to write an invest-

organizations need to gain a basic

emphasized that Qualified Opportunity

ment prospectus and attract investors.

understanding of OZs and Qualified

Funds are not a tool that will “make a

Networking events are gaining momen-

Opportunity Funds. Those who con-

bad deal better.” Instead, they can offer

tum in the state as venues for investors

duct trainings must understand their

a project the “final allocation of funding”

and developers to meet in person.

audience to tailor information to needs

21

and experiences. Spergel indicated

explained how they developed the city’s

have a median household income of

that the consortium is well situated to

investment prospectus and marketing

approximately $32,000 compared with

know particular audiences and convey

strategies. Spergel noted that these

approximately $52,000 for the state as

information effectively.31

types of workshops are gaining momen-

a whole. Poverty and unemployment

tum, and the state expects to see more

are major concerns for residents living

Future Plans

of them in the coming months.34

in designated tracts; the poverty rate

The consortium, along with Indiana’s

in these tracts is nearly 32 percent, and

Office of Community and Rural Affairs,

Michigan Partnerships

nearly 15 percent of their residents are

is analyzing demographics in OZs,

Move Opportunity Zones

unemployed. Poverty and unemploy-

especially in rural areas, to customize

Forward

ment rates in eligible nondesignated

training sessions to particular audienc-

Michigan has a robust network of state

tracts fare slightly better, at approxi-

es. The consortium is also considering a and local actors involved in boosting

mately 26 percent and 13 percent,

symposium or one-day workshop to give

economic development and social out-

respectively. Nearly 29 percent of

mayors and economic development

comes for disadvantaged communities

renter households in designated tracts

officials the tools to better market their

in the state. As the state begins imple-

spend more than 50 percent of their

cities for social impact investments.32

menting the OZ initiative, it is drawing

income on rent. Half of the residents

In January 2019, Prosperity Indiana

heavily on this preexisting “structural

in designated census tracts own their

and the consortium hosted a one-day

ecosystem,” according to Karen Ga-

homes compared with approximately

workshop that presented an overview

gnon, policy advisor for the Michigan

63 percent of those in eligible nondes-

of OZs, strategies to locate potential

State Housing Development Authority

ignated tracts. The median home value

deals, and information on how to pair

(MSHDA). MSHDA is the agency in

in designated tracts is approximately

OZ investments with other financing

charge of promoting and overseeing

$77,000 compared with a little more

tools.33 The workshop also included city

OZs in Michigan.35 Michigan has 288

than $128,000 statewide.36 Roughly 23

officials from South Bend, Indiana, who

census tracts designated as OZs, which

percent of Michigan’s OZs are in rural

Brittney Hoszkiw, Michigan Economic Development Corporation

In May 2018, representatives from Larson Realty Group broke ground on a mixed-use development that will increase housing, jobs, and spur economic development in a Detroit Opportunity Zone.

22

Roberto Galan / Shutterstock.com

Louisville’s investment prospectus has helped the city attract investors and establish goals for future development.

areas, and Michigan’s extensive partner-

Treasury; Environment, Great Lakes

Through expansive networks, MSHDA

ships and local networks will be vital to

and Energy; and Talent and Economic

uses several strategies to share resources

attracting more investment opportuni-

Development. These departments cre-

with interested stakeholders. MSHDA,

ties to these areas.37

ated an organized field team for each

in partnership with the Michigan

of the Prosperity Regions. The group

Economic Development Corpora-

Leveraging Existing Networks

also meets for an annual summit and

tion, contracted with Michigan State

Michigan’s considerable network of

shares resources throughout the year.40 University Extension to sponsor a

partnerships among state agencies,

MSHDA, along with the Michigan

training called “Opportunity Zones

agency field teams, colleges and uni-

Municipal League, founded and chairs

(OZ): There’s No Place Like Home!”

versities, and local governments has

the Sense of Place Council to employ

In spring 2019, Michigan State

facilitated the implementation of the

placemaking as an economic devel-

University Extension held five free

OZ initiative. The state has a service

opment tool throughout the state.41

workshops where local leaders, real

delivery network through the Regional

Created in 2006, the Sense of Place

estate developers, tax accountants,

Prosperity Initiative and its consortia.38

Council consists of 41 public-private

and attorneys learned strategies to at-

Structuring Michigan into 10 Pros-

partners who meet monthly.42 To spur

tract OZ investment and maximize the

perity Regions has helped formalize

economic development activities and

benefits of OZs to their communities.45

collaboration among local agencies,

rejuvenate communities, the council

In addition to workshops, MSHDA also

nonprofit organizations, and private

spearheaded the development of a

maintains a referral form to connect

entities to streamline services and

statewide Placemaking Curriculum

representatives from real estate, local

responsibilities.39 Gagnon emphasized

and the MIplace Partnership Initia-

government, investment firms, anchor

that cross-agency collaboration occurs

tive.43 As Gagnon explained, this

institutions, philanthropic organiza-

regularly in Michigan through a group

“ecosystem” of partnerships forms the

tions, and development firms with state

of nine state departments including

foundation for spreading the word

resources. The form requires interested

the departments of Transportation;

about OZs.44

parties to indicate the type of project

23

they would like to construct or invest

must either work within an OZ or have

assets, and describe their OZs.55 An

in and the expected benefits, such as

a primary residence within an OZ.50

investment prospectus incorporates

job creation, business expansion, or the

The directive requires Geographically-

three documents: a community market-

creation of new businesses.46 Gagnon

Disadvantaged Business Enterprises to

ing strategy, a policy brief for economic

indicated that the referral form helps

notify the Department if they relocate

development, and a private investment

the state collect information and build a

their operations outside of an OZ or if

memorandum.56 Developing an invest-

contact list of interested parties so it can

most of their employees no longer work

ment prospectus can mobilize public,

target its resources efficiently. Gagnon

within or have a primary residence in

private, and civic officials and organiza-

and MSHDA’s acting executive director,

an OZ. This directive is one strategy to

tions to collaborate and ensure that

Gary Heidel, review the forms, respond

expand opportunities for small businesses

communities benefit fully from the

to inquiries, and connect interested

that will also help reduce unemployment

OZ initiative.57 The guide also suggests

parties to further resources, such as

and improve incomes among residents

sources for data and offers links to cur-

toolkits available on the Michigan

working and living in OZs.

rent examples of published prospectuses.58

Economic Development Corporation’s

Louisville, Kentucky, and Oklahoma City

website and the Redevelopment Ready

Gagnon explained that the overarching

were among the first five cities to work

Communities Program, which helps

focus of OZs is to spur economic devel-

with Accelerator for America to develop

communities take the necessary steps

opment and job creation in distressed

their prospectuses using a common

to promote redevelopment. Thus far,

communities. In addition to real estate

template and standard format that

MSHDA has received referral forms

development, a Qualified Opportunity

could be easily replicated in other cit-

primarily from investors. As funds con-

Fund can help grow businesses and

ies.59 According to Eric Burnette, senior

tinue to amass, said Gagnon, matching

establish new ones.51 Gagnon indicated

policy advisor at Louisville Forward,

these investors with appropriate projects

that Michigan has both “Great Lakes

Louisville was the “guinea pig” for

will be increasingly important.47

and great opportunities,” and part of

developing the template and helped Ac-

the state’s marketing strategy involves

celerator for America create it.60 As of

Promoting Opportunity Zone

capitalizing on the fact that Michigan

July 2019, more than 30 cities have used

Businesses

has the longest freshwater coastline in

the template to write their prospectuses,

Many of Michigan’s communities are

the world. The eastern, western, and

which help these cities spur partner-

dealing with population decline and

southern coastlines already have numer-

ships and identify social impact projects

disinvestment, which make it difficult

ous investment deals, but the northern

that are ready for investment.61

for businesses to thrive. On January

coastline is “prime for development,

2, 2019, Governor Whitmer issued an

and [there are] OZs on the water and

Marketing Projects in Louisville

executive directive that expands the

around water,” noted Gagnon.52 Fur-

Burnette emphasized that developing

state government’s role in spurring

thermore, Michigan is one of several

the prospectus is “the first step” toward

business opportunities in low-income

states bordering the Great Lakes that

completing a project.62 In developing

communities. The directive supports

conforms its tax code to the federal

Louisville’s investment prospectus, Ac-

“Geographically-Disadvantaged Busi-

tax code. Aligning definitions and

celerator for America helped Louisville

ness Enterprises” by increasing state

policies with the federal tax code can

Forward identify and highlight statistics

purchases from and contracts with

reduce complexity for individuals and

that might interest investors.63 The pro-

businesses for supplies and services. It

businesses.53 Gagnon indicated that tax

spectus has helped Louisville introduce

directs the Department of Technology,

conformity can help leverage investment,

itself to potential investors while allow-

Management, and Budget (the Depart-

especially along Michigan’s northern

ing the city to outline development

ment) to collaborate with other state

coast. Michigan is rich in resources as

goals.64

departments, agencies, and organiza-

well as anchor institutions such as large

tions that represent businesses to

universities, and these will be critical

Although several hotel and multifamily

determine barriers to economic growth

assets for marketing the state in the

housing projects are underway in Louis-

for Geographically-Disadvantaged

future.54

ville that are using Qualified Opportunity

Business Enterprises.48 According to

Funds, Burnette indicated that these

Gagnon, the directive “build[s] bridges

Cities Develop Investment

projects likely would have been devel-

between the entrepreneurs and state

Prospectuses

oped regardless of OZ designation.

government” to enhance opportunities

To help cities establish their goals for

OZs, however, may add a critical source

for small businesses.49 Among some of

OZs, Accelerator for America and New

of capital for projects that would not

the requirements, the directive states

Localism Advisors collaborated to cre-

otherwise be financed. Several projects

that Geographically-Disadvantaged Busi-

ate an investment prospectus guide to

have already raised philanthropic and

ness Enterprises must be located within

assist officials in marketing their cities,

city funding, and Qualified Opportunity

a designated OZ. Most employees

provide important data, explain key

Funds can help fill any remaining gaps

24

in financing. Burnette indicated that

Revenue Service (IRS) finalize the regu-

prospectus, The Alliance collaborated

there are currently more investors than

lations. Louisville is committed to using

closely with the Greater Oklahoma

developers, stating that “there is a gap

the full toolbox, including other tax

City Chamber and the city’s Planning

between the supply of available capital

incentives and tax increment financing,

Department to ensure the quality of

and the bandwidth of developers in

to help economic development projects

the information and the accuracy of

local communities that can do something

get off the ground.65

the data. Cathy O’Connor, president

with it.” In Louisville, real estate develop-

and chief executive officer of The Al-

ments constitute the bulk of the projects

Fostering Sustainable Wealth in

liance, noted that the agency worked

in OZs that are currently underway.

Oklahoma City

to educate local and national investors

Launching real estate projects is easier

The Alliance for Economic Develop-

about the characteristics of Oklahoma

than starting new businesses, because

ment of Oklahoma City (The Alliance)

City. The Alliance was deliberate in

developers are already familiar with real

is the lead agency in Oklahoma City for

considering what data national investors

estate tax incentives, Burnette said. The

OZs, managing land use, incentives,

would find important, but it also hopes

city hopes to attract more technology

and economic strategies to make the

to boost interest in projects among local

startups to OZs when the U.S. Depart-

city attractive to companies and devel-

investors so that capital is not coming

ment of the Treasury and the Internal

opers.66 In developing Oklahoma City’s

solely from outside the state.67

O’Connor considers OZs a tool to

direct investment toward commonly

overlooked areas. She noted, however,

that OZ incentives will not address

every problem in a zone; one consid-

erable challenge will be to pair them

with other incentives and funds to

ensure the development of projects

that have a truly positive social impact.

The Alliance is creating a mapping

tool to overlay the city’s tax increment

financing districts with OZ boundaries

to locate areas where local officials and

developers can capitalize on existing

incentives. According to O’Connor, OZs

can allow marginalized communities to

build “sustainable wealth” for residents

through increases in homeownership,

household income, and access to well-

paying jobs and amenities.68

Conclusion

While states and localities await the

final regulations from the IRS, they are

laying the foundation for OZs to revi-

talize distressed neighborhoods. The

work of Maryland’s Opportunity Zone

Leadership Task Force allows MDHCD to

get input from local communities about

where to target resources.69 OZs in

Indiana have catalyzed new partner-

ships and conversations across different

sectors.70 Through its executive directive,

Michigan hopes that supporting busi-

nesses in OZs will increase residents’

median household income.71 The pro-

spectuses in Louisville and Oklahoma

Word about OZ incentives is spreading throughout Oklahoma City, and several projects are already seeking investors.

City are already gaining attention from

25

investors. OZ incentives may be critical

(30 April); Office of Governor Larry Hogan. 2019.

Economic Development Corporation; Michigan Land

“Governor Hogan Signs Major Expansion of Opportu-

Bank Authority; Michigan Department of Agriculture

for completing projects in Louisville

nity Zone Initiative,” 30 April press release.

and Rural Development; Talent Investment Agency

that might not be developed otherwise,

15 Office of Governor Larry Hogan. 2019. “Governor

and its Workforce Development Agency; Department

and plans for an online mapping tool will

Larry Hogan Announces Maryland Opportunity Zone

of Environment, Great Lakes and Energy (formerly

Expansion.”

the Department of the Environmental Quality), and

help investors identify potential projects

the Department of Transportation.

16 Stephanie Wilson. 2018. “Governor Holcomb Nomi-

in Oklahoma City.72 As these examples

nates 156 Opportunity Zones.”

41 “Service on Sense of Place Council,” Michigan State

show, community engagement, cross-

University website (www.canr.msu.edu/landpolicy/

17 “Opportunity Zones in Indiana,” OpportunityDb

program/service_on_sense_of_place_council/index).

sector partnerships, resource sharing,

website (opportunitydb.com/location/indiana/). Ac-Accessed 26 March 2019.

cessed 6 March 2019.

and marketing tools are vital for OZs

42 Interview with Karen Gagnon.

18 Interview with Samantha Spergel, 20 March 2019.

to have a positive impact.

43 “Service on Sense of Place Council”; “MIPlace

19 Ibid; “The Why of Cinnaire,” Cinnaire website (cinnaire.

Partnership Initiative,” Michigan State University

com/the-why-of-cinnaire/). Accessed 22 March 2019.

website (www.canr.msu.edu/landpolicy/program/

20 Interview with Samantha Spergel; Christine Serlin.

miplace_partnership_initiative/index). Accessed 27

1 Maryland Department of Housing and Community

2019. “A New Tool for Housing: Industry players

March 2019.

Development. 2018. “Maryland Announces Selection

embrace Opportunity Zone incentive.”

44 Interview with Karen Gagnon.

of State’s New Opportunity Zones.”

21 Ibid; “About the Consortium,” Opportunity Invest-

45 Michigan State University Extension. n.d. “Oppor-

2 Interview with Sara Luell, 27 March 2019.

ment Consortium of Indiana website (www.opportu-

tunity Zones (OZ): There’s No Place Like Home”; 3 “Opportunity Zones in Maryland,” OpportunityDb

nityinvestmentconsortium.com/about). Accessed 22

Interview with Karen Gagnon.

website (opportunitydb.com/location/maryland/). Ac-March 2019.

46 “Michigan Opportunity Zones Referral

cessed 6 March 2019; Email correspondence with Sara

22 Interview with Samantha Spergel; Local Initiatives

Form,” Michigan State Housing Development

Luell, 29 May 2019.

Support Corporation of Indianapolis. 2018. “Oppor-

Authority website (www.michigan.gov/msh-

4 Office of Governor Larry Hogan. 2019. State of the State

tunity Investment Consortium of Indiana Launches

da/0,4641,7-141-5587_85624-479029--,00.html).

Address: “A State of Opportunity, ” 30 January.

to Support Projects in Newly-Named Opportunity

Accessed 6 March 2019.

Zones.”

5 The State of Maryland Executive Department. 2019.

47 Interview with Karen Gagnon.

Maryland Opportunity Zone Leadership Task Force ; “Op-23 Interview with Samantha Spergel.

48 Office of Governor Gretchen Whitmer. 2019. Executive

portunity Zone Membership List.” n.d. Document

24 Ibid.

Directive 2019-08.

provided by Sara Luell; Task Force Members include:

25 “Opportunity Investment Consortium” Prosperity

49

Department of Housing and Community Develop-

Interview with Karen Gagnon.

Indiana website (www.prosperityindiana.org/OIC).

ment; Department of Commerce; Department of

50

Accessed 22 March 2019; Primary partners of the

Office of Governor Gretchen Whitmer 2019.

Labor, Licensing, and Regulation; Department of

Investment Consortium are: State of Indiana, Local

51 Interview with Karen Gagnon.

Planning; Maryland Department of Transportation;

Initiatives Support Corporation, Cinnaire, Indy Cham-

52 Interview with Karen Gagnon.

Maryland Department of Human Services; Maryland

ber, Indiana Bond Bank, Indiana Economic Develop-

53

State Department of Education; Maryland Higher

Ibid; Nicole Kaeding. 2017. “Does Your State’s Indi-

ment Corporation, Office of Community and Rural

Education Commission; Maryland Stadium Authority;

vidual Income Tax Code Conform with the Federal

Affairs and Indiana Housing & Community Develop-

University System of Maryland; Maryland Association

Tax Code?”

ment Authority, Accelerate Indiana Municipalities, In-

of Counties; Maryland Municipal League; Maryland

54 Interview with Karen Gagnon.

diana Economic Development Association, Vectren

Economic Development Corporation; Maryland

Foundation, and Prosperity Indiana.

55 Bruce Katz and Ken Gross. 2018a. “Key Elements of

Technology Development Corporation; Maryland As-

the Investment Prospectus & How to Use This Guide.”

26

sociation of Community Colleges.

Interview with Samantha Spergel.

56 Bruce Katz and Ken Gross. 2018b. “Background and

27

6 The State of Maryland Executive Department 2019;

Ibid; Local Initiatives Support Corporation of India-

Purpose.”

Interview with Sara Luell.

napolis 2018.

57 Bruce Katz, Rick Jacobs, and Aaron Thomas. 2018.

28

7 Interview with Sara Luell.

Interview with Samantha Spergel.

“The Opportunity Zone Investment Prospectus: Early

29

8 The State of Maryland Executive Department 2019.

Ibid.

Observations & Next Steps, ” 3-4.

30

9 Interview with Sara Luell; “Maryland Opportunity

Ibid.

58 Bruce Katz and Ken Gross. 2018c. “Resources for

Zones,” Maryland Department of Housing and Com-

31 Ibid.

Creating the Investment Prospectus.”

munity Development website (dhcd.maryland.gov/

32 Ibid.

59 Katz, Jacobs, and Thomas 2018.

Pages/OZ/OpportunityZones.aspx). Accessed 28

33 “About Us,” Prosperity Indiana website (www.pros-

60 Interview with Eric Burnette, 27 March 2019.

March 2019.

perityindiana.org/About). Accessed 22 March 2019; 61 Katz, Jacobs, and Thomas 2018.

10 “Maryland Opportunity Zones”; Maryland Depart-

“Opportunity Zones Workshop,” Prosperity Indiana

62

ment of Housing and Community Development. n.d.

Interview with Eric Burnette.

website (prosperityindiana.org/event-3167658). Ac-

“MD OZ Information Exchange.”

cessed 22 March 2019.

63 New Localism Advisors. 2018. “Louisville Opportunity

11 “Incentive Lookup,” Maryland Department of Hous-

Zone Prospectus: A Platform for Action”; Interview 34 Interview with Samantha Spergel.

ing and Community Development website (maryland.

with Eric Burnette.

35 Interview with Karen Gagnon, 25 March 2019.

maps.arcgis.com/apps/webappviewer/index.html?id

64 Interview with Eric Burnette.

=1cc479d2dc3948239f0c47bda8b6967e). Accessed 15

36 “Opportunity Zones in Michigan,” OpportunityDb

65 Ibid.

May 2019.

website (opportunitydb.com/location/michigan/).

66

Accessed 6 March 2019.

“Why Invest in Oklahoma City,” Oklahoma City Op-

12 “Maryland Opportunity Zone Information Exchange

portunity Zones website (www.greateroklahomacity.

Wins National StateScoop50 Award,” Maryland De-

37 Interview with Karen Gagnon.

com/index.php?src=directory&view=stories&category

partment of Housing and Community Development

38 Brian Mills. 2018. “MSHDA Opportunity Zone

=Opportunity%20Zones). Accessed 26 February 2019.

website (news.maryland.gov/dhcd/2019/05/07/

Update.”

67 Ibid.

maryland-opportunity-zone-information-exchange-

39 “The Basics,” State of Michigan, Department of Tech-

68

wins-national-statescoop50-award/). Accessed 15 May Interview with Cathy O’Connor, 22 March 2019.

nology, Management and Budget website (www.michi-

2019.

69

gan.gov/dtmb/0,5552,7-358-82547_56345_66155-

Interview with Sara Luell.

13 Interview with Sara Luell.

310319--,00.html). Accessed 26 March 2019; 70 Interview with Samantha Spergel.

14 Maryland General Assembly. 2019. An Act concerning

“Regional Prosperity Initiative,” State of Michigan,

71 Interview with Karen Gagnon.

Economic, Housing, and Community Development – Op-

Department of Technology, Management and Budget

72 Interview with Eric Burnette; Interview with Cathy

portunity Zone Incentives, Senate Bill 0581, 2019 Reg.

website (www.michigan.gov/dtmb/0,5552,7-358-

O’Connor.

Session (30 April); Maryland General Assembly. Fiscal

82547_56345_66155---,00.html). Accessed 26 March

and Policy Note. 2019. An Act concerning Economic,

2019.

Housing, and Community Development – Opportuni-

40 Interview with Karen Gagnon; State agencies include:

ty Zone Incentives, Senate Bill 0581, 2019 Reg Session

The Department of Treasury; MSHDA; Michigan

26

Additional Resources

n HUD’s ArcGIS website, “Opportunity Zones and Affordable Housing,” maps Opportunity Zones with the option to layer affordable housing including HUD public housing, housing choice vouchers, multifamily developments, HUD healthcare facilities, U.S. Department of Agriculture Rural Development properties, and low-income housing tax credit develop-

ments. hud.maps.arcgis.com/apps/View/index.html?appid=cc05a273151d40a7b2eff47dc70bd745.

n The U.S. Department of the Treasury Community Development Financial Institutions Fund’s website, “Opportunity Zones Resources,” contains links to regulations, frequently asked questions, maps, and other relevant resources.

www.cdfifund.gov/Pages/Opportunity-Zones.aspx.

n Enterprise Community Partners’ “Opportunity Zones” website hosts an interactive mapping tool, data platform, commentary, and guidance useful for local officials, potential investors, researchers, and other interested parties.

www.enterprisecommunity.org/financing-and-development/opportunity-zones-program.

n “Do enterprise zones create jobs? Evidence from California’s enterprise zone program,” (2010), by David Neumark and Jed Kolko, evaluates the efficacy of one of the several state-level, place-based tax incentive programs created in the 1990s. www.sciencedirect.com/science/article/pii/S0094119010000033.

n “Do Capital Tax Incentives Attract New Businesses? Evidence across Industries from the New Markets Tax Credit,”

(2016), by Kaitlyn Harger and Amanda Ross, examines the geographic sorting of industries in relation to NMTC

eligibility. onlinelibrary.wiley.com/doi/abs/10.1111/jors.12286.

n The LOCUS “National Opportunity Zone Ranking Report” (2018), by Christopher A. Coes and Tracy Hadden Loh, helps investors and policymakers rank Opportunity Zones based on “Smart Growth Potential” and a “Social Equity +

Vulnerability Index” score. smartgrowthamerica.org/resources/locus-opportunity-zones-national-ranking-report/.

n The Council of Development Finance Agencies’ “Opportunity Zones Report: State of the States” (2018), by Toby Rittner, Katie Kramer, and Tim Fisher, offers survey results from 41 states to gauge understanding of Opportunity Zones, and it highlights current state-level strategies to implement Opportunity Zones. www.cdfa.net/cdfa/cdfaweb.nsf/

ordredirect.html?open&id=201808_OZSoS.html.

n “How States Can Maximize Opportunity Zones” (2018), by Bruce Katz, Jeremy Nowak, Jamie Rubin, and Dan Berkovits, offers state policymakers principles for action and recommendations for creating an Opportunity Plan and an investment prospectus. www.thenewlocalism.com/wp-content/uploads/2018/06/OpportunityZonesStateAction-

Plan_TheNewLocalism_June222018.pdf.

For additional resources archive, go to www.huduser.gov/portal/periodicals/em/additional_resources_2019.html.

Evidence Matters

Editor: Eileen Faulkner

Discuss this issue on the Evidence Matters Forum at www.huduser.gov/

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- Evidence

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- Matters

- Transforming Knowledge Into Housing and Community Development Policy

- Transforming Knowledge Into Housing and Community Development Policy

- Transforming Knowledge Into Housing and Community Development Policy

- PLACE-BASED

- PLACE-BASED

- PLACE-BASED

- INCENTIVES

- IN THIS ISSUE

- IN THIS ISSUE

- Place-Based Tax Incentives for Community

- Place-Based Tax Incentives for Community

- Place-Based Tax Incentives for Community

- Place-Based Tax Incentives for Community

- Development

- Evaluating Place-Based Incentives

- Evaluating Place-Based Incentives

- Evaluating Place-Based Incentives

- Shaping Investment in Opportunity Zones

- Shaping Investment in Opportunity Zones

- Shaping Investment in Opportunity Zones

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- Photo courtesy of state of Arkansas

- Photo courtesy of state of Arkansas

- Figure

- Message From the

- Message From the

- Message From the

- Assistant Secretary

- Figure

- HUD Secretary Benjamin Carson serves as chairman of the White House Opportunity and Revitalization Council (Council), which was established to spur public and private investment in economically distressed areas, including designated Opportunity Zones. Its members include senior White House officials and representatives from 17 federal agencies and federal-state partnerships. An important part of the Council’s work is to coordinate the efforts of federal agencies and partner with state, local, tribal, and te

- HUD Secretary Benjamin Carson serves as chairman of the White House Opportunity and Revitalization Council (Council), which was established to spur public and private investment in economically distressed areas, including designated Opportunity Zones. Its members include senior White House officials and representatives from 17 federal agencies and federal-state partnerships. An important part of the Council’s work is to coordinate the efforts of federal agencies and partner with state, local, tribal, and te

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- Using local and federal tax incentives to bring private investment to distressed communities is not a new idea; a substantial body of research, in general, shows positive effects. This research provides some insights into how we can harness the benefits of Opportunity Zones and minimize uncertainty. To further this effort, HUD, the U.S. Census Bureau, and the White House Council of Economic Advisors are challenging technology developers to create digital tools and resources that will connect investors with

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- In addition to collaborating with other governmental entities, HUD has also taken direct steps to enhance the Opportunity Zones incentive and ensure that residents benefit from the new investments in their neighborhoods. Among other actions, we have reduced application fees for multifamily mortgage insurance in Opportunity Zones and designated our most senior underwriters to ensure expedited reviews of these applications, added preference points to competitive grants for activities within Opportunity Zones,

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- Moreover, the Council’s Executive Director Scott Turner has been traveling across the country — visiting more than 25 cities so far — to hear from Opportunity Zone stakeholders firsthand and bring their thoughts and ideas back to Washington, DC. During each visit, the executive director meets with community leaders; investors; and state, local, and tribal officials to discuss best practices for Opportunity Zone revitalization.

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- The Office of Policy Development and Research (PD&R) will support both HUD and the Council in its approach to Opportunity Zones. PD&R has gathered insight from previous place-based initiatives, as summarized in this issue of Evidence Matters. PD&R will also continue to coordinate program experts to recommend changes to existing policies and programs. And, although data were imperfectly and infrequently collected in the past, HUD’s geospatial analysts will be tracking numerous indicators in real

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- This is the first issue of Evidence Matters to be published since I was confirmed as assistant secretary of PD&R. I hope you enjoy it as much as I have.

- and Research

- — Seth D. Appleton, Assistant Secretary for Policy Development

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- Editor’s Note

- Editor’s Note

- Enacted as part of the 2017 Tax Cuts and Jobs Act, Opportunity Zones represent a potentially transformative effort to incentivize investment in economically distressed areas. This issue of Evidence Matters places the new initiative into the context of other place-based tax incentives aimed at fostering community development and examines how state and local governments are positioning themselves to maximize benefits for their jurisdictions.

- Enacted as part of the 2017 Tax Cuts and Jobs Act, Opportunity Zones represent a potentially transformative effort to incentivize investment in economically distressed areas. This issue of Evidence Matters places the new initiative into the context of other place-based tax incentives aimed at fostering community development and examines how state and local governments are positioning themselves to maximize benefits for their jurisdictions.

- The lead article, “Place-Based Tax Incentives for Community Development,” reviews past and current place-based tax incentives and the evidence of their effectiveness and concludes with an introduction to Opportunity Zones. The Research Spotlight, “Evaluating Place-Based Incentives” by Daniel Marcin, discusses the methodological challenges of evaluations of past place-based tax incentives and suggests methods for evaluating Opportunity Zones. Finally, the In Practice article, “Shaping Investment in Opportuni

- We hope that this edition of Evidence Matters provides a helpful overview of this critical topic. Our next issue will focus on factory-built housing. Please provide feedback on any of our issues at .

- www.huduser.gov/forums

- Eileen Faulkner, Acting Director of Research Utilization Division

- —

- feature

- feature

- Place-Based Tax Incentives for Community Development

- Place-Based Tax Incentives for Community Development

- HIGHLIGHTS

- HIGHLIGHTS

- lthough national measures of economic health indicate that the United States has largely recovered from the Great Recession, the country still exhibits considerable geographic variation in economic vitality. Many areas — rural, urban, and suburban — continue to show signs of economic distress, such as high poverty and unemployment rates. For example, in the lowest-performing quintile of counties in the United States, the unemployment rate is 10.7 percent compared with 5.8 percent in the top quintile, and th

- lthough national measures of economic health indicate that the United States has largely recovered from the Great Recession, the country still exhibits considerable geographic variation in economic vitality. Many areas — rural, urban, and suburban — continue to show signs of economic distress, such as high poverty and unemployment rates. For example, in the lowest-performing quintile of counties in the United States, the unemployment rate is 10.7 percent compared with 5.8 percent in the top quintile, and th

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- Several different dynamics contribute to these persistent economic disparities, including disinvestment and underinvestment. For various reasons, investors have not found these markets to be attractive. In response, the federal government has implemented policies and grants, such as the Community Reinvestment Act and HUD’s Community Development Block Grant (CDBG) program, to direct more capital into distressed areas and benefit low-income residents. Place-based tax incentives represent an additional policy

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- Past and Current Federal Place-Based Tax Incentives

- Unlike people-based policies that provide aid or opportunities to low-income households or individuals wherever they live and work, place-based strategies provide aid to designated geographic areas that are economically distressed to improve conditions and increase available opportunities for low-income residents.

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- Empowerment Zones, Enterprise Communities, and Renewal Communities. In the 1980s, many state governments began implementing “enterprise zones” — designated low-income communities eligible for tax credits for hiring local residents, tax abatement, and other credits for economic activity to encourage economic growth. Evidence supporting the efficacy of these programs is mixed, with most studies finding modest or no effects on employment and some finding positive effects on housing prices. Building on these st

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- By 2006, Round I EZs and ECs had expended 85 percent of the $1 billion allocated for grants, but insufficient data existed to determine how much additional funding had been leveraged. Administrators of the urban EZs reported $643 million in facility bonds associated with 40 projects. From 2002 through 2008, RC administrators reported more than $1.7 billion in commercial revitalization deductions, approximatelyhalf of the total that could have been allocated. Although the Internal Revenue Service (IRS) could

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- Low-Income Housing Tax Credits. Low-income housing tax credits (LIHTCs) were created through the Tax Reform Act of 1986. The LIHTC program awards two types of credits to help finance affordable housing development: 9 percent (awarded competitively and usually reserved for new construction) and 4 percent (awarded noncompetitively and usually used for rehabilitation projects and new construction financed with tax-exempt bonds). The 9 percent credits subsidize 70 percent of a project’s qualified costs, and the

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- LIHTCs are awarded through state governments. States receive an allotment of LIHTCs based on their population; in 2019, this allotment was set at $2.76 per person with a minimum state allocation of $3,166,875 (the Consolidated Appropriations Act of 2018 increased allotments by 12.5 percent through 2021). State housing finance agencies allocate credits to rental project developers according to federally required but state-created Qualified Allocation Plans (QAPs). Although federal law mandates only that stat

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- Through 2014, LIHTCs have financed the development and preservation of more than 2.1 million units in more than 28,000 projects. In 2016, the cost to the government in foregone tax revenue was $7.9 billion. Nearly half of LIHTC households are considered extremely low–income (earning less than 30% of AMI), and another one-third are considered very low–income (earning between 30% and 50% of AMI). The median annual income of a household in a LIHTC-assisted unit is $17,470; approximately 58 percent of household

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- New Markets Tax Credits. The New Markets Tax Credit (NMTC) program, first authorized by the Community Renewal Tax Relief Act of 2000, awards individuals or institutions federal income tax credits for investing equity in Community Development Entities (CDEs). Investors receive a cumulative reduction in their federal income taxes equivalent to 39 percent of the total Qualified Equity Investment amount applied over a seven-year period. The program is administered and regulated by the IRS, and the Community Dev

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- NMTCs have supported the development of affordable housing. Program rules permit financing NMTC projects consisting entirely of residential units for sale; if the units are for lease, rent revenue can represent no more than 80 percent of project revenues, which effectively requires such projects to be mixed use. In the case of for-sale housing, allocatees must sell at least 20 percent of their units to buyers with a debt-to-income ratio of 38 percent or less, and these units must be owner-occupied by househ

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- For-profit nonfinancial institutions were awarded the highest share of NMTCs until 2006; about 60 percent of recipient QALICBs were for-profit institutions, almost 40 percent were nonprofits, and about 2 percent were government or tribal entities. Between 2002 and 2010, the CDFI Fund issued 664 awards to 350 CDEs, allocating $12.9 billion in tax credits over 9 allocation rounds. Between 2003 and 2015, the NMTC Coalition reported $42 billion in NMTCs, generating more than a million jobs, with more than 72 pe

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- Efficacy of Place-Based Tax Incentives

- Past place-based tax incentives were designed to foster broad economic development, including job creation, increased incomes, and real estate development. Researchers have attempted to evaluate how successfully these programs have achieved these outcomes. Overall, the research suggests that the incentives have produced mixed results in each outcome area. In addition, methodological concerns, such as insufficient data and difficulty establishing appropriate comparisons, have made evaluations difficult.

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- Employment. A few studies tied EZs and ECs to increased employment. The 2001 HUD Interim Report on EZs found that total employment grew in five of the original six EZs between 1995 and 2000, and Busso et al. also found that EZs had positive impacts on wage increases and employment. Ham et al. found positive, statistically significant impacts on unemployment rates from EZs (a decrease of 8.7 percent) and ECs (a decrease of about 2.6 percentage points), but this study has been criticized for its selection of

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- Poverty and income. As with employment, Ham et al. and Busso et al. found that EZs had a positive impact on poverty and income. For EZs and ECs, Ham et al. found decreases of 8.8 percentage points and 20 percentage points, respectively, in the poverty rate, and increases of 20.6 percent and 12.7 percent, respectively, in average income. Busso et al. also found positive impacts on wages of 8 to 13 percent for zone residents employed within the zone and 3 to 5 percent for zone residents generally, without inc

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- Other neighborhood impacts. Evaluations of place-based policies have also found evidence of broader neighborhood impacts. For example, LIHTC projects can have a modest positive impact on increasing neighboring property values and reducing crime rates in distressed neighborhoods and small negative effects on property values (and no impacts on crime) in higher-opportunity neighborhoods. Freedman cautioned, however, that residents of neighboring areas may experience reduced employment and business investment a

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- Limitations of the evidence. The divergent findings on place-based tax incentives reflect several methodological and data challenges. As GAO noted, establishing a causal relationship between specific development projects and economic growth in a community is difficult. An EZ community may be benefiting from additional economic development grants, incentives, and policies, making it difficult to isolate the impact of the various programs. For example, investors also claimed Community Reinvestment Act credits

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- Enacted as part of the 2017 Tax Cuts and Jobs Act, OZs aim to direct some of the estimated $6.1 trillion in unrealized capital gains into qualified low-income and contiguous census tracts. The Opportunity Zones initiative offers different levels of tax benefits on unrealized capital gains that are reinvested in OZs. Investors can defer taxes on capital gains invested in an OZ until December 31, 2026, or when they dispose of the investment (whichever comes first); reduce their tax liability by 10 percent if

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- The development of OZs was informed by past experiences with EZs, ECs, and NMTCs, with which they share certain features. Like these previous incentives, OZs offer preferential tax treatment for investments in low-income neighborhoods. They share the goal of broad-based economic development, aiming to increase employment and income as well as increasing investment in real property. OZs, however, also have some crucial differences from past place-based tax incentives. The OZ incentive has no cap, and Opportu

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- Lessons from previous place-based tax incentives can also shape the implementation of OZs. One such lesson is the critical importance of local governance in determining outcomes. In their analysis of the original urban EZs, Rich and Stoker find that “the quality of local governance,” including the capacity and capability of local agencies and organizations in marketing, collaboration, and policymaking, “distinguished the performance of the revitalization initiatives….” They found that the city of Baltimore

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- Because OZs are a new tax incentive whose regulations are still being finalized, investors’ response to them is largely undetermined. Examining how previous tax incentives have been used, however, may offer some clues about how OZs will be received. Slightly less than two-thirds of NMTC projects relate to real estate or construction projects, which may portend the types of investments that result from OZs. NMTC investment has been geographically concentrated in distressed areas, which may be similar to the

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- OZs, like EZs and NMTCs, will intersect with other housing and development policies. Michael Novogradac, managing partner at Novogradac, said that LIHTC projects will attract investment from OZ funds under the right circumstances. Although banks, which are the primary investors in LIHTCs, do not frequently have capital gains to invest, said Novogradac, when they do — for example, after the sale of a subsidiary — they may invest in LIHTCs in OZs. From an affordable housing standpoint, said Kathie Soroka of N

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- Both federal and state governments can take steps to encourage OZ investment in LIHTC projects. HUD has launched a Federal Housing Administration pilot program to encourage investment in OZs by accelerating the financing of LIHTC projects. Novogradac noted that LIHTCs, particularly 4 percent LIHTCs, combined with OZ incentives could work well with HUD’s Rental Assistance Demonstration conversions of public housing. State housing finance agencies that award LIHTCs can also encourage OZ investment. For exampl

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- Some critics are concerned that investments in OZs will fuel gentrification and drive up rents and other costs that threaten to displace the very low-income residents that the incentives are designed to help. Local governments and other stakeholders can take several steps to mitigate these potential impacts. First, said Kenan Fikri of the Economic Innovation Group, localities should ensure that their affordable housing toolbox is well stocked before investment begins. Regardless of whether the OZ investment

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- Some early signals suggest that at least some funds will voluntarily adopt guidelines to commit to community engagement and will approach OZ investing as impact investing, seeking social good from their capital, said Fikri. The U.S. Impact Investing Alliance and the Beeck Center, for example, have been convening investors and local leaders to develop a framework for measuring needs and outcomes and for conducting community engagement to ensure that OZs have a positive impact on communities. Fikri also expec

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- Making the Most of Opportunity Zones

- OZs have the potential for widespread positive economic impacts by incentivizing capital investment in communities experiencing disinvestment and underinvestment. To ensure that these incentives benefit the low-income residents who live and work in OZs, HUD has issued a formal Request for Information for input on how it can optimize its policies and support to maximize their impact. HUD notes that 38 percent of public housing units are located within OZs. Two of the possibilities HUD is considering are prio

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- Ryan Nunn, Jana Parsons, and Jay Shambaugh. 2018. “,” in Place-Based Policies for Shared Economic Growth, Jay Shambaugh and Ryan Nunn eds.; The Hamilton Project, Brookings, 12.

- 1

- The Geography of Prosperity

- Ibid.

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- George Galster. 2017. “People Versus Place, People and Place, or More? New Directions for Housing Policy,” Housing Policy Debate 27:2, 261–5.

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- Gerry Riposa. 1996. “From Enterprise Zones to Empowerment Zones: The Community Context of Urban Economic Development,” American Behavioral Scientist 39:5, 542–3.

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- David Neumark and Helen Simpson. 2015. “Place-Based Policies,” in Handbook of Regional and Urban Economics, Volume 5B, Gilles Duranton, J. Vernon Henderson, and William C. Strange, eds. Oxford: Elsevier, 1230.

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- U.S. Government Accountability Office. 2006. “,” 7–8; Michael J. Rich and Robert P. Stoker. 2014. Collaborative Governance for Urban Revitalization: Lessons from Empowerment Zones, Ithaca: Cornell University Press, 33.

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- Empowerment Zone and Enterprise Community Program: Improvements Occurred in Communities, but the Effect of the Program Is Unclear

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- U.S. Government Accountability Office.

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- U.S. Government Accountability Office. 2010. “.”

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- Information on Empowerment Zone, Enterprise Community, and Renewal Community Programs

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- Ibid., 11.

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- Ibid., 24–5.

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- Congressional Research Service. 2019. “,” 1.

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- An Introduction to the Low-Income Housing Tax Credit

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- Ibid., 2–3.

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- Mark Shelburne and Thomas Stagg. 2018. “,” Novogradac Affordable Housing Resource Center.

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- Implementation of LIHTC Income Averaging

- -

- Corianne Payton Scally, Amanda Gold, and Nicole DuBois. 2018. “,” Urban Institute, 2.

- 14

- The Low-Income Housing Tax Credit: How It Works and Who It Serves

- Congressional Research Service, 2–3.

- 15

- Scally et al., 2.

- 16

- Carolina K. Reid. 2018. “,” Terner Center.

- 17

- The Links Between Affordable Housing and Economic Mobility: The Experiences of Residents Living in Low-Income Housing Tax Credit Properties

- -

- -

- Jill Khadduri, Carissa Climaco, Kimberly Burnett, Laurie Gould, and Louise Elving. 2012. “” Prepared for U.S. Department of Housing and Urban Development, xi.

- 18

- -

- What Happens to Low-Income Housing Tax Credit Properties at Year 15 and Beyond?

- -

- CDFI Fund. 2019. “,” 15–6.

- 19

- NMTC Compliance & Monitoring FAQs

- Martin D. Abravanel, Nancy M. Pindus, Brett Theodos, Kassie Bertumen, Rachel Brash, and Zach McDade. 2013. “,” Urban Institute, 39.

- 20

- New Markets Tax Credit (NMTC) Program Evaluation: Final Report

- New Markets Tax Credit Coalition. 2018. “.”

- 21

- Fact Sheet: The New Markets Tax Credit (NMTC) Extension Act

- Abravanel et. al, xviii–xix.

- 22

- Scott Hebert, Avis Vidal, Greg Mills, Franklin James, and Debbie Gruenstein. 2001. “Interim Assessment of the Empowerment Zones and Enterprise Communities (EZ/EC) Program: A Progress Report,” prepared for the U.S. Department of Housing and Urban Development; Matias Busso, Jesse Gregory, and Patrick Kline. 2013. “Assessing the Incidence and Efficiency of a Prominent Place Based Policy,” American Economic Review 103, 897–947.

- 23

- -

- John Ham, Charles Swenson, Ayse Imrohoroglu, and Heonjae Song. 2011. “Government Programs Can Improve Local Labor Markets: Evidence from State Enterprise Zones, Federal Empowerment Zones, and Federal Enterprise Communities,” Journal of Public Economics 95, 779–97; David Neumark. 2018. “,” in Place-Based Policies for Shared Economic Growth, Shambaugh, Jay and Ryan Nunn, eds., 87.

- 24

- Rebuilding Communities Job Subsidies

- -

- Andrew Hanson. 2009. “Local Employment, Poverty, and Property Value Effects of Geographically-Targeted Tax Incentives: An Instrumental Variables Approach,” Regional Science and Urban Economics 39, 721–31; Andrew Hanson and Shawn Rohlin. 2011. “,” Public Finance Review 39:2, 195–225.

- 25

- The Effect of Location-Based Tax Incentives on Establishment Location and Employment across Industry Sectors

- Abravanel et. al., xviii–xix.

- 26

- Hanson 2009.

- 27

- U.S. Government Accountability Office 2006; C. Lockwood Reynolds, and Shawn Rohlin. 2013. “The Effects of Location-Based Tax Policies on the Distribution of Household Income: Evidence from the Federal Empowerment Zone Program,” Unpublished manuscript, Kent State University.

- 28

- Rebecca Diamond, and Tim McQuade. 2017. “,” Stanford GSB.

- 29

- Who Wants Affordable Housing in their Backyard? An Equilibrium Analysis of Low Income Property Development

- -

- -

- Matthew Freedman. 2013. “Targeted Business Incentives and Local Labor Markets,” Journal of Human Resources 48, 311–44.

- 30

- -

- U.S. Government Accountability Office 2010, 27.

- 31

- Rebecca Lester, Cody Evans, and Hanna Tian. 2018. “,” State Tax Notes 90, 226.

- 32

- Opportunity Zones: An Analysis of the Policy’s Implications

- -

- Abravanel et. al., x.

- 33

- Ibid., 73.

- 34

- U.S. Government Accountability Office 2010, 7, 10–1.

- 35

- Neumark 2018, 85.

- 36

- Economic Innovation Group. 2018. “.”

- 37

- Opportunity Zones: Tapping into a $6 Trillion Market

- Lester et. al., 224.

- 38

- Ibid., 222.

- 39

- Brett Theodos, Brady Meixell, and Carl Hedman. 2018. “” Urban Institute, 8. Statistics cited indicate an average or average percentage based on Community Development Financial Institution Fund and Urban Institute analysis of 2012-16 U.S. Census Bureau American Community Survey.

- 40

- Did States Maximize Their Opportunity Zone Selections?

- Lester et. al., 224.

- 41

- Ibid., 227.

- 42

- Jared Bernstein and Kevin A. Hassett. 2015. “,” Economic Innovation Group.

- 43

- Unlocking Private Capital to Facilitate Economic Growth in Distressed Areas

- -

- Rich and Stoker, 226–7.

- 44

- U.S. Department of Housing and Urban Development. 2005. “,” 149–50.

- 45

- -

- Capturing Successes in Renewal Communities and Empowerment Zones

- -

- Email correspondence with David Neumark, 12 April 2019.

- 46

- Lester et. al., 228.

- 47

- Interview with Michael Novogradac, 28 March 2019.

- 48

- Interview with Kathie Soroka, 2 April 2019.

- 49

- Michael Novogradac. 2018. “,” Novogradac Journal of Tax Credits IX:V.

- 50

- Three Ideas to Build on RAD’s Success

- “Governor Approves Mississippi Home Corporation’s Special Opportunity Zone Cycle for Low Income Tax Credit Program,” NCSHA website (). Accessed 8 April 2019.

- 51

- www.ncsha.org/hfa-news/governor-approves-mississippi-home-corporations-special-opportunity-zone-cycle-for-low-income-tax-credit-program/

- -

- Interview with Kenan Fikri, 25 March 2019.

- 52

- Ibid.

- 53

- Ibid.

- 54

- Lisa Green Hall, Fran Seegull, Chelsea Amelia Cruz, and Adrian Franco. 2018. “.”

- 55

- Opportunity Zones: Moving Toward a Shared Impact Framework

- -

- Interview with Kenan Fikri.

- 56

- U.S. Department of Housing and Urban Development. 2019. “,” Federal Register 84:74, 16030.

- 57

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- Review of HUD Policy in Opportunity Zones

- U.S. Department of Housing and Urban Development. 2018. “,” 12 April press release.

- 58

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- HUD Announces Request for Information on Maximizing the Positive Impact of Opportunity Zones

- -

- -

- n

- Many communities nationwide

- suffer from disinvestment and under-

- investment, resulting in high rates

- of poverty and unemployment.

- n

- State and federal place-based tax

- incentives such as Enterprise and

- Empowerment Zones and New

- Markets Tax Credits have previously

- attempted to attract capital invest

- -

- ment to eco nomically distressed

- areas.

- n

- A new federal place-based tax incen

- -

- tive, Opportunity Zones, builds on

- past experience and research and

- aims to boost economic development

- in designated census tracts.

- Figure

- Photo courtesy of Baltimore Development Corporation

- Photo courtesy of Baltimore Development Corporation

- Governors designated Opportunity Zones in their states with strategic considerations. In Maryland, for example, selections aim to leverage proximity to anchor institutions to attract investment.

- Governors designated Opportunity Zones in their states with strategic considerations. In Maryland, for example, selections aim to leverage proximity to anchor institutions to attract investment.

- Figure

- Opportunity Zones are designed to attract long-term investment in communities that have historically suffered from disinvestment.

- Opportunity Zones are designed to attract long-term investment in communities that have historically suffered from disinvestment.

- Figure

- U.S. Department of Housing and Urban Development

- U.S. Department of Housing and Urban Development

- Opportunity Zone investments could potentially be combined with LIHTC investments to fund affordable housing.

- Opportunity Zone investments could potentially be combined with LIHTC investments to fund affordable housing.

- Figure

- U.S. Department of Housing and Urban Development

- U.S. Department of Housing and Urban Development

- From left to right, Denise Cleveland-Leggett, Region IV Regional Administrator; Scott Turner, executive director of the White House Opportunity and Revitalization Council; Secretary Ben Carson; and officials from Birmingham, Alabama, participated in a roundtable discussion on Opportunity Zones.

- From left to right, Denise Cleveland-Leggett, Region IV Regional Administrator; Scott Turner, executive director of the White House Opportunity and Revitalization Council; Secretary Ben Carson; and officials from Birmingham, Alabama, participated in a roundtable discussion on Opportunity Zones.

- Figure

- Although the areas designated as Opportunity Zones have suffered from underinvestment, they have many assets that will be attractive to investors.

- Although the areas designated as Opportunity Zones have suffered from underinvestment, they have many assets that will be attractive to investors.

- Enacted as part of the 2017 Tax Cuts and Jobs Act, OZs aim to direct some of the estimated $6.1 trillion in unrealized capital gains into qualified low-income and contiguous census tracts.

- Enacted as part of the 2017 Tax Cuts and Jobs Act, OZs aim to direct some of the estimated $6.1 trillion in unrealized capital gains into qualified low-income and contiguous census tracts.

- -

- Art Wager / iStock.com

- Art Wager / iStock.com

- Figure

- State and city governments, such as Louisville, Kentucky, have been proactive in marketing the investment potential of their Opportunity Zones.

- State and city governments, such as Louisville, Kentucky, have been proactive in marketing the investment potential of their Opportunity Zones.

- Photo courtesy of the Louisville Urban League

- Photo courtesy of the Louisville Urban League

- The regulatory flexibility incorporated into OZs reduces the barriers that OZs’ architects felt impeded broader participation in EZs.

- The regulatory flexibility incorporated into OZs reduces the barriers that OZs’ architects felt impeded broader participation in EZs.

- -

- HIGHLIGHTS

- HIGHLIGHTS

- HIGHLIGHTS

- research spotlight

- research spotlight

- Evaluating Place-Based Incentives

- Evaluating Place-Based Incentives

- n

- The nonrandom selection of Em

- -

- powerment Zones and Enterprise

- Communities presented evaluation

- challenges in past studies because

- isolating the effect of the designation

- on housing prices and job growth

- was difficult.

- n

- Evaluations of Opportunity Zones

- can employ the same indicators for

- neighborhood change used to evaluate

- Empowerment Zones and Enterprise

- Communities such as job and business

- creation; changes in land prices,

- home values, and rents; and vacancy

- and poverty rates.

- n

- Administrative and survey data at the

- census tract level are widely available

- and can support the effective evalua

- -

- tion of Opportunity Zones.

- lthough the Opportunity Zones initiative is new, place-based incentives are not. In the United Kingdom (UK), Margaret Thatcher’s government introduced Enterprise Zones in 1981 to mixed success. Although the UK government phased out the program in 1999, it was revived in 2012 and 2016. UK Enterprise Zones were originally formed from “vacant, unoccupied, or deteriorating industrial land.” Over the next 10 years, new rules exempted Enterprise Zone properties from property taxes and the Development Land Tax, an

- lthough the Opportunity Zones initiative is new, place-based incentives are not. In the United Kingdom (UK), Margaret Thatcher’s government introduced Enterprise Zones in 1981 to mixed success. Although the UK government phased out the program in 1999, it was revived in 2012 and 2016. UK Enterprise Zones were originally formed from “vacant, unoccupied, or deteriorating industrial land.” Over the next 10 years, new rules exempted Enterprise Zone properties from property taxes and the Development Land Tax, an

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- State Enterprise Zones

- Early adopters of state enterprise zones in the United States included Indiana and New Jersey. The state enterprise zones typically offered relief or complete exemption from property taxes along with wage tax credits in return for data reporting. Papke presents results from some studies of these early efforts, finding that the cost per job for most of these programs ranged from $4,500 to $13,000 annually; in some cases, the cost reached $30,000 to more than $100,000 per zone resident job.

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- In the case of Texas, Freedman found that enterprise zones had positive effects on employment growth. One important feature of the Texas study design that offers insights to researchers studying Opportunity Zones was that enterprise zone assignment in Texas was automatic; any area meeting the standards received the designation. This rule allowed researchers to compare nearby census tracts that were nearly identical before designation. For example, researchers could compare a tract with a poverty rate higher

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- Freedman found that housing prices in zones that barely achieved enterprise zone designation increased by 10 percent more than those in zones that barely missed designation, and home vacancy rates in marginally qualified zones were 4 percent lower than those in zones that marginally did not qualify.

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- Empowerment Zones

- Jack Kemp, first as a congressman and later as HUD Secretary from 1989 to 1992, strongly advocated for creating a federal program based on the enterprise zones. Although no such program was created under his watch, in 1994 the federal government designated the first Empowerment Zones (EZs), which included significant tax breaks with a large federal block grant to six urban and three rural targeted communities. Unlike enterprise zones, prospective EZs had to compete for the designation. (See “Place-Based Tax

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- Considerable research has examined the effects of EZs on various outcomes. Early HUD-sponsored research compared areas awarded EZ designation with those not awarded EZ designation. It used as metrics job creation by zone employers, business formation and expansion in zones, employment of zone residents by zone businesses, and business ownership by zone residents. The study’s findings on the impact of the EZ program were inconclusive. Specifically, the researchers found that job growth in EZs outperformed th

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- Using mostly decennial census data, Busso, Gregory, and Kline examined the effects of EZs on economic indicators. In particular, the authors studied the estimated changes in rents and home prices in EZs relative to a comparison group of rejected EZ tracts and future applicant EZ tracts.

- -

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- Using different estimation strategies, the authors found that EZ designation was correlated with an increase in home values of approximately 30 percent between 1990 and 2000, as self-reported in the decennial census, whereas rents increased by only 2 to 3 percent during the same period. The authors found this result striking and looked more closely at new residents or those who had last moved less than five years prior. These residents’ responses indicated that in EZs, home prices were 15 to 20 percent high

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- EZ Designation Was Not Random

- EZs and Enterprise Communities (ECs) were not randomly chosen. Their selection was based on applications, which encouraged localities to provide regulatory relief and take additional action. Therefore, any effect of EZs and ECs on the housing market is either indirect or a consequence of an optional state action, which makes isolating the effect of EZ designation difficult. For example, a locality might have chosen to invest in sewer and transportation upgrades in certain areas to win EZ designation. Any ho

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- Hanson critiqued previous studies that had assumed that EZ designation was random. Cities submitted applications, and EZ designations were assigned based on the merits of the applications. Many zones qualified for the designation, but few were approved. The zones that were designated were probably the ones most likely to show significant improvement without the EZ designation.

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- -

- Hanson noted that the runner-up applicants for EZ designation were also highly qualified areas. Although they were probably less well positioned for wage growth or poverty reduction, they were more promising in those areas than a random area in the same city as an EZ with similar demographic statistics.

- By comparing runner-up areas to the selected areas, Hanson found that EZ designation raised median property values by more than $100,000, which is both statistically and economically significant. Other studies showed large increases in employment and reductions in poverty in EZs but did not correct for the endogenous, or nonrandom, selection of EZs described above. For example, Busso, Gregory, and Kline found that employment in EZs increased between 12 and 21 percent and wages increased by 8 to 13 percent.

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- Some EZ Designations Came Later

- Krupka and Noonan estimated a simultaneous equations model based on the different rounds of EZ designations and hedonic analysis of housing markets. Hedonic analysis takes the characteristics of an item into account when determining its price; for example, hedonic analysis in housing will estimate house prices based on characteristics such as square footage, number of bathrooms, year of construction, school district, and distance to public transportation, among others.

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- Across six different formulations of the analysis, the authors found that EZs increased home prices between 10 and 40 percent. Because they used the hedonic approach, the authors could note several potential explanations. One possibility is that density decreased in EZ neighborhoods. The authors hypothesize that local governments spent grant money to demolish housing, which would increase the median value of the remaining homes. The authors note, however, that a more likely explanation is that the demand fo

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- These explanations have radically different implications. If the demolition hypothesis is correct, then median home prices may have increased, but the realities for people living in the remaining homes would not have changed. A national program to demolish vacant houses would increase median home prices in the absence of any tax or regulatory change, but such a program is unlikely to deliver real economic benefits to the country. If the commercial real estate hypothesis is correct, then economic activity ma

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- What About Renters?

- Reynolds and Rohlin examined block group data in EZs and ECs. Rather than examining means and medians, the authors plotted the distributions of rents and home values. Although the distribution of rent changed, the mean and median changed little; the percentage of households paying $600 or more per month in rent greatly increased, and the percentage of households paying $350 to $550 per month decreased. Although EZs were intended to benefit residents of low-income communities, this finding appears to show th

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- heavily concentrated over $100,000, and even over $300,000.

- Evaluating Opportunity Zones

- As the research above shows, future evaluators of Opportunity Zones have two major tasks:

- Identify a comparison set of census tracts. To qualify as an Opportunity Zone, a census tract must be either a low-income community as defined by the Internal Revenue Service or contiguous to a low-income community. However, the governors of each state selected only a subset of census tracts meeting the criteria for a low-income community. Moreover, each governor likely used different criteria in his or her selection. In other words, as with EZs, the selection of Opportunity Zones was not random. Any eva

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- Identify data that can be used to track neighborhood change. The research on enterprise zones and EZs focused on employment rates among area residents; the creation of jobs and businesses in the area; changes in land prices, home values, and rents; and changes in vacancy and poverty rates. These variables will likely be the same ones examined for Opportunity Zones.

- n

- Researchers may want to examine administrative data in addition to American Community Survey data. Administrative data are more available than they have ever been. Administrative data have two big advantages over survey data: they are not subject to sampling error, and the data can generally be obtained and analyzed much more quickly. These data also have two major flaws: they are not being collected for statistical purposes, so they may be biased, and only a small set of data points are available.

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- The administrative data points that HUD makes available capture the annual mobility of assisted housing tenants; because these data are constantly updated as tenants move, they can be an early indicator of neighborhood change. In addition, data from the U.S. Postal Service are updated every quarter and can capture changes in long-term vacant addresses, increases in total residential and business addresses (a sign of building permit activity), and changes in active addresses (a sign of residential and busine

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- Other administrative datasets that HUD and other researchers have used to measure neighborhood change include Home Mortgage Disclosure Act data, which can show change in mortgage activity, characteristics of those applying for and receiving mortgages as well as the amount borrowed; county records data, which can show property sales transactions, changes in property values, and foreclosure activity at the census tract level; and data on employment from unemployment insurance records.

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- New sources of data should also be explored, such as “scraping” the Internet to gather information on advertised rents; using posts from social media sites such as Twitter to measure levels of happiness, sadness, and fear at small-area geographies; and collecting credit card company data that could show changes in retail purchasing patterns or even the creation of retailers at the neighborhood level.

- -

- One important source of data will be Qualified Opportunity Funds — in particular, the activities in which they are investing and the location of those investments. At the time of publication, final regulations on reporting requirements had not yet been issued. If investment data are made available, they will help researchers understand the impacts of specific types of investments. For example, if research indicates that the number of residential units in an Opportunity Zone has increased, it would be helpfu

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- Both survey and administrative data at the census tract level are more available now than in the past. With careful controls to identify comparison neighborhoods and data on investments to help explain any findings (or nonfindings) of impact, effectively evaluating the impacts of Opportunity Zones should be possible.

- -

- — Daniel Marcin,

- — Daniel Marcin,

- HUD Staff

- PA Cambridge Economic Consultants Ltd. 1987. An Evaluation of the Enterprise Zone Experiment, London: Department of the Environment, HMSO.

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- Leslie E. Papke. 1993. “What Do We Know about Enterprise Zones?” in Tax Policy and the Economy 7, James M. Poterba, ed. Cambridge, MA: MIT Press, 48.

- 2

- “About Enterprise Zones,” HM Government website (). Accessed 28 May 2019.

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- enterprisezones.communities.gov.uk/about-enterprise-zones/

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- Papke, 46.

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- Papke, 46–7.

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- Papke, 47.

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- Papke, 48.

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- Papke, 50, 61.

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- Papke, 49.

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- Papke, 61.

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- Matthew Freedman. 2013. “Targeted Business Incentives and Local Labor Markets,” Journal of Human Resources 48:2, 311–44.

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- Michael J. Rich and Robert P. Stoker. 2006. “,” Washington, DC: Brookings Institution.

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- Lessons and Limits: Tax Incentives and Rebuilding the Gulf Coast after Katrina

- Scott Hebert, Avis Vidal, Greg Mills, Franklin James, and Debbie Gruenstein. 2001. “,” U.S. Department of Housing and Urban Development, Office of Policy Development and Research.

- 13

- Interim Assessment of the Empowerment Zones and Enterprise Communities (EZ/EC) Program: A Progress Report

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- Matias Busso, Jesse Gregory, and Patrick Kline. 2013. “Assessing the Incidence and Efficiency of a Prominent Place Based Policy,” American Economic Review 103:2, 897–947.

- 14

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- Andrew Hanson. 2009. “Local employment, poverty, and property value effects of geographically-targeted tax incentives: An instrumental variables approach,” Regional Science and Urban Economics 39:6, 721–31.

- 15

- Busso et al., 921–2.

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- Hebert et al.

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- Douglas J. Krupka and Douglas S. Noonan. 2009. “Empowerment zones, neighborhood change and owner-occupied housing,” Regional Science and Urban Economics 39:4, 386–96.

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- C. Lockwood Reynolds and Shawn M. Rohlin. 2015. “,” Journal of Urban Economics 88, 1–15.

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- The effects of location-based tax policies on the distribution of household income: Evidence from the federal Empowerment Zone program

- Figure

- benedek / iStock.com

- benedek / iStock.com

- A study of Texas Enterprise Zones found positive effects on employment growth.

- A study of Texas Enterprise Zones found positive effects on employment growth.

- Figure

- The Philadelphia-Camden bistate Empowerment Zone was one of the six Round I urban zones designated in 1994.

- The Philadelphia-Camden bistate Empowerment Zone was one of the six Round I urban zones designated in 1994.

- The state enterprise zones typically offered relief or complete exemption from property taxes along with wage tax credits in return for data reporting.

- The state enterprise zones typically offered relief or complete exemption from property taxes along with wage tax credits in return for data reporting.

- Figure

- Future evaluations of Opportunity Zones could examine neighborhood impact, including changes in home values and rents, using administrative datasets.

- Future evaluations of Opportunity Zones could examine neighborhood impact, including changes in home values and rents, using administrative datasets.

- in practice

- in practice

- cross the United States, local officials striving to revitalize distressed communities are looking to the Opportunity Zone (OZ) initiative to attract investment. Although OZs are relatively new, some states and cities have already laid the groundwork for the initiative by partnering with various stakeholders, establishing online portals to share project information with potential investors, or creating programs to align OZ incentives with other tax incentives. Maryland, for example, established an Opportuni

- cross the United States, local officials striving to revitalize distressed communities are looking to the Opportunity Zone (OZ) initiative to attract investment. Although OZs are relatively new, some states and cities have already laid the groundwork for the initiative by partnering with various stakeholders, establishing online portals to share project information with potential investors, or creating programs to align OZ incentives with other tax incentives. Maryland, for example, established an Opportuni

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- Attracting Investment in Maryland’s Opportunity Zones

- OZ incentives can boost economic growth, employment, and housing in Maryland communities that have not previously benefited from private-sector investment. According to Sara Luell, director of communications at the Maryland Department of Housing and Community Development (MDHCD), the state estimates that investment in its OZs will attract more than $1 billion in capital by the end of 2026 and create between 1,000 and 2,000 jobs per year for the next several years. Within the 149 census tracts designated as

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- Spreading the Word

- In his 2019 State of the State address, Governor Larry Hogan announced that Maryland is striving to create the most competitive OZs in the country. On January 3, 2019, Governor Hogan issued an executive order establishing the Maryland Opportunity Zone Leadership Task Force, chaired by Lieutenant Governor Boyd K. Rutherford and composed of several voting members, including the department secretaries for MDHCD and Commerce as well as officials from the University System of Maryland, the Maryland Economic Deve

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- MDHCD also manages the Maryland Opportunity Zone Information Exchange (Information Exchange), an interactive online tool for investors, fund managers, property developers, new businesses, and other stakeholders. The tool, considered the “first comprehensive, interactive resource of its kind in the nation,” shows projects in need of investment as well as those that already have investors. As a virtual meeting place, the Information Exchange offers up-to-date investment activity, a project and business locato

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- Current Initiatives

- Several efforts are underway to create state programs to support small businesses and job creation in Maryland’s OZs. “It is really easy to see how real estate deals take advantage of the Opportunity Zone incentives, so a lot of what we are doing is helping small businesses,” Luell stated. The state’s overall strategy is to attract investment in OZs regardless of whether the projects use federal tax incentives. In April 2019, Governor Hogan signed into law the Economic, Housing, and Community Development —

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- Establishing an Investment Consortium in Indiana

- From the outset, Indiana’s state government has taken a collaborative approach to OZs, bringing local officials and citizens to the table. Governor Eric J. Holcomb convened an external advisory group composed of representatives from nonprofit organizations and municipal governments to designate 156 census tracts in Indiana as OZs. During the nomination process, stakeholders weighed communities’ potential opportunity for investment and demonstrated need. Designated tracts in Indiana struggle with poverty and

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- Forging Partnerships

- In late fall 2018, representatives from Local Initiatives Support Corporation (LISC) Indianapolis and Cinnaire, a nonprofit community development financial institution, met with IHCDA to discuss creating an online portal for investors and developers to locate and post projects in OZs. The portal offers a virtual space for developers to pitch their project ideas for affordable housing, commercial, industrial, or small business projects. Investors, who must pay to access the portal, have exclusive rights to r

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- After the portal went live in November 2018, consortium membership grew, as did the number of interested investors, resulting in more deals, Spergel noted. This strong public-private partnership is vital to establishing a standardized platform that provides guidance to communities. Spergel emphasized that Qualified Opportunity Funds are not a tool that will “make a bad deal better.” Instead, they can offer a project the “final allocation of funding” vital to its success. As of February 2019, users have subm

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- In addition to the portal, the consortium is focusing on statewide capacity building by training local government and development officials in using Qualified Opportunity Funds, offering workshops to learn about OZs and their possible impacts, and providing resources on how to write an investment prospectus and attract investors. Networking events are gaining momentum in the state as venues for investors and developers to meet in person. Partnerships with nonprofit organizations, including Prosperity Indian

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- Often, disparate stakeholders attend trainings, each seeking different types of information on OZs depending on their role. Some organizations are more familiar with how these incentives work than others, whereas other organizations need to gain a basic understanding of OZs and Qualified Opportunity Funds. Those who conduct trainings must understand their audience to tailor information to needs and experiences. Spergel indicated that the consortium is well situated to know particular audiences and convey in

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- Future Plans

- The consortium, along with Indiana’s Office of Community and Rural Affairs, is analyzing demographics in OZs, especially in rural areas, to customize training sessions to particular audiences. The consortium is also considering a symposium or one-day workshop to give mayors and economic development officials the tools to better market their cities for social impact investments. In January 2019, Prosperity Indiana and the consortium hosted a one-day workshop that presented an overview of OZs, strategies to l

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- Michigan Partnerships Move Opportunity Zones Forward

- Michigan has a robust network of state and local actors involved in boosting economic development and social outcomes for disadvantaged communities in the state. As the state begins implementing the OZ initiative, it is drawing heavily on this preexisting “structural ecosystem,” according to Karen Gagnon, policy advisor for the Michigan State Housing Development Authority (MSHDA). MSHDA is the agency in charge of promoting and overseeing OZs in Michigan. Michigan has 288 census tracts designated as OZs, whi

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- Leveraging Existing Networks

- Michigan’s considerable network of partnerships among state agencies, agency field teams, colleges and universities, and local governments has facilitated the implementation of the OZ initiative. The state has a service delivery network through the Regional Prosperity Initiative and its consortia. Structuring Michigan into 10 Prosperity Regions has helped formalize collaboration among local agencies, nonprofit organizations, and private entities to streamline services and responsibilities. Gagnon emphasized

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- Through expansive networks, MSHDA uses several strategies to share resources with interested stakeholders. MSHDA, in partnership with the Michigan Economic Development Corporation, contracted with Michigan State University Extension to sponsor a training called “Opportunity Zones (OZ): There’s No Place Like Home!” In spring 2019, Michigan State University Extension held five free workshops where local leaders, real estate developers, tax accountants, and attorneys learned strategies to attract OZ investment

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- Promoting Opportunity Zone Businesses

- Many of Michigan’s communities are dealing with population decline and disinvestment, which make it difficult for businesses to thrive. On January 2, 2019, Governor Whitmer issued an executive directive that expands the state government’s role in spurring business opportunities in low-income communities. The directive supports “Geographically-Disadvantaged Business Enterprises” by increasing state purchases from and contracts with businesses for supplies and services. It directs the Department of Technology

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- Gagnon explained that the overarching focus of OZs is to spur economic development and job creation in distressed communities. In addition to real estate development, a Qualified Opportunity Fund can help grow businesses and establish new ones. Gagnon indicated that Michigan has both “Great Lakes and great opportunities,” and part of the state’s marketing strategy involves capitalizing on the fact that Michigan has the longest freshwater coastline in the world. The eastern, western, and southern coastlines

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- Cities Develop Investment Prospectuses

- To help cities establish their goals for OZs, Accelerator for America and New Localism Advisors collaborated to create an investment prospectus guide to assist officials in marketing their cities, provide important data, explain key assets, and describe their OZs. An investment prospectus incorporates three documents: a community marketing strategy, a policy brief for economic development, and a private investment memorandum. Developing an investment prospectus can mobilize public, private, and civic offici

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- Marketing Projects in Louisville

- Burnette emphasized that developing the prospectus is “the first step” toward completing a project. In developing Louisville’s investment prospectus, Accelerator for America helped Louisville Forward identify and highlight statistics that might interest investors. The prospectus has helped Louisville introduce itself to potential investors while allowing the city to outline development goals.

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- Although several hotel and multifamily housing projects are underway in Louisville that are using Qualified Opportunity Funds, Burnette indicated that these projects likely would have been developed regardless of OZ designation. OZs, however, may add a critical source of capital for projects that would not otherwise be financed. Several projects have already raised philanthropic and city funding, and Qualified Opportunity Funds can help fill any remaining gaps in financing. Burnette indicated that there are

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- Fostering Sustainable Wealth in Oklahoma City

- The Alliance for Economic Development of Oklahoma City (The Alliance) is the lead agency in Oklahoma City for OZs, managing land use, incentives, and economic strategies to make the city attractive to companies and developers. In developing Oklahoma City’s prospectus, The Alliance collaborated closely with the Greater Oklahoma City Chamber and the city’s Planning Department to ensure the quality of the information and the accuracy of the data. Cathy O’Connor, president and chief executive officer of The All

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- O’Connor considers OZs a tool to direct investment toward commonly overlooked areas. She noted, however, that OZ incentives will not address every problem in a zone; one considerable challenge will be to pair them with other incentives and funds to ensure the development of projects that have a truly positive social impact. The Alliance is creating a mapping tool to overlay the city’s tax increment financing districts with OZ boundaries to locate areas where local officials and developers can capitalize on

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- Conclusion

- While states and localities await the final regulations from the IRS, they are laying the foundation for OZs to revitalize distressed neighborhoods. The work of Maryland’s Opportunity Zone Leadership Task Force allows MDHCD to get input from local communities about where to target resources. OZs in Indiana have catalyzed new partnerships and conversations across different sectors. Through its executive directive, Michigan hopes that supporting businesses in OZs will increase residents’ median household inco

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- Maryland Department of Housing and Community Development. 2018. “.”

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- Maryland Announces Selection of State’s New Opportunity Zones

- Interview with Sara Luell, 27 March 2019.

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- “Opportunity Zones in Maryland,” OpportunityDb website (). Accessed 6 March 2019; Email correspondence with Sara Luell, 29 May 2019.

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- opportunitydb.com/location/maryland/

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- Office of Governor Larry Hogan. 2019. 30 January.

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- State of the State Address: “A State of Opportunity,”

- The State of Maryland Executive Department. 2019. ; “Opportunity Zone Membership List.” n.d. Document provided by Sara Luell; Task Force Members include: Department of Housing and Community Development; Department of Commerce; Department of Labor, Licensing, and Regulation; Department of Planning; Maryland Department of Transportation; Maryland Department of Human Services; Maryland State Department of Education; Maryland Higher Education Commission; Maryland Stadium Authority; University System of Maryland

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- Maryland Opportunity Zone Leadership Task Force

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- The State of Maryland Executive Department 2019; Interview with Sara Luell.

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- Interview with Sara Luell.

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- The State of Maryland Executive Department 2019.

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- Interview with Sara Luell; “Maryland Opportunity Zones,” Maryland Department of Housing and Community Development website (). Accessed 28 March 2019.

- 9

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- dhcd.maryland.gov/Pages/OZ/OpportunityZones.aspx

- “Maryland Opportunity Zones”; Maryland Department of Housing and Community Development. n.d. “.”

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- MD OZ Information Exchange

- “Incentive Lookup,” Maryland Department of Housing and Community Development website (). Accessed 15 May 2019.

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- -

- maryland.maps.arcgis.com/apps/webappviewer/index.html?id=1cc479d2dc3948239f0c47bda8b6967e

- “Maryland Opportunity Zone Information Exchange Wins National StateScoop50 Award,” Maryland Department of Housing and Community Development website (). Accessed 15 May 2019.

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- news.maryland.gov/dhcd/2019/05/07/maryland-opportunity-zone-information-exchange-wins-national-statescoop50-award/

- Interview with Sara Luell.

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- Maryland General Assembly. 2019. , Senate Bill 0581, 2019 Reg. Session (30 April); Maryland General Assembly. , 2019 Reg Session (30 April); Office of Governor Larry Hogan. 2019. “,” 30 April press release.

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- An Act concerning Economic, Housing, and Community Development – Opportunity Zone Incentives

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- Fiscal and Policy Note. 2019. An Act concerning Economic, Housing, and Community Development – Opportunity Zone Incentives, Senate Bill 0581

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- Governor Hogan Signs Major Expansion of Opportunity Zone Initiative

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- Office of Governor Larry Hogan. 2019. “.”

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- Governor Larry Hogan Announces Maryland Opportunity Zone Expansion

- Stephanie Wilson. 2018. “.”

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- Governor Holcomb Nominates 156 Opportunity Zones

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- “Opportunity Zones in Indiana,” OpportunityDb website (). Accessed 6 March 2019.

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- opportunitydb.com/location/indiana/

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- Interview with Samantha Spergel, 20 March 2019.

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- Ibid; “The Why of Cinnaire,” Cinnaire website (). Accessed 22 March 2019.

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- cinnaire.com/the-why-of-cinnaire/

- Interview with Samantha Spergel; Christine Serlin. 2019. “.”

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- A New Tool for Housing: Industry players embrace Opportunity Zone incentive

- Ibid; “About the Consortium,” Opportunity Investment Consortium of Indiana website (). Accessed 22 March 2019.

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- www.opportunityinvestmentconsortium.com/about

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- Interview with Samantha Spergel; Local Initiatives Support Corporation of Indianapolis. 2018. “.”

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- Opportunity Investment Consortium of Indiana Launches to Support Projects in Newly-Named Opportunity Zones

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- Interview with Samantha Spergel.

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- Ibid.

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- “Opportunity Investment Consortium” Prosperity Indiana website (). Accessed 22 March 2019; Primary partners of the Investment Consortium are: State of Indiana, Local Initiatives Support Corporation, Cinnaire, Indy Chamber, Indiana Bond Bank, Indiana Economic Development Corporation, Office of Community and Rural Affairs and Indiana Housing & Community Development Authority, Accelerate Indiana Municipalities, Indiana Economic Development Association, Vectren Foundation, and Prosperity Indiana.

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- www.prosperityindiana.org/OIC

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- -

- -

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- Interview with Samantha Spergel.

- 26

- Ibid; Local Initiatives Support Corporation of Indianapolis 2018.

- 27

- -

- Interview with Samantha Spergel.

- 28

- Ibid.

- 29

- Ibid.

- 30

- Ibid.

- 31

- Ibid.

- 32

- “About Us,” Prosperity Indiana website (). Accessed 22 March 2019; “Opportunity Zones Workshop,” Prosperity Indiana website (). Accessed 22 March 2019.

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- www.prosperityindiana.org/About

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- prosperityindiana.org/event-3167658

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- Interview with Samantha Spergel.

- 34

- Interview with Karen Gagnon, 25 March 2019.

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- “Opportunity Zones in Michigan,” OpportunityDb website (). Accessed 6 March 2019.

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- opportunitydb.com/location/michigan/

- Interview with Karen Gagnon.

- 37

- Brian Mills. 2018. “.”

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- MSHDA Opportunity Zone Update

- “The Basics,” State of Michigan, Department of Technology, Management and Budget website (). Accessed 26 March 2019; “Regional Prosperity Initiative,” State of Michigan, Department of Technology, Management and Budget website (). Accessed 26 March 2019.

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- www.michigan.gov/dtmb/0,5552,7-358-82547_56345_66155-310319--,00.html

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- www.michigan.gov/dtmb/0,5552,7-358-82547_56345_66155---,00.html

- Interview with Karen Gagnon; State agencies include: The Department of Treasury; MSHDA; Michigan Economic Development Corporation; Michigan Land Bank Authority; Michigan Department of Agriculture and Rural Development; Talent Investment Agency and its Workforce Development Agency; Department of Environment, Great Lakes and Energy (formerly the Department of the Environmental Quality), and the Department of Transportation.

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- “Service on Sense of Place Council,” Michigan State University website (). Accessed 26 March 2019.

- 41

- www.canr.msu.edu/landpolicy/program/service_on_sense_of_place_council/index

- Interview with Karen Gagnon.

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- “Service on Sense of Place Council”; “MIPlace Partnership Initiative,” Michigan State University website (). Accessed 27 March 2019.

- 43

- www.canr.msu.edu/landpolicy/program/miplace_partnership_initiative/index

- Interview with Karen Gagnon.

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- Michigan State University Extension. n.d. “”; Interview with Karen Gagnon.

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- Opportunity Zones (OZ): There’s No Place Like Home

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- “Michigan Opportunity Zones Referral Form,” Michigan State Housing Development Authority website (). Accessed 6 March 2019.

- 46

- www.michigan.gov/mshda/0,4641,7-141-5587_85624-479029--,00.html

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- Interview with Karen Gagnon.

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- Office of Governor Gretchen Whitmer. 2019. .

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- Executive Directive 2019-08

- Interview with Karen Gagnon.

- 49

- Office of Governor Gretchen Whitmer 2019.

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- Interview with Karen Gagnon.

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- Interview with Karen Gagnon.

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- Ibid; Nicole Kaeding. 2017. “”

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- Does Your State’s Individual Income Tax Code Conform with the Federal Tax Code?

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- Interview with Karen Gagnon.

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- Bruce Katz and Ken Gross. 2018a. “.”

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- Key Elements of the Investment Prospectus & How to Use This Guide

- Bruce Katz and Ken Gross. 2018b. “.”

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- Background and Purpose

- Bruce Katz, Rick Jacobs, and Aaron Thomas. 2018. “,” 3-4.

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- The Opportunity Zone Investment Prospectus: Early Observations & Next Steps

- Bruce Katz and Ken Gross. 2018c. “.”

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- Resources for Creating the Investment Prospectus

- Katz, Jacobs, and Thomas 2018.

- 59

- Interview with Eric Burnette, 27 March 2019.

- 60

- Katz, Jacobs, and Thomas 2018.

- 61

- Interview with Eric Burnette.

- 62

- Interview with Eric Burnette.

- 63

- New Localism Advisors. 2018. “Louisville Opportunity Zone Prospectus: A Platform for Action”;

- Interview with Eric Burnette.

- 64

- Ibid.

- 65

- “Why Invest in Oklahoma City,” Oklahoma City Opportunity Zones website (). Accessed 26 February 2019.

- 66

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- www.greateroklahomacity.com/index.php?src=directory&view=stories&category=Opportunity%20Zones

- Ibid.

- 67

- Interview with Cathy O’Connor, 22 March 2019.

- 68

- Interview with Sara Luell.

- 69

- Interview with Samantha Spergel.

- 70

- Interview with Karen Gagnon.

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- Interview with Eric Burnette; Interview with Cathy O’Connor.

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- Shaping Investment in Opportunity Zones

- Shaping Investment in Opportunity Zones

- HIGHLIGHTS

- HIGHLIGHTS

- n

- Through capacity building, technical

- assistance, and regional summits,

- Maryland’s Opportunity Zone Lead

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- ership Task Force and Indiana’s

- Opportunity Investment Consortium

- spur investors, developers, and local

- officials to share resources, identify

- projects, and market their communities.

- n

- Michigan strives to support new

- businesses in economically disad

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- vantaged areas through an executive

- directive that encourages state de

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- partments and agencies to increase

- contracts with businesses in Oppor

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- tunity Zones.

- n

- Louisville and Oklahoma City were

- among the first five cities to collabo

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- rate with Accelerator for America to

- use a template to write their invest

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- ment prospectuses and target projects

- ready for investment.

- Figure

- Maryland Governor’s Office / Anthony DePanise

- Maryland Governor’s Office / Anthony DePanise

- Maryland Department of Housing and Community Development Secretary Kenneth C. Holt (left) and Lieutenant Governor Boyd K. Rutherford (right) answer audience questions at the regional meeting of Maryland’s Opportunity Zone Task Force in Salisbury.

- Maryland Department of Housing and Community Development Secretary Kenneth C. Holt (left) and Lieutenant Governor Boyd K. Rutherford (right) answer audience questions at the regional meeting of Maryland’s Opportunity Zone Task Force in Salisbury.

- Figure

- The Platform

- The Platform

- The Opportunity Zones initiative can help revitalize buildings such as Chroma in Detroit, Michigan.

- The Opportunity Zones initiative can help revitalize buildings such as Chroma in Detroit, Michigan.

- Figure

- John Amrhein, Michigan State University Extension

- John Amrhein, Michigan State University Extension

- OZ workshop attendees in Grayling, Michigan, learned the basics of OZs, how to market attributes of their community to investors, and potential impacts of OZ incentives.

- OZ workshop attendees in Grayling, Michigan, learned the basics of OZs, how to market attributes of their community to investors, and potential impacts of OZ incentives.

- Figure

- Brittney Hoszkiw, Michigan Economic Development Corporation

- Brittney Hoszkiw, Michigan Economic Development Corporation

- In May 2018, representatives from Larson Realty Group broke ground on a mixed-use development that will increase housing, jobs, and spur economic development in a Detroit Opportunity Zone.

- In May 2018, representatives from Larson Realty Group broke ground on a mixed-use development that will increase housing, jobs, and spur economic development in a Detroit Opportunity Zone.

- Figure

- Roberto Galan / Shutterstock.com

- Roberto Galan / Shutterstock.com

- Louisville’s investment prospectus has helped the city attract investors and establish goals for future development.

- Louisville’s investment prospectus has helped the city attract investors and establish goals for future development.

- Figure

- Word about OZ incentives is spreading throughout Oklahoma City, and several projects are already seeking investors.

- Word about OZ incentives is spreading throughout Oklahoma City, and several projects are already seeking investors.

- Additional Resources

- Additional Resources

- HUD’s ArcGIS website, “Opportunity Zones and Affordable Housing,” maps Opportunity Zones with the option to layer affordable housing including HUD public housing, housing choice vouchers, multifamily developments, HUD healthcare facilities, U.S. Department of Agriculture Rural Development properties, and low-income housing tax credit developments. .

- HUD’s ArcGIS website, “Opportunity Zones and Affordable Housing,” maps Opportunity Zones with the option to layer affordable housing including HUD public housing, housing choice vouchers, multifamily developments, HUD healthcare facilities, U.S. Department of Agriculture Rural Development properties, and low-income housing tax credit developments. .

- n

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- hud.maps.arcgis.com/apps/View/index.html?appid=cc05a273151d40a7b2eff47dc70bd745

- The U.S. Department of the Treasury Community Development Financial Institutions Fund’s website, “Opportunity Zones Resources,” contains links to regulations, frequently asked questions, maps, and other relevant resources. .

- n

- www.cdfifund.gov/Pages/Opportunity-Zones.aspx

- Enterprise Community Partners’ “Opportunity Zones” website hosts an interactive mapping tool, data platform, commentary, and guidance useful for local officials, potential investors, researchers, and other interested parties. .

- n

- www.enterprisecommunity.org/financing-and-development/opportunity-zones-program

- “Do enterprise zones create jobs? Evidence from California’s enterprise zone program,” (2010), by David Neumark and Jed Kolko, evaluates the efficacy of one of the several state-level, place-based tax incentive programs created in the 1990s. .

- n

- www.sciencedirect.com/science/article/pii/S0094119010000033

- “Do Capital Tax Incentives Attract New Businesses? Evidence across Industries from the New Markets Tax Credit,” (2016), by Kaitlyn Harger and Amanda Ross, examines the geographic sorting of industries in relation to NMTC eligibility. .

- n

- onlinelibrary.wiley.com/doi/abs/10.1111/jors.12286

- The LOCUS “National Opportunity Zone Ranking Report” (2018), by Christopher A. Coes and Tracy Hadden Loh, helps investors and policymakers rank Opportunity Zones based on “Smart Growth Potential” and a “Social Equity + Vulnerability Index” score. .

- n

- smartgrowthamerica.org/resources/locus-opportunity-zones-national-ranking-report/

- The Council of Development Finance Agencies’ “Opportunity Zones Report: State of the States” (2018), by Toby Rittner, Katie Kramer, and Tim Fisher, offers survey results from 41 states to gauge understanding of Opportunity Zones, and it highlights current state-level strategies to implement Opportunity Zones. .

- n

- www.cdfa.net/cdfa/cdfaweb.nsf/ordredirect.html?open&id=201808_OZSoS.html

- “How States Can Maximize Opportunity Zones” (2018), by Bruce Katz, Jeremy Nowak, Jamie Rubin, and Dan Berkovits, offers state policymakers principles for action and recommendations for creating an Opportunity Plan and an investment prospectus. .

- n

- www.thenewlocalism.com/wp-content/uploads/2018/06/OpportunityZonesStateActionPlan_TheNewLocalism_June222018.pdf

- -

- For additional resources archive, go to .

- www.huduser.gov/portal/periodicals/em/additional_resources_2019.html

- Evidence

- Evidence

- Evidence

- Matters

- Discuss this issue on the Evidence Matters Forum at . You can subscribe to Evidence Matters at .

- Discuss this issue on the Evidence Matters Forum at . You can subscribe to Evidence Matters at .

- www.huduser.gov/forums

- www.huduser.gov/portal/evidence.html

- Editor: Eileen FaulknerAuthors: Daniel Marcin (HUD)and Sage Computing staff

- Editor: Eileen FaulknerAuthors: Daniel Marcin (HUD)and Sage Computing staff

- Figure

- Scan here for past issues

- Scan here for past issues

- Figure

- U.S. Department of Housing and Urban Development

- U.S. Department of Housing and Urban Development

- U.S. Department of Housing and Urban Development

- Office of Policy Development and Research

- www.huduser.gov

- www.huduser.gov

- www.huduser.gov

- n

- 800.245.2691

Table of Contents

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SPRING/SUMMER 2019

SPRING/SUMMER 2019

Evidence

Evidence

Evidence

Matters

Transforming Knowledge Into Housing and Community Development Policy

Transforming Knowledge Into Housing and Community Development Policy

Transforming Knowledge Into Housing and Community Development Policy

PLACE-BASED

PLACE-BASED

PLACE-BASED

INCENTIVES

IN THIS ISSUE

IN THIS ISSUE

Place-Based Tax Incentives for Community

Place-Based Tax Incentives for Community

Place-Based Tax Incentives for Community

Place-Based Tax Incentives for Community

Development

Evaluating Place-Based Incentives

Evaluating Place-Based Incentives

Evaluating Place-Based Incentives

Shaping Investment in Opportunity Zones

Shaping Investment in Opportunity Zones

Shaping Investment in Opportunity Zones

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Photo courtesy of state of Arkansas

Photo courtesy of state of Arkansas

Figure

Message From the

Message From the

Message From the

Assistant Secretary

Figure

HUD Secretary Benjamin Carson serves as chairman of the White House Opportunity and Revitalization Council (Council), which was established to spur public and private investment in economically distressed areas, including designated Opportunity Zones. Its members include senior White House officials and representatives from 17 federal agencies and federal-state partnerships. An important part of the Council’s work is to coordinate the efforts of federal agencies and partner with state, local, tribal, and te

HUD Secretary Benjamin Carson serves as chairman of the White House Opportunity and Revitalization Council (Council), which was established to spur public and private investment in economically distressed areas, including designated Opportunity Zones. Its members include senior White House officials and representatives from 17 federal agencies and federal-state partnerships. An important part of the Council’s work is to coordinate the efforts of federal agencies and partner with state, local, tribal, and te

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Using local and federal tax incentives to bring private investment to distressed communities is not a new idea; a substantial body of research, in general, shows positive effects. This research provides some insights into how we can harness the benefits of Opportunity Zones and minimize uncertainty. To further this effort, HUD, the U.S. Census Bureau, and the White House Council of Economic Advisors are challenging technology developers to create digital tools and resources that will connect investors with

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In addition to collaborating with other governmental entities, HUD has also taken direct steps to enhance the Opportunity Zones incentive and ensure that residents benefit from the new investments in their neighborhoods. Among other actions, we have reduced application fees for multifamily mortgage insurance in Opportunity Zones and designated our most senior underwriters to ensure expedited reviews of these applications, added preference points to competitive grants for activities within Opportunity Zones,

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Moreover, the Council’s Executive Director Scott Turner has been traveling across the country — visiting more than 25 cities so far — to hear from Opportunity Zone stakeholders firsthand and bring their thoughts and ideas back to Washington, DC. During each visit, the executive director meets with community leaders; investors; and state, local, and tribal officials to discuss best practices for Opportunity Zone revitalization.

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The Office of Policy Development and Research (PD&R) will support both HUD and the Council in its approach to Opportunity Zones. PD&R has gathered insight from previous place-based initiatives, as summarized in this issue of Evidence Matters. PD&R will also continue to coordinate program experts to recommend changes to existing policies and programs. And, although data were imperfectly and infrequently collected in the past, HUD’s geospatial analysts will be tracking numerous indicators in real

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This is the first issue of Evidence Matters to be published since I was confirmed as assistant secretary of PD&R. I hope you enjoy it as much as I have.

and Research

— Seth D. Appleton, Assistant Secretary for Policy Development

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Editor’s Note

Editor’s Note

Enacted as part of the 2017 Tax Cuts and Jobs Act, Opportunity Zones represent a potentially transformative effort to incentivize investment in economically distressed areas. This issue of Evidence Matters places the new initiative into the context of other place-based tax incentives aimed at fostering community development and examines how state and local governments are positioning themselves to maximize benefits for their jurisdictions.

Enacted as part of the 2017 Tax Cuts and Jobs Act, Opportunity Zones represent a potentially transformative effort to incentivize investment in economically distressed areas. This issue of Evidence Matters places the new initiative into the context of other place-based tax incentives aimed at fostering community development and examines how state and local governments are positioning themselves to maximize benefits for their jurisdictions.

The lead article, “Place-Based Tax Incentives for Community Development,” reviews past and current place-based tax incentives and the evidence of their effectiveness and concludes with an introduction to Opportunity Zones. The Research Spotlight, “Evaluating Place-Based Incentives” by Daniel Marcin, discusses the methodological challenges of evaluations of past place-based tax incentives and suggests methods for evaluating Opportunity Zones. Finally, the In Practice article, “Shaping Investment in Opportuni

We hope that this edition of Evidence Matters provides a helpful overview of this critical topic. Our next issue will focus on factory-built housing. Please provide feedback on any of our issues at .

www.huduser.gov/forums

Eileen Faulkner, Acting Director of Research Utilization Division

—

feature

feature

Place-Based Tax Incentives for Community Development

Place-Based Tax Incentives for Community Development

HIGHLIGHTS

HIGHLIGHTS

lthough national measures of economic health indicate that the United States has largely recovered from the Great Recession, the country still exhibits considerable geographic variation in economic vitality. Many areas — rural, urban, and suburban — continue to show signs of economic distress, such as high poverty and unemployment rates. For example, in the lowest-performing quintile of counties in the United States, the unemployment rate is 10.7 percent compared with 5.8 percent in the top quintile, and th

lthough national measures of economic health indicate that the United States has largely recovered from the Great Recession, the country still exhibits considerable geographic variation in economic vitality. Many areas — rural, urban, and suburban — continue to show signs of economic distress, such as high poverty and unemployment rates. For example, in the lowest-performing quintile of counties in the United States, the unemployment rate is 10.7 percent compared with 5.8 percent in the top quintile, and th

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Several different dynamics contribute to these persistent economic disparities, including disinvestment and underinvestment. For various reasons, investors have not found these markets to be attractive. In response, the federal government has implemented policies and grants, such as the Community Reinvestment Act and HUD’s Community Development Block Grant (CDBG) program, to direct more capital into distressed areas and benefit low-income residents. Place-based tax incentives represent an additional policy

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Past and Current Federal Place-Based Tax Incentives

Unlike people-based policies that provide aid or opportunities to low-income households or individuals wherever they live and work, place-based strategies provide aid to designated geographic areas that are economically distressed to improve conditions and increase available opportunities for low-income residents.

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Empowerment Zones, Enterprise Communities, and Renewal Communities. In the 1980s, many state governments began implementing “enterprise zones” — designated low-income communities eligible for tax credits for hiring local residents, tax abatement, and other credits for economic activity to encourage economic growth. Evidence supporting the efficacy of these programs is mixed, with most studies finding modest or no effects on employment and some finding positive effects on housing prices. Building on these st

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By 2006, Round I EZs and ECs had expended 85 percent of the $1 billion allocated for grants, but insufficient data existed to determine how much additional funding had been leveraged. Administrators of the urban EZs reported $643 million in facility bonds associated with 40 projects. From 2002 through 2008, RC administrators reported more than $1.7 billion in commercial revitalization deductions, approximatelyhalf of the total that could have been allocated. Although the Internal Revenue Service (IRS) could

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Low-Income Housing Tax Credits. Low-income housing tax credits (LIHTCs) were created through the Tax Reform Act of 1986. The LIHTC program awards two types of credits to help finance affordable housing development: 9 percent (awarded competitively and usually reserved for new construction) and 4 percent (awarded noncompetitively and usually used for rehabilitation projects and new construction financed with tax-exempt bonds). The 9 percent credits subsidize 70 percent of a project’s qualified costs, and the

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LIHTCs are awarded through state governments. States receive an allotment of LIHTCs based on their population; in 2019, this allotment was set at $2.76 per person with a minimum state allocation of $3,166,875 (the Consolidated Appropriations Act of 2018 increased allotments by 12.5 percent through 2021). State housing finance agencies allocate credits to rental project developers according to federally required but state-created Qualified Allocation Plans (QAPs). Although federal law mandates only that stat

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Through 2014, LIHTCs have financed the development and preservation of more than 2.1 million units in more than 28,000 projects. In 2016, the cost to the government in foregone tax revenue was $7.9 billion. Nearly half of LIHTC households are considered extremely low–income (earning less than 30% of AMI), and another one-third are considered very low–income (earning between 30% and 50% of AMI). The median annual income of a household in a LIHTC-assisted unit is $17,470; approximately 58 percent of household

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New Markets Tax Credits. The New Markets Tax Credit (NMTC) program, first authorized by the Community Renewal Tax Relief Act of 2000, awards individuals or institutions federal income tax credits for investing equity in Community Development Entities (CDEs). Investors receive a cumulative reduction in their federal income taxes equivalent to 39 percent of the total Qualified Equity Investment amount applied over a seven-year period. The program is administered and regulated by the IRS, and the Community Dev

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NMTCs have supported the development of affordable housing. Program rules permit financing NMTC projects consisting entirely of residential units for sale; if the units are for lease, rent revenue can represent no more than 80 percent of project revenues, which effectively requires such projects to be mixed use. In the case of for-sale housing, allocatees must sell at least 20 percent of their units to buyers with a debt-to-income ratio of 38 percent or less, and these units must be owner-occupied by househ

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For-profit nonfinancial institutions were awarded the highest share of NMTCs until 2006; about 60 percent of recipient QALICBs were for-profit institutions, almost 40 percent were nonprofits, and about 2 percent were government or tribal entities. Between 2002 and 2010, the CDFI Fund issued 664 awards to 350 CDEs, allocating $12.9 billion in tax credits over 9 allocation rounds. Between 2003 and 2015, the NMTC Coalition reported $42 billion in NMTCs, generating more than a million jobs, with more than 72 pe

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Efficacy of Place-Based Tax Incentives

Past place-based tax incentives were designed to foster broad economic development, including job creation, increased incomes, and real estate development. Researchers have attempted to evaluate how successfully these programs have achieved these outcomes. Overall, the research suggests that the incentives have produced mixed results in each outcome area. In addition, methodological concerns, such as insufficient data and difficulty establishing appropriate comparisons, have made evaluations difficult.

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Employment. A few studies tied EZs and ECs to increased employment. The 2001 HUD Interim Report on EZs found that total employment grew in five of the original six EZs between 1995 and 2000, and Busso et al. also found that EZs had positive impacts on wage increases and employment. Ham et al. found positive, statistically significant impacts on unemployment rates from EZs (a decrease of 8.7 percent) and ECs (a decrease of about 2.6 percentage points), but this study has been criticized for its selection of

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Poverty and income. As with employment, Ham et al. and Busso et al. found that EZs had a positive impact on poverty and income. For EZs and ECs, Ham et al. found decreases of 8.8 percentage points and 20 percentage points, respectively, in the poverty rate, and increases of 20.6 percent and 12.7 percent, respectively, in average income. Busso et al. also found positive impacts on wages of 8 to 13 percent for zone residents employed within the zone and 3 to 5 percent for zone residents generally, without inc

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Other neighborhood impacts. Evaluations of place-based policies have also found evidence of broader neighborhood impacts. For example, LIHTC projects can have a modest positive impact on increasing neighboring property values and reducing crime rates in distressed neighborhoods and small negative effects on property values (and no impacts on crime) in higher-opportunity neighborhoods. Freedman cautioned, however, that residents of neighboring areas may experience reduced employment and business investment a

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Limitations of the evidence. The divergent findings on place-based tax incentives reflect several methodological and data challenges. As GAO noted, establishing a causal relationship between specific development projects and economic growth in a community is difficult. An EZ community may be benefiting from additional economic development grants, incentives, and policies, making it difficult to isolate the impact of the various programs. For example, investors also claimed Community Reinvestment Act credits

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A New Opportunity: Opportunity Zones

Enacted as part of the 2017 Tax Cuts and Jobs Act, OZs aim to direct some of the estimated $6.1 trillion in unrealized capital gains into qualified low-income and contiguous census tracts. The Opportunity Zones initiative offers different levels of tax benefits on unrealized capital gains that are reinvested in OZs. Investors can defer taxes on capital gains invested in an OZ until December 31, 2026, or when they dispose of the investment (whichever comes first); reduce their tax liability by 10 percent if

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39

40

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The development of OZs was informed by past experiences with EZs, ECs, and NMTCs, with which they share certain features. Like these previous incentives, OZs offer preferential tax treatment for investments in low-income neighborhoods. They share the goal of broad-based economic development, aiming to increase employment and income as well as increasing investment in real property. OZs, however, also have some crucial differences from past place-based tax incentives. The OZ incentive has no cap, and Opportu

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Lessons from previous place-based tax incentives can also shape the implementation of OZs. One such lesson is the critical importance of local governance in determining outcomes. In their analysis of the original urban EZs, Rich and Stoker find that “the quality of local governance,” including the capacity and capability of local agencies and organizations in marketing, collaboration, and policymaking, “distinguished the performance of the revitalization initiatives….” They found that the city of Baltimore

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Because OZs are a new tax incentive whose regulations are still being finalized, investors’ response to them is largely undetermined. Examining how previous tax incentives have been used, however, may offer some clues about how OZs will be received. Slightly less than two-thirds of NMTC projects relate to real estate or construction projects, which may portend the types of investments that result from OZs. NMTC investment has been geographically concentrated in distressed areas, which may be similar to the

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47

OZs, like EZs and NMTCs, will intersect with other housing and development policies. Michael Novogradac, managing partner at Novogradac, said that LIHTC projects will attract investment from OZ funds under the right circumstances. Although banks, which are the primary investors in LIHTCs, do not frequently have capital gains to invest, said Novogradac, when they do — for example, after the sale of a subsidiary — they may invest in LIHTCs in OZs. From an affordable housing standpoint, said Kathie Soroka of N

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48

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Both federal and state governments can take steps to encourage OZ investment in LIHTC projects. HUD has launched a Federal Housing Administration pilot program to encourage investment in OZs by accelerating the financing of LIHTC projects. Novogradac noted that LIHTCs, particularly 4 percent LIHTCs, combined with OZ incentives could work well with HUD’s Rental Assistance Demonstration conversions of public housing. State housing finance agencies that award LIHTCs can also encourage OZ investment. For exampl

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51

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Some critics are concerned that investments in OZs will fuel gentrification and drive up rents and other costs that threaten to displace the very low-income residents that the incentives are designed to help. Local governments and other stakeholders can take several steps to mitigate these potential impacts. First, said Kenan Fikri of the Economic Innovation Group, localities should ensure that their affordable housing toolbox is well stocked before investment begins. Regardless of whether the OZ investment

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Evidence Matters

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Some early signals suggest that at least some funds will voluntarily adopt guidelines to commit to community engagement and will approach OZ investing as impact investing, seeking social good from their capital, said Fikri. The U.S. Impact Investing Alliance and the Beeck Center, for example, have been convening investors and local leaders to develop a framework for measuring needs and outcomes and for conducting community engagement to ensure that OZs have a positive impact on communities. Fikri also expec

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Making the Most of Opportunity Zones

OZs have the potential for widespread positive economic impacts by incentivizing capital investment in communities experiencing disinvestment and underinvestment. To ensure that these incentives benefit the low-income residents who live and work in OZs, HUD has issued a formal Request for Information for input on how it can optimize its policies and support to maximize their impact. HUD notes that 38 percent of public housing units are located within OZs. Two of the possibilities HUD is considering are prio

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Ryan Nunn, Jana Parsons, and Jay Shambaugh. 2018. “,” in Place-Based Policies for Shared Economic Growth, Jay Shambaugh and Ryan Nunn eds.; The Hamilton Project, Brookings, 12.

1

The Geography of Prosperity

Ibid.

2

George Galster. 2017. “People Versus Place, People and Place, or More? New Directions for Housing Policy,” Housing Policy Debate 27:2, 261–5.

3

Gerry Riposa. 1996. “From Enterprise Zones to Empowerment Zones: The Community Context of Urban Economic Development,” American Behavioral Scientist 39:5, 542–3.

4

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David Neumark and Helen Simpson. 2015. “Place-Based Policies,” in Handbook of Regional and Urban Economics, Volume 5B, Gilles Duranton, J. Vernon Henderson, and William C. Strange, eds. Oxford: Elsevier, 1230.

5

U.S. Government Accountability Office. 2006. “,” 7–8; Michael J. Rich and Robert P. Stoker. 2014. Collaborative Governance for Urban Revitalization: Lessons from Empowerment Zones, Ithaca: Cornell University Press, 33.

6

Empowerment Zone and Enterprise Community Program: Improvements Occurred in Communities, but the Effect of the Program Is Unclear

-

U.S. Government Accountability Office.

7

U.S. Government Accountability Office. 2010. “.”

8

Information on Empowerment Zone, Enterprise Community, and Renewal Community Programs

-

-

Ibid., 11.

9

Ibid., 24–5.

10

Congressional Research Service. 2019. “,” 1.

11

An Introduction to the Low-Income Housing Tax Credit

-

Ibid., 2–3.

12

Mark Shelburne and Thomas Stagg. 2018. “,” Novogradac Affordable Housing Resource Center.

13

Implementation of LIHTC Income Averaging

-

Corianne Payton Scally, Amanda Gold, and Nicole DuBois. 2018. “,” Urban Institute, 2.

14

The Low-Income Housing Tax Credit: How It Works and Who It Serves

Congressional Research Service, 2–3.

15

Scally et al., 2.

16

Carolina K. Reid. 2018. “,” Terner Center.

17

The Links Between Affordable Housing and Economic Mobility: The Experiences of Residents Living in Low-Income Housing Tax Credit Properties

-

-

Jill Khadduri, Carissa Climaco, Kimberly Burnett, Laurie Gould, and Louise Elving. 2012. “” Prepared for U.S. Department of Housing and Urban Development, xi.

18

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What Happens to Low-Income Housing Tax Credit Properties at Year 15 and Beyond?

-

CDFI Fund. 2019. “,” 15–6.

19

NMTC Compliance & Monitoring FAQs

Martin D. Abravanel, Nancy M. Pindus, Brett Theodos, Kassie Bertumen, Rachel Brash, and Zach McDade. 2013. “,” Urban Institute, 39.

20

New Markets Tax Credit (NMTC) Program Evaluation: Final Report

New Markets Tax Credit Coalition. 2018. “.”

21

Fact Sheet: The New Markets Tax Credit (NMTC) Extension Act

Abravanel et. al, xviii–xix.

22

Scott Hebert, Avis Vidal, Greg Mills, Franklin James, and Debbie Gruenstein. 2001. “Interim Assessment of the Empowerment Zones and Enterprise Communities (EZ/EC) Program: A Progress Report,” prepared for the U.S. Department of Housing and Urban Development; Matias Busso, Jesse Gregory, and Patrick Kline. 2013. “Assessing the Incidence and Efficiency of a Prominent Place Based Policy,” American Economic Review 103, 897–947.

23

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John Ham, Charles Swenson, Ayse Imrohoroglu, and Heonjae Song. 2011. “Government Programs Can Improve Local Labor Markets: Evidence from State Enterprise Zones, Federal Empowerment Zones, and Federal Enterprise Communities,” Journal of Public Economics 95, 779–97; David Neumark. 2018. “,” in Place-Based Policies for Shared Economic Growth, Shambaugh, Jay and Ryan Nunn, eds., 87.

24

Rebuilding Communities Job Subsidies

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Andrew Hanson. 2009. “Local Employment, Poverty, and Property Value Effects of Geographically-Targeted Tax Incentives: An Instrumental Variables Approach,” Regional Science and Urban Economics 39, 721–31; Andrew Hanson and Shawn Rohlin. 2011. “,” Public Finance Review 39:2, 195–225.

25

The Effect of Location-Based Tax Incentives on Establishment Location and Employment across Industry Sectors

Abravanel et. al., xviii–xix.

26

Hanson 2009.

27

U.S. Government Accountability Office 2006; C. Lockwood Reynolds, and Shawn Rohlin. 2013. “The Effects of Location-Based Tax Policies on the Distribution of Household Income: Evidence from the Federal Empowerment Zone Program,” Unpublished manuscript, Kent State University.

28

Rebecca Diamond, and Tim McQuade. 2017. “,” Stanford GSB.

29

Who Wants Affordable Housing in their Backyard? An Equilibrium Analysis of Low Income Property Development

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-

Matthew Freedman. 2013. “Targeted Business Incentives and Local Labor Markets,” Journal of Human Resources 48, 311–44.

30

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U.S. Government Accountability Office 2010, 27.

31

Rebecca Lester, Cody Evans, and Hanna Tian. 2018. “,” State Tax Notes 90, 226.

32

Opportunity Zones: An Analysis of the Policy’s Implications

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Abravanel et. al., x.

33

Ibid., 73.

34

U.S. Government Accountability Office 2010, 7, 10–1.

35

Neumark 2018, 85.

36

Economic Innovation Group. 2018. “.”

37

Opportunity Zones: Tapping into a $6 Trillion Market

Lester et. al., 224.

38

Ibid., 222.

39

Brett Theodos, Brady Meixell, and Carl Hedman. 2018. “” Urban Institute, 8. Statistics cited indicate an average or average percentage based on Community Development Financial Institution Fund and Urban Institute analysis of 2012-16 U.S. Census Bureau American Community Survey.

40

Did States Maximize Their Opportunity Zone Selections?

Lester et. al., 224.

41

Ibid., 227.

42

Jared Bernstein and Kevin A. Hassett. 2015. “,” Economic Innovation Group.

43

Unlocking Private Capital to Facilitate Economic Growth in Distressed Areas

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Rich and Stoker, 226–7.

44

U.S. Department of Housing and Urban Development. 2005. “,” 149–50.

45

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Capturing Successes in Renewal Communities and Empowerment Zones

-

Email correspondence with David Neumark, 12 April 2019.

46

Lester et. al., 228.

47

Interview with Michael Novogradac, 28 March 2019.

48

Interview with Kathie Soroka, 2 April 2019.

49

Michael Novogradac. 2018. “,” Novogradac Journal of Tax Credits IX:V.

50

Three Ideas to Build on RAD’s Success

“Governor Approves Mississippi Home Corporation’s Special Opportunity Zone Cycle for Low Income Tax Credit Program,” NCSHA website (). Accessed 8 April 2019.

51

www.ncsha.org/hfa-news/governor-approves-mississippi-home-corporations-special-opportunity-zone-cycle-for-low-income-tax-credit-program/

-

Interview with Kenan Fikri, 25 March 2019.

52

Ibid.

53

Ibid.

54

Lisa Green Hall, Fran Seegull, Chelsea Amelia Cruz, and Adrian Franco. 2018. “.”

55

Opportunity Zones: Moving Toward a Shared Impact Framework

-

Interview with Kenan Fikri.

56

U.S. Department of Housing and Urban Development. 2019. “,” Federal Register 84:74, 16030.

57

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Review of HUD Policy in Opportunity Zones

U.S. Department of Housing and Urban Development. 2018. “,” 12 April press release.

58

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HUD Announces Request for Information on Maximizing the Positive Impact of Opportunity Zones

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n

Many communities nationwide

suffer from disinvestment and under-

investment, resulting in high rates

of poverty and unemployment.

n

State and federal place-based tax

incentives such as Enterprise and

Empowerment Zones and New

Markets Tax Credits have previously

attempted to attract capital invest

-

ment to eco nomically distressed

areas.

n

A new federal place-based tax incen

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tive, Opportunity Zones, builds on

past experience and research and

aims to boost economic development

in designated census tracts.

Figure

Photo courtesy of Baltimore Development Corporation

Photo courtesy of Baltimore Development Corporation

Governors designated Opportunity Zones in their states with strategic considerations. In Maryland, for example, selections aim to leverage proximity to anchor institutions to attract investment.

Governors designated Opportunity Zones in their states with strategic considerations. In Maryland, for example, selections aim to leverage proximity to anchor institutions to attract investment.

Figure

Opportunity Zones are designed to attract long-term investment in communities that have historically suffered from disinvestment.

Opportunity Zones are designed to attract long-term investment in communities that have historically suffered from disinvestment.

Figure

U.S. Department of Housing and Urban Development

U.S. Department of Housing and Urban Development

Opportunity Zone investments could potentially be combined with LIHTC investments to fund affordable housing.

Opportunity Zone investments could potentially be combined with LIHTC investments to fund affordable housing.

Figure

U.S. Department of Housing and Urban Development

U.S. Department of Housing and Urban Development

From left to right, Denise Cleveland-Leggett, Region IV Regional Administrator; Scott Turner, executive director of the White House Opportunity and Revitalization Council; Secretary Ben Carson; and officials from Birmingham, Alabama, participated in a roundtable discussion on Opportunity Zones.

From left to right, Denise Cleveland-Leggett, Region IV Regional Administrator; Scott Turner, executive director of the White House Opportunity and Revitalization Council; Secretary Ben Carson; and officials from Birmingham, Alabama, participated in a roundtable discussion on Opportunity Zones.

Figure

Although the areas designated as Opportunity Zones have suffered from underinvestment, they have many assets that will be attractive to investors.

Although the areas designated as Opportunity Zones have suffered from underinvestment, they have many assets that will be attractive to investors.

Enacted as part of the 2017 Tax Cuts and Jobs Act, OZs aim to direct some of the estimated $6.1 trillion in unrealized capital gains into qualified low-income and contiguous census tracts.

Enacted as part of the 2017 Tax Cuts and Jobs Act, OZs aim to direct some of the estimated $6.1 trillion in unrealized capital gains into qualified low-income and contiguous census tracts.

-

Art Wager / iStock.com

Art Wager / iStock.com

Figure

State and city governments, such as Louisville, Kentucky, have been proactive in marketing the investment potential of their Opportunity Zones.

State and city governments, such as Louisville, Kentucky, have been proactive in marketing the investment potential of their Opportunity Zones.

Photo courtesy of the Louisville Urban League

Photo courtesy of the Louisville Urban League

The regulatory flexibility incorporated into OZs reduces the barriers that OZs’ architects felt impeded broader participation in EZs.

The regulatory flexibility incorporated into OZs reduces the barriers that OZs’ architects felt impeded broader participation in EZs.

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HIGHLIGHTS

HIGHLIGHTS

HIGHLIGHTS

research spotlight

research spotlight

Evaluating Place-Based Incentives

Evaluating Place-Based Incentives

n

The nonrandom selection of Em

-

powerment Zones and Enterprise

Communities presented evaluation

challenges in past studies because

isolating the effect of the designation

on housing prices and job growth

was difficult.

n

Evaluations of Opportunity Zones

can employ the same indicators for

neighborhood change used to evaluate

Empowerment Zones and Enterprise

Communities such as job and business

creation; changes in land prices,

home values, and rents; and vacancy

and poverty rates.

n

Administrative and survey data at the

census tract level are widely available

and can support the effective evalua

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tion of Opportunity Zones.

lthough the Opportunity Zones initiative is new, place-based incentives are not. In the United Kingdom (UK), Margaret Thatcher’s government introduced Enterprise Zones in 1981 to mixed success. Although the UK government phased out the program in 1999, it was revived in 2012 and 2016. UK Enterprise Zones were originally formed from “vacant, unoccupied, or deteriorating industrial land.” Over the next 10 years, new rules exempted Enterprise Zone properties from property taxes and the Development Land Tax, an

lthough the Opportunity Zones initiative is new, place-based incentives are not. In the United Kingdom (UK), Margaret Thatcher’s government introduced Enterprise Zones in 1981 to mixed success. Although the UK government phased out the program in 1999, it was revived in 2012 and 2016. UK Enterprise Zones were originally formed from “vacant, unoccupied, or deteriorating industrial land.” Over the next 10 years, new rules exempted Enterprise Zone properties from property taxes and the Development Land Tax, an

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State Enterprise Zones

Early adopters of state enterprise zones in the United States included Indiana and New Jersey. The state enterprise zones typically offered relief or complete exemption from property taxes along with wage tax credits in return for data reporting. Papke presents results from some studies of these early efforts, finding that the cost per job for most of these programs ranged from $4,500 to $13,000 annually; in some cases, the cost reached $30,000 to more than $100,000 per zone resident job.

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In the case of Texas, Freedman found that enterprise zones had positive effects on employment growth. One important feature of the Texas study design that offers insights to researchers studying Opportunity Zones was that enterprise zone assignment in Texas was automatic; any area meeting the standards received the designation. This rule allowed researchers to compare nearby census tracts that were nearly identical before designation. For example, researchers could compare a tract with a poverty rate higher

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Freedman found that housing prices in zones that barely achieved enterprise zone designation increased by 10 percent more than those in zones that barely missed designation, and home vacancy rates in marginally qualified zones were 4 percent lower than those in zones that marginally did not qualify.

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Empowerment Zones

Jack Kemp, first as a congressman and later as HUD Secretary from 1989 to 1992, strongly advocated for creating a federal program based on the enterprise zones. Although no such program was created under his watch, in 1994 the federal government designated the first Empowerment Zones (EZs), which included significant tax breaks with a large federal block grant to six urban and three rural targeted communities. Unlike enterprise zones, prospective EZs had to compete for the designation. (See “Place-Based Tax

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Considerable research has examined the effects of EZs on various outcomes. Early HUD-sponsored research compared areas awarded EZ designation with those not awarded EZ designation. It used as metrics job creation by zone employers, business formation and expansion in zones, employment of zone residents by zone businesses, and business ownership by zone residents. The study’s findings on the impact of the EZ program were inconclusive. Specifically, the researchers found that job growth in EZs outperformed th

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Using mostly decennial census data, Busso, Gregory, and Kline examined the effects of EZs on economic indicators. In particular, the authors studied the estimated changes in rents and home prices in EZs relative to a comparison group of rejected EZ tracts and future applicant EZ tracts.

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Using different estimation strategies, the authors found that EZ designation was correlated with an increase in home values of approximately 30 percent between 1990 and 2000, as self-reported in the decennial census, whereas rents increased by only 2 to 3 percent during the same period. The authors found this result striking and looked more closely at new residents or those who had last moved less than five years prior. These residents’ responses indicated that in EZs, home prices were 15 to 20 percent high

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14

EZ Designation Was Not Random

EZs and Enterprise Communities (ECs) were not randomly chosen. Their selection was based on applications, which encouraged localities to provide regulatory relief and take additional action. Therefore, any effect of EZs and ECs on the housing market is either indirect or a consequence of an optional state action, which makes isolating the effect of EZ designation difficult. For example, a locality might have chosen to invest in sewer and transportation upgrades in certain areas to win EZ designation. Any ho

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Hanson critiqued previous studies that had assumed that EZ designation was random. Cities submitted applications, and EZ designations were assigned based on the merits of the applications. Many zones qualified for the designation, but few were approved. The zones that were designated were probably the ones most likely to show significant improvement without the EZ designation.

15

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Hanson noted that the runner-up applicants for EZ designation were also highly qualified areas. Although they were probably less well positioned for wage growth or poverty reduction, they were more promising in those areas than a random area in the same city as an EZ with similar demographic statistics.

By comparing runner-up areas to the selected areas, Hanson found that EZ designation raised median property values by more than $100,000, which is both statistically and economically significant. Other studies showed large increases in employment and reductions in poverty in EZs but did not correct for the endogenous, or nonrandom, selection of EZs described above. For example, Busso, Gregory, and Kline found that employment in EZs increased between 12 and 21 percent and wages increased by 8 to 13 percent.

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16

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Some EZ Designations Came Later

Krupka and Noonan estimated a simultaneous equations model based on the different rounds of EZ designations and hedonic analysis of housing markets. Hedonic analysis takes the characteristics of an item into account when determining its price; for example, hedonic analysis in housing will estimate house prices based on characteristics such as square footage, number of bathrooms, year of construction, school district, and distance to public transportation, among others.

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18

Across six different formulations of the analysis, the authors found that EZs increased home prices between 10 and 40 percent. Because they used the hedonic approach, the authors could note several potential explanations. One possibility is that density decreased in EZ neighborhoods. The authors hypothesize that local governments spent grant money to demolish housing, which would increase the median value of the remaining homes. The authors note, however, that a more likely explanation is that the demand fo

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These explanations have radically different implications. If the demolition hypothesis is correct, then median home prices may have increased, but the realities for people living in the remaining homes would not have changed. A national program to demolish vacant houses would increase median home prices in the absence of any tax or regulatory change, but such a program is unlikely to deliver real economic benefits to the country. If the commercial real estate hypothesis is correct, then economic activity ma

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What About Renters?

Reynolds and Rohlin examined block group data in EZs and ECs. Rather than examining means and medians, the authors plotted the distributions of rents and home values. Although the distribution of rent changed, the mean and median changed little; the percentage of households paying $600 or more per month in rent greatly increased, and the percentage of households paying $350 to $550 per month decreased. Although EZs were intended to benefit residents of low-income communities, this finding appears to show th

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heavily concentrated over $100,000, and even over $300,000.

Evaluating Opportunity Zones

As the research above shows, future evaluators of Opportunity Zones have two major tasks:

Identify a comparison set of census tracts. To qualify as an Opportunity Zone, a census tract must be either a low-income community as defined by the Internal Revenue Service or contiguous to a low-income community. However, the governors of each state selected only a subset of census tracts meeting the criteria for a low-income community. Moreover, each governor likely used different criteria in his or her selection. In other words, as with EZs, the selection of Opportunity Zones was not random. Any eva

n

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Identify data that can be used to track neighborhood change. The research on enterprise zones and EZs focused on employment rates among area residents; the creation of jobs and businesses in the area; changes in land prices, home values, and rents; and changes in vacancy and poverty rates. These variables will likely be the same ones examined for Opportunity Zones.

n

Researchers may want to examine administrative data in addition to American Community Survey data. Administrative data are more available than they have ever been. Administrative data have two big advantages over survey data: they are not subject to sampling error, and the data can generally be obtained and analyzed much more quickly. These data also have two major flaws: they are not being collected for statistical purposes, so they may be biased, and only a small set of data points are available.

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The administrative data points that HUD makes available capture the annual mobility of assisted housing tenants; because these data are constantly updated as tenants move, they can be an early indicator of neighborhood change. In addition, data from the U.S. Postal Service are updated every quarter and can capture changes in long-term vacant addresses, increases in total residential and business addresses (a sign of building permit activity), and changes in active addresses (a sign of residential and busine

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Other administrative datasets that HUD and other researchers have used to measure neighborhood change include Home Mortgage Disclosure Act data, which can show change in mortgage activity, characteristics of those applying for and receiving mortgages as well as the amount borrowed; county records data, which can show property sales transactions, changes in property values, and foreclosure activity at the census tract level; and data on employment from unemployment insurance records.

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New sources of data should also be explored, such as “scraping” the Internet to gather information on advertised rents; using posts from social media sites such as Twitter to measure levels of happiness, sadness, and fear at small-area geographies; and collecting credit card company data that could show changes in retail purchasing patterns or even the creation of retailers at the neighborhood level.

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One important source of data will be Qualified Opportunity Funds — in particular, the activities in which they are investing and the location of those investments. At the time of publication, final regulations on reporting requirements had not yet been issued. If investment data are made available, they will help researchers understand the impacts of specific types of investments. For example, if research indicates that the number of residential units in an Opportunity Zone has increased, it would be helpfu

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Both survey and administrative data at the census tract level are more available now than in the past. With careful controls to identify comparison neighborhoods and data on investments to help explain any findings (or nonfindings) of impact, effectively evaluating the impacts of Opportunity Zones should be possible.

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— Daniel Marcin,

— Daniel Marcin,

HUD Staff

PA Cambridge Economic Consultants Ltd. 1987. An Evaluation of the Enterprise Zone Experiment, London: Department of the Environment, HMSO.

1

Leslie E. Papke. 1993. “What Do We Know about Enterprise Zones?” in Tax Policy and the Economy 7, James M. Poterba, ed. Cambridge, MA: MIT Press, 48.

2

“About Enterprise Zones,” HM Government website (). Accessed 28 May 2019.

3

enterprisezones.communities.gov.uk/about-enterprise-zones/

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Papke, 46.

4

Papke, 46–7.

5

Papke, 47.

6

Papke, 48.

7

Papke, 50, 61.

8

Papke, 49.

9

Papke, 61.

10

Matthew Freedman. 2013. “Targeted Business Incentives and Local Labor Markets,” Journal of Human Resources 48:2, 311–44.

11

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Michael J. Rich and Robert P. Stoker. 2006. “,” Washington, DC: Brookings Institution.

12

Lessons and Limits: Tax Incentives and Rebuilding the Gulf Coast after Katrina

Scott Hebert, Avis Vidal, Greg Mills, Franklin James, and Debbie Gruenstein. 2001. “,” U.S. Department of Housing and Urban Development, Office of Policy Development and Research.

13

Interim Assessment of the Empowerment Zones and Enterprise Communities (EZ/EC) Program: A Progress Report

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Matias Busso, Jesse Gregory, and Patrick Kline. 2013. “Assessing the Incidence and Efficiency of a Prominent Place Based Policy,” American Economic Review 103:2, 897–947.

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Andrew Hanson. 2009. “Local employment, poverty, and property value effects of geographically-targeted tax incentives: An instrumental variables approach,” Regional Science and Urban Economics 39:6, 721–31.

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Busso et al., 921–2.

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Hebert et al.

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Douglas J. Krupka and Douglas S. Noonan. 2009. “Empowerment zones, neighborhood change and owner-occupied housing,” Regional Science and Urban Economics 39:4, 386–96.

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C. Lockwood Reynolds and Shawn M. Rohlin. 2015. “,” Journal of Urban Economics 88, 1–15.

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The effects of location-based tax policies on the distribution of household income: Evidence from the federal Empowerment Zone program

Figure

benedek / iStock.com

benedek / iStock.com

A study of Texas Enterprise Zones found positive effects on employment growth.

A study of Texas Enterprise Zones found positive effects on employment growth.

Figure

The Philadelphia-Camden bistate Empowerment Zone was one of the six Round I urban zones designated in 1994.

The Philadelphia-Camden bistate Empowerment Zone was one of the six Round I urban zones designated in 1994.

The state enterprise zones typically offered relief or complete exemption from property taxes along with wage tax credits in return for data reporting.

The state enterprise zones typically offered relief or complete exemption from property taxes along with wage tax credits in return for data reporting.

Figure

Future evaluations of Opportunity Zones could examine neighborhood impact, including changes in home values and rents, using administrative datasets.

Future evaluations of Opportunity Zones could examine neighborhood impact, including changes in home values and rents, using administrative datasets.

in practice

in practice

cross the United States, local officials striving to revitalize distressed communities are looking to the Opportunity Zone (OZ) initiative to attract investment. Although OZs are relatively new, some states and cities have already laid the groundwork for the initiative by partnering with various stakeholders, establishing online portals to share project information with potential investors, or creating programs to align OZ incentives with other tax incentives. Maryland, for example, established an Opportuni

cross the United States, local officials striving to revitalize distressed communities are looking to the Opportunity Zone (OZ) initiative to attract investment. Although OZs are relatively new, some states and cities have already laid the groundwork for the initiative by partnering with various stakeholders, establishing online portals to share project information with potential investors, or creating programs to align OZ incentives with other tax incentives. Maryland, for example, established an Opportuni

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Attracting Investment in Maryland’s Opportunity Zones

OZ incentives can boost economic growth, employment, and housing in Maryland communities that have not previously benefited from private-sector investment. According to Sara Luell, director of communications at the Maryland Department of Housing and Community Development (MDHCD), the state estimates that investment in its OZs will attract more than $1 billion in capital by the end of 2026 and create between 1,000 and 2,000 jobs per year for the next several years. Within the 149 census tracts designated as

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Spreading the Word

In his 2019 State of the State address, Governor Larry Hogan announced that Maryland is striving to create the most competitive OZs in the country. On January 3, 2019, Governor Hogan issued an executive order establishing the Maryland Opportunity Zone Leadership Task Force, chaired by Lieutenant Governor Boyd K. Rutherford and composed of several voting members, including the department secretaries for MDHCD and Commerce as well as officials from the University System of Maryland, the Maryland Economic Deve

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MDHCD also manages the Maryland Opportunity Zone Information Exchange (Information Exchange), an interactive online tool for investors, fund managers, property developers, new businesses, and other stakeholders. The tool, considered the “first comprehensive, interactive resource of its kind in the nation,” shows projects in need of investment as well as those that already have investors. As a virtual meeting place, the Information Exchange offers up-to-date investment activity, a project and business locato

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Current Initiatives

Several efforts are underway to create state programs to support small businesses and job creation in Maryland’s OZs. “It is really easy to see how real estate deals take advantage of the Opportunity Zone incentives, so a lot of what we are doing is helping small businesses,” Luell stated. The state’s overall strategy is to attract investment in OZs regardless of whether the projects use federal tax incentives. In April 2019, Governor Hogan signed into law the Economic, Housing, and Community Development —

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Establishing an Investment Consortium in Indiana

From the outset, Indiana’s state government has taken a collaborative approach to OZs, bringing local officials and citizens to the table. Governor Eric J. Holcomb convened an external advisory group composed of representatives from nonprofit organizations and municipal governments to designate 156 census tracts in Indiana as OZs. During the nomination process, stakeholders weighed communities’ potential opportunity for investment and demonstrated need. Designated tracts in Indiana struggle with poverty and

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Forging Partnerships

In late fall 2018, representatives from Local Initiatives Support Corporation (LISC) Indianapolis and Cinnaire, a nonprofit community development financial institution, met with IHCDA to discuss creating an online portal for investors and developers to locate and post projects in OZs. The portal offers a virtual space for developers to pitch their project ideas for affordable housing, commercial, industrial, or small business projects. Investors, who must pay to access the portal, have exclusive rights to r

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After the portal went live in November 2018, consortium membership grew, as did the number of interested investors, resulting in more deals, Spergel noted. This strong public-private partnership is vital to establishing a standardized platform that provides guidance to communities. Spergel emphasized that Qualified Opportunity Funds are not a tool that will “make a bad deal better.” Instead, they can offer a project the “final allocation of funding” vital to its success. As of February 2019, users have subm

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In addition to the portal, the consortium is focusing on statewide capacity building by training local government and development officials in using Qualified Opportunity Funds, offering workshops to learn about OZs and their possible impacts, and providing resources on how to write an investment prospectus and attract investors. Networking events are gaining momentum in the state as venues for investors and developers to meet in person. Partnerships with nonprofit organizations, including Prosperity Indian

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Often, disparate stakeholders attend trainings, each seeking different types of information on OZs depending on their role. Some organizations are more familiar with how these incentives work than others, whereas other organizations need to gain a basic understanding of OZs and Qualified Opportunity Funds. Those who conduct trainings must understand their audience to tailor information to needs and experiences. Spergel indicated that the consortium is well situated to know particular audiences and convey in

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Future Plans

The consortium, along with Indiana’s Office of Community and Rural Affairs, is analyzing demographics in OZs, especially in rural areas, to customize training sessions to particular audiences. The consortium is also considering a symposium or one-day workshop to give mayors and economic development officials the tools to better market their cities for social impact investments. In January 2019, Prosperity Indiana and the consortium hosted a one-day workshop that presented an overview of OZs, strategies to l

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Michigan Partnerships Move Opportunity Zones Forward

Michigan has a robust network of state and local actors involved in boosting economic development and social outcomes for disadvantaged communities in the state. As the state begins implementing the OZ initiative, it is drawing heavily on this preexisting “structural ecosystem,” according to Karen Gagnon, policy advisor for the Michigan State Housing Development Authority (MSHDA). MSHDA is the agency in charge of promoting and overseeing OZs in Michigan. Michigan has 288 census tracts designated as OZs, whi

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Leveraging Existing Networks

Michigan’s considerable network of partnerships among state agencies, agency field teams, colleges and universities, and local governments has facilitated the implementation of the OZ initiative. The state has a service delivery network through the Regional Prosperity Initiative and its consortia. Structuring Michigan into 10 Prosperity Regions has helped formalize collaboration among local agencies, nonprofit organizations, and private entities to streamline services and responsibilities. Gagnon emphasized

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Through expansive networks, MSHDA uses several strategies to share resources with interested stakeholders. MSHDA, in partnership with the Michigan Economic Development Corporation, contracted with Michigan State University Extension to sponsor a training called “Opportunity Zones (OZ): There’s No Place Like Home!” In spring 2019, Michigan State University Extension held five free workshops where local leaders, real estate developers, tax accountants, and attorneys learned strategies to attract OZ investment

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Promoting Opportunity Zone Businesses

Many of Michigan’s communities are dealing with population decline and disinvestment, which make it difficult for businesses to thrive. On January 2, 2019, Governor Whitmer issued an executive directive that expands the state government’s role in spurring business opportunities in low-income communities. The directive supports “Geographically-Disadvantaged Business Enterprises” by increasing state purchases from and contracts with businesses for supplies and services. It directs the Department of Technology

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Gagnon explained that the overarching focus of OZs is to spur economic development and job creation in distressed communities. In addition to real estate development, a Qualified Opportunity Fund can help grow businesses and establish new ones. Gagnon indicated that Michigan has both “Great Lakes and great opportunities,” and part of the state’s marketing strategy involves capitalizing on the fact that Michigan has the longest freshwater coastline in the world. The eastern, western, and southern coastlines

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Cities Develop Investment Prospectuses

To help cities establish their goals for OZs, Accelerator for America and New Localism Advisors collaborated to create an investment prospectus guide to assist officials in marketing their cities, provide important data, explain key assets, and describe their OZs. An investment prospectus incorporates three documents: a community marketing strategy, a policy brief for economic development, and a private investment memorandum. Developing an investment prospectus can mobilize public, private, and civic offici

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Marketing Projects in Louisville

Burnette emphasized that developing the prospectus is “the first step” toward completing a project. In developing Louisville’s investment prospectus, Accelerator for America helped Louisville Forward identify and highlight statistics that might interest investors. The prospectus has helped Louisville introduce itself to potential investors while allowing the city to outline development goals.

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Although several hotel and multifamily housing projects are underway in Louisville that are using Qualified Opportunity Funds, Burnette indicated that these projects likely would have been developed regardless of OZ designation. OZs, however, may add a critical source of capital for projects that would not otherwise be financed. Several projects have already raised philanthropic and city funding, and Qualified Opportunity Funds can help fill any remaining gaps in financing. Burnette indicated that there are

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Fostering Sustainable Wealth in Oklahoma City

The Alliance for Economic Development of Oklahoma City (The Alliance) is the lead agency in Oklahoma City for OZs, managing land use, incentives, and economic strategies to make the city attractive to companies and developers. In developing Oklahoma City’s prospectus, The Alliance collaborated closely with the Greater Oklahoma City Chamber and the city’s Planning Department to ensure the quality of the information and the accuracy of the data. Cathy O’Connor, president and chief executive officer of The All

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O’Connor considers OZs a tool to direct investment toward commonly overlooked areas. She noted, however, that OZ incentives will not address every problem in a zone; one considerable challenge will be to pair them with other incentives and funds to ensure the development of projects that have a truly positive social impact. The Alliance is creating a mapping tool to overlay the city’s tax increment financing districts with OZ boundaries to locate areas where local officials and developers can capitalize on

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Conclusion

While states and localities await the final regulations from the IRS, they are laying the foundation for OZs to revitalize distressed neighborhoods. The work of Maryland’s Opportunity Zone Leadership Task Force allows MDHCD to get input from local communities about where to target resources. OZs in Indiana have catalyzed new partnerships and conversations across different sectors. Through its executive directive, Michigan hopes that supporting businesses in OZs will increase residents’ median household inco

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Maryland Department of Housing and Community Development. 2018. “.”

1

Maryland Announces Selection of State’s New Opportunity Zones

Interview with Sara Luell, 27 March 2019.

2

“Opportunity Zones in Maryland,” OpportunityDb website (). Accessed 6 March 2019; Email correspondence with Sara Luell, 29 May 2019.

3

opportunitydb.com/location/maryland/

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Office of Governor Larry Hogan. 2019. 30 January.

4

State of the State Address: “A State of Opportunity,”

The State of Maryland Executive Department. 2019. ; “Opportunity Zone Membership List.” n.d. Document provided by Sara Luell; Task Force Members include: Department of Housing and Community Development; Department of Commerce; Department of Labor, Licensing, and Regulation; Department of Planning; Maryland Department of Transportation; Maryland Department of Human Services; Maryland State Department of Education; Maryland Higher Education Commission; Maryland Stadium Authority; University System of Maryland

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Maryland Opportunity Zone Leadership Task Force

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-

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The State of Maryland Executive Department 2019; Interview with Sara Luell.

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Interview with Sara Luell.

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The State of Maryland Executive Department 2019.

8

Interview with Sara Luell; “Maryland Opportunity Zones,” Maryland Department of Housing and Community Development website (). Accessed 28 March 2019.

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dhcd.maryland.gov/Pages/OZ/OpportunityZones.aspx

“Maryland Opportunity Zones”; Maryland Department of Housing and Community Development. n.d. “.”

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MD OZ Information Exchange

“Incentive Lookup,” Maryland Department of Housing and Community Development website (). Accessed 15 May 2019.

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maryland.maps.arcgis.com/apps/webappviewer/index.html?id=1cc479d2dc3948239f0c47bda8b6967e

“Maryland Opportunity Zone Information Exchange Wins National StateScoop50 Award,” Maryland Department of Housing and Community Development website (). Accessed 15 May 2019.

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news.maryland.gov/dhcd/2019/05/07/maryland-opportunity-zone-information-exchange-wins-national-statescoop50-award/

Interview with Sara Luell.

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Maryland General Assembly. 2019. , Senate Bill 0581, 2019 Reg. Session (30 April); Maryland General Assembly. , 2019 Reg Session (30 April); Office of Governor Larry Hogan. 2019. “,” 30 April press release.

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An Act concerning Economic, Housing, and Community Development – Opportunity Zone Incentives

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Fiscal and Policy Note. 2019. An Act concerning Economic, Housing, and Community Development – Opportunity Zone Incentives, Senate Bill 0581

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Governor Hogan Signs Major Expansion of Opportunity Zone Initiative

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Office of Governor Larry Hogan. 2019. “.”

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Governor Larry Hogan Announces Maryland Opportunity Zone Expansion

Stephanie Wilson. 2018. “.”

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Governor Holcomb Nominates 156 Opportunity Zones

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“Opportunity Zones in Indiana,” OpportunityDb website (). Accessed 6 March 2019.

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opportunitydb.com/location/indiana/

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Interview with Samantha Spergel, 20 March 2019.

18

Ibid; “The Why of Cinnaire,” Cinnaire website (). Accessed 22 March 2019.

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cinnaire.com/the-why-of-cinnaire/

Interview with Samantha Spergel; Christine Serlin. 2019. “.”

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A New Tool for Housing: Industry players embrace Opportunity Zone incentive

Ibid; “About the Consortium,” Opportunity Investment Consortium of Indiana website (). Accessed 22 March 2019.

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www.opportunityinvestmentconsortium.com/about

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Interview with Samantha Spergel; Local Initiatives Support Corporation of Indianapolis. 2018. “.”

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Opportunity Investment Consortium of Indiana Launches to Support Projects in Newly-Named Opportunity Zones

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Interview with Samantha Spergel.

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Ibid.

24

“Opportunity Investment Consortium” Prosperity Indiana website (). Accessed 22 March 2019; Primary partners of the Investment Consortium are: State of Indiana, Local Initiatives Support Corporation, Cinnaire, Indy Chamber, Indiana Bond Bank, Indiana Economic Development Corporation, Office of Community and Rural Affairs and Indiana Housing & Community Development Authority, Accelerate Indiana Municipalities, Indiana Economic Development Association, Vectren Foundation, and Prosperity Indiana.

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www.prosperityindiana.org/OIC

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Interview with Samantha Spergel.

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Ibid; Local Initiatives Support Corporation of Indianapolis 2018.

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Interview with Samantha Spergel.

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Ibid.

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Ibid.

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Ibid.

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Ibid.

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“About Us,” Prosperity Indiana website (). Accessed 22 March 2019; “Opportunity Zones Workshop,” Prosperity Indiana website (). Accessed 22 March 2019.

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www.prosperityindiana.org/About

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prosperityindiana.org/event-3167658

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Interview with Samantha Spergel.

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Interview with Karen Gagnon, 25 March 2019.

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“Opportunity Zones in Michigan,” OpportunityDb website (). Accessed 6 March 2019.

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opportunitydb.com/location/michigan/

Interview with Karen Gagnon.

37

Brian Mills. 2018. “.”

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MSHDA Opportunity Zone Update

“The Basics,” State of Michigan, Department of Technology, Management and Budget website (). Accessed 26 March 2019; “Regional Prosperity Initiative,” State of Michigan, Department of Technology, Management and Budget website (). Accessed 26 March 2019.

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www.michigan.gov/dtmb/0,5552,7-358-82547_56345_66155-310319--,00.html

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www.michigan.gov/dtmb/0,5552,7-358-82547_56345_66155---,00.html

Interview with Karen Gagnon; State agencies include: The Department of Treasury; MSHDA; Michigan Economic Development Corporation; Michigan Land Bank Authority; Michigan Department of Agriculture and Rural Development; Talent Investment Agency and its Workforce Development Agency; Department of Environment, Great Lakes and Energy (formerly the Department of the Environmental Quality), and the Department of Transportation.

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“Service on Sense of Place Council,” Michigan State University website (). Accessed 26 March 2019.

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www.canr.msu.edu/landpolicy/program/service_on_sense_of_place_council/index

Interview with Karen Gagnon.

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“Service on Sense of Place Council”; “MIPlace Partnership Initiative,” Michigan State University website (). Accessed 27 March 2019.

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www.canr.msu.edu/landpolicy/program/miplace_partnership_initiative/index

Interview with Karen Gagnon.

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Michigan State University Extension. n.d. “”; Interview with Karen Gagnon.

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Opportunity Zones (OZ): There’s No Place Like Home

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“Michigan Opportunity Zones Referral Form,” Michigan State Housing Development Authority website (). Accessed 6 March 2019.

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www.michigan.gov/mshda/0,4641,7-141-5587_85624-479029--,00.html

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Interview with Karen Gagnon.

47

Office of Governor Gretchen Whitmer. 2019. .

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Executive Directive 2019-08

Interview with Karen Gagnon.

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Office of Governor Gretchen Whitmer 2019.

50

Interview with Karen Gagnon.

51

Interview with Karen Gagnon.

52

Ibid; Nicole Kaeding. 2017. “”

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Does Your State’s Individual Income Tax Code Conform with the Federal Tax Code?

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Interview with Karen Gagnon.

54

Bruce Katz and Ken Gross. 2018a. “.”

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Key Elements of the Investment Prospectus & How to Use This Guide

Bruce Katz and Ken Gross. 2018b. “.”

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Background and Purpose

Bruce Katz, Rick Jacobs, and Aaron Thomas. 2018. “,” 3-4.

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The Opportunity Zone Investment Prospectus: Early Observations & Next Steps

Bruce Katz and Ken Gross. 2018c. “.”

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Resources for Creating the Investment Prospectus

Katz, Jacobs, and Thomas 2018.

59

Interview with Eric Burnette, 27 March 2019.

60

Katz, Jacobs, and Thomas 2018.

61

Interview with Eric Burnette.

62

Interview with Eric Burnette.

63

New Localism Advisors. 2018. “Louisville Opportunity Zone Prospectus: A Platform for Action”;

Interview with Eric Burnette.

64

Ibid.

65

“Why Invest in Oklahoma City,” Oklahoma City Opportunity Zones website (). Accessed 26 February 2019.

66

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www.greateroklahomacity.com/index.php?src=directory&view=stories&category=Opportunity%20Zones

Ibid.

67

Interview with Cathy O’Connor, 22 March 2019.

68

Interview with Sara Luell.

69

Interview with Samantha Spergel.

70

Interview with Karen Gagnon.

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Interview with Eric Burnette; Interview with Cathy O’Connor.

72

Shaping Investment in Opportunity Zones

Shaping Investment in Opportunity Zones

HIGHLIGHTS

HIGHLIGHTS

n

Through capacity building, technical

assistance, and regional summits,

Maryland’s Opportunity Zone Lead

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ership Task Force and Indiana’s

Opportunity Investment Consortium

spur investors, developers, and local

officials to share resources, identify

projects, and market their communities.

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Michigan strives to support new

businesses in economically disad

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vantaged areas through an executive

directive that encourages state de

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partments and agencies to increase

contracts with businesses in Oppor

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tunity Zones.

n

Louisville and Oklahoma City were

among the first five cities to collabo

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rate with Accelerator for America to

use a template to write their invest

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ment prospectuses and target projects

ready for investment.

Figure

Maryland Governor’s Office / Anthony DePanise

Maryland Governor’s Office / Anthony DePanise

Maryland Department of Housing and Community Development Secretary Kenneth C. Holt (left) and Lieutenant Governor Boyd K. Rutherford (right) answer audience questions at the regional meeting of Maryland’s Opportunity Zone Task Force in Salisbury.

Maryland Department of Housing and Community Development Secretary Kenneth C. Holt (left) and Lieutenant Governor Boyd K. Rutherford (right) answer audience questions at the regional meeting of Maryland’s Opportunity Zone Task Force in Salisbury.

Figure

The Platform

The Platform

The Opportunity Zones initiative can help revitalize buildings such as Chroma in Detroit, Michigan.

The Opportunity Zones initiative can help revitalize buildings such as Chroma in Detroit, Michigan.

Figure

John Amrhein, Michigan State University Extension

John Amrhein, Michigan State University Extension

OZ workshop attendees in Grayling, Michigan, learned the basics of OZs, how to market attributes of their community to investors, and potential impacts of OZ incentives.

OZ workshop attendees in Grayling, Michigan, learned the basics of OZs, how to market attributes of their community to investors, and potential impacts of OZ incentives.

Figure

Brittney Hoszkiw, Michigan Economic Development Corporation

Brittney Hoszkiw, Michigan Economic Development Corporation

In May 2018, representatives from Larson Realty Group broke ground on a mixed-use development that will increase housing, jobs, and spur economic development in a Detroit Opportunity Zone.

In May 2018, representatives from Larson Realty Group broke ground on a mixed-use development that will increase housing, jobs, and spur economic development in a Detroit Opportunity Zone.

Figure

Roberto Galan / Shutterstock.com

Roberto Galan / Shutterstock.com

Louisville’s investment prospectus has helped the city attract investors and establish goals for future development.

Louisville’s investment prospectus has helped the city attract investors and establish goals for future development.

Figure

Word about OZ incentives is spreading throughout Oklahoma City, and several projects are already seeking investors.

Word about OZ incentives is spreading throughout Oklahoma City, and several projects are already seeking investors.

Additional Resources

Additional Resources

HUD’s ArcGIS website, “Opportunity Zones and Affordable Housing,” maps Opportunity Zones with the option to layer affordable housing including HUD public housing, housing choice vouchers, multifamily developments, HUD healthcare facilities, U.S. Department of Agriculture Rural Development properties, and low-income housing tax credit developments. .

HUD’s ArcGIS website, “Opportunity Zones and Affordable Housing,” maps Opportunity Zones with the option to layer affordable housing including HUD public housing, housing choice vouchers, multifamily developments, HUD healthcare facilities, U.S. Department of Agriculture Rural Development properties, and low-income housing tax credit developments. .

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hud.maps.arcgis.com/apps/View/index.html?appid=cc05a273151d40a7b2eff47dc70bd745

The U.S. Department of the Treasury Community Development Financial Institutions Fund’s website, “Opportunity Zones Resources,” contains links to regulations, frequently asked questions, maps, and other relevant resources. .

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www.cdfifund.gov/Pages/Opportunity-Zones.aspx

Enterprise Community Partners’ “Opportunity Zones” website hosts an interactive mapping tool, data platform, commentary, and guidance useful for local officials, potential investors, researchers, and other interested parties. .

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www.enterprisecommunity.org/financing-and-development/opportunity-zones-program

“Do enterprise zones create jobs? Evidence from California’s enterprise zone program,” (2010), by David Neumark and Jed Kolko, evaluates the efficacy of one of the several state-level, place-based tax incentive programs created in the 1990s. .

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www.sciencedirect.com/science/article/pii/S0094119010000033

“Do Capital Tax Incentives Attract New Businesses? Evidence across Industries from the New Markets Tax Credit,” (2016), by Kaitlyn Harger and Amanda Ross, examines the geographic sorting of industries in relation to NMTC eligibility. .

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onlinelibrary.wiley.com/doi/abs/10.1111/jors.12286

The LOCUS “National Opportunity Zone Ranking Report” (2018), by Christopher A. Coes and Tracy Hadden Loh, helps investors and policymakers rank Opportunity Zones based on “Smart Growth Potential” and a “Social Equity + Vulnerability Index” score. .

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smartgrowthamerica.org/resources/locus-opportunity-zones-national-ranking-report/

The Council of Development Finance Agencies’ “Opportunity Zones Report: State of the States” (2018), by Toby Rittner, Katie Kramer, and Tim Fisher, offers survey results from 41 states to gauge understanding of Opportunity Zones, and it highlights current state-level strategies to implement Opportunity Zones. .

n

www.cdfa.net/cdfa/cdfaweb.nsf/ordredirect.html?open&id=201808_OZSoS.html

“How States Can Maximize Opportunity Zones” (2018), by Bruce Katz, Jeremy Nowak, Jamie Rubin, and Dan Berkovits, offers state policymakers principles for action and recommendations for creating an Opportunity Plan and an investment prospectus. .

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www.thenewlocalism.com/wp-content/uploads/2018/06/OpportunityZonesStateActionPlan_TheNewLocalism_June222018.pdf

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For additional resources archive, go to .

www.huduser.gov/portal/periodicals/em/additional_resources_2019.html

Evidence

Evidence

Evidence

Matters

Discuss this issue on the Evidence Matters Forum at . You can subscribe to Evidence Matters at .

Discuss this issue on the Evidence Matters Forum at . You can subscribe to Evidence Matters at .

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Editor: Eileen FaulknerAuthors: Daniel Marcin (HUD)and Sage Computing staff

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Figure

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Figure

U.S. Department of Housing and Urban Development

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Office of Policy Development and Research

www.huduser.gov

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www.huduser.gov

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800.245.2691