Many Americans see the 2017 Tax Cuts and Jobs Act as a windfall for the wealthy. But a piece of legislation within it, the Investing in Opportunity Act, has the potential to be a game changer for distressed communities in all 50 states. That promise can only be realized if the act works as intended, and some philanthropic leaders like the Rockefeller Foundation are keen to guide the law’s trajectory. That promise can only be realized if the act works as intended, and some philanthropic leaders like the Rockefeller Foundation are keen to guide the law’s trajectory.
Investing in Opportunity
The Investing in Opportunity Act was designed to reduce geographic disparities and level economic growth. Philanthropy played a role in the origins of the law, which was conceived by the Economic Innovation Group, a D.C.-based think tank founded with support from tech winners Sean Parker and Ron Conway.
In two short years, the U.S. Treasury has certified 8,700 low-income, high-poverty census tracts across the country as Opportunity Zones (OZs). These areas are now in line to receive private investments through Opportunity Funds, pools of capital created to stimulate long-term community investments in exchange for significant tax incentives on capital gains.
The potential is huge: The Economic Innovation Group estimates that the pool of capital eligible for reinvestment could potentially reach $6 trillion. But the issues are many. The act became law before sufficient safeguards were in place to ensure it lifts the lives of the 30 million Americans residing within the zones. Gentrification can advance in areas that were already primed for development without accelerating growth in areas of extreme poverty—widening the gap between the haves and the have-nots.
Some impact investors see the law’s failure to include impact reporting requirements or objectives as a missed opportunity. And the law doesn’t specifically require investors to promote social good. Tax benefits exclude the development of golf courses and country clubs, but there are no incentives to build affordable housing over luxury hotels.
Transparency and reporting guidelines were also minimal, making cities blind to the investments being made. Nor was there guidance on zone development structures. Already stressed communities were left on their own to create the capacity to guide and receive investments.
(When the law was passed, it delegated broad authority to the U.S. Treasury to write rules to prevent abuses and ensure it achieves its stated goals—regulations that are still being developed.)
Foundations See Opportunity
Besides Rockefeller, other nonprofit leaders are stepping up to balance investors' interests with positive community involvement. The Kresge Foundation provided $22 million in investments to two Opportunity Zone Funds after managers agreed to voluntary reporting, metrics and transparency measures that center on community. The MasterCard Center for Inclusive Growth launched a million-dollar partnership with Accelerator for America to arm city leaders with data to attract investments. And the Beeck Center for Social Impact + Innovation at Georgetown and the U.S. Impact Investing Alliance developed a shared impact and reporting framework to help shape the market.