Tips for Foundations Interested in Getting Involved in OZs
CREATED 08/15/18; LAST UPDATED 11/20/19
The Opportunity Zone program, a new federal tax incentive intended to attract investments to low-income communities, is quickly rolling out across the U.S., as funds and states develop strategies to facilitate investments. (Click here to read more about what OZs are and how the program works.)
Early movers are often responsible for shaping the ultimate direction of new government programs of significant scale. And in the case of the OZ program, which includes very few reporting requirements associated with impact (as of September 2019), mission driven investors play a particularly important role in ensuring that the program works as intended. But where can they start?
Below, we share a few ways that foundations with an eye to impact are moving quickly to get up to speed, create their own strategies, and monitor progress in this fast-moving program. View a complete list of resources and related articles at the bottom of this page.
Absorb a fast-growing body of resources
We recommend that you start by understanding the basics of the legislation, including which census tracts are eligible under the program, what kind of investments are eligible, and how the tax incentives work. Many organizations have built introductory materials to clarify the program, including: MIE’s OZ Fundamentals, Economic Innovation Groups FAQs and Introduction, and Enterprise Community Partners resources. Consider also speaking with your tax advisor to learn more— particularly about how the program may or may not apply to you.
Develop place-based knowledge and ecosystems
Although the characteristics of the tax incentives are critical drivers for how an OZ investment landscape might look, in reality, the program is simply a place-based approach to impact investing. As such, it will unfold in very different ways depending on the existing investment opportunities, kinds of stakeholders, and other context unique to a region. For example, some states or cities will develop coordinated responses, while others will remain more fragmented. Rural areas might have a very different investment profile than urban ones, which would inform how the program is applied.
Although there is no "one-size-fits-all," the more impact investors work together in and with their community, the more likely it is that investors will understand the impact of their work, beyond their own projects. Coordinated responses can also help to build local impact investing ecosystems That last beyond the term of the program and help spread knowledge about the program more rapidly.
- Explore the census tracts identified as OZs to consider where they overlap with the communities your foundation serves and cares about. A maximum of 25% of low income census tracts were selected in each state: also of importance to foundations are the communities that were left out of the program.
- Get to know the investment landscapes. What kinds of capital are available in the area, and who is deploying it? What is most needed by communities? Resources include Enterprise Community Partners Census tool and reports , Economic Innovation Group’s OZ data map, and Urban Institute’s investment score analysis of census tracts. Consider leveraging local knowledge as well, through the Directory of Economic Development Agencies and Opportunity Finance Network’s CDFI Locator. You can also reach out to local or national partners — including MIE — for advice, connections, and tailored resources.
- Support local impact investing ecosystems: How are investors connecting and learning from one another in place? And are there opportunities to support collaboration? Visit Mission Investors Exchange's Place-Based Impact Investing Resource Library for examples of how ecosystems form in particular areas. Feel free to reach out to us anytime if you have questions.
Develop dialogue — and a balanced point of view
The OZ program has inspired diverse opinions, concerns, and conversations about what our communities need, how tax incentives should work, and where foundations should be most involved — on both the grantmaking and investing side of an organization. As examples, consider these questions:
- Given the absence of impact reporting requirements in the current iteration of the program, how can mission driven organizations help steer the program or deals in the right direction? View the OZ Framework for recommendations on monitoring impact by the U.S. impact Investing Alliance.
- Although impact investors may be increasingly familiar with the program, are community based organizations being included in dialogue? How do we ensure that residents have a say in the future of their own community? Read this op-ed on activity in Washington State seeking to address this topic.
- Without a solution to gentrification — which is not addressed in the program — how can we prevent investments influxes in OZ tracts from increasing property values in a way that displaces current residents?
- Census tracts in the current program were designated based on census data from 2010: what will we learn from the upcoming 2020 Census, and how should that inform our strategies?
- What kinds of resources do the communities we care about actually need? If they are not the kinds of investments eligible under the OZ program, then how can we make sure that those kinds of investments receive the attention they deserve?
- How might your mission can be furthered (or jeopardized) by engaging (or not) in OZ related activities? Which of your programmatic areas may relate to OZs? Examples of articles on these kinds of topics include the impact of OZs on tribal lands, on rural communities, or on income inequality.
Exploring these kinds of questions can help us see the opportunities of the program, as well as its risks. Consider engaging foundation staff by share this resource page internally, inviting speakers for brown bag lunches at your foundation, or attending convenings and conferences. Leaders from state and local government, CDFIs, economic development agencies, fund managers, academia, tax experts, real estate developers, and other foundations are rapidly developing expertise in the OZ program, and many are looking for partners to help establish initiatives or collective responses for their region.
Match resources to needs
Although the OZ program focuses on investments, foundations can leverage all kinds of resources to make a difference:
- Co-investing and/or providing catalytic capital. Although foundations are not generally eligible for the program’s tax benefits, they are exploring ways to invest alongside O Funds to foster impact and help make mission aligned investments more attractive to private-sector investors. This capital may take the form of impact investments or complementary grants. For example, the Kresge Foundation's investments in Arctaris Impact and Community Capital Management will provide risk mitigation and first-loss protection for Opportunity Zone Funds managed by these organizations. The investments were contingent on both funds collecting impact data above and beyond what was required under regulation.
Protecting impact: Foundations are providing grants to organizations and projects seeking to foster impact in the OZ program, such as efforts to conduct research and evaluation of the program and monitor policy decisions.
- Building capacity: Complementary to the above, foundations are providing capacity building support to help accelerate progress and engage stakeholders. As an example, the Rockefeller Foundation provided a $400,000 grant to Smart Growth America (SGA) to launch the National Opportunity Zones Academy, which is intended to help cities drive sustainable growth. This grant is part of the Foundation’s $5.5 million Community Capacity Building Initiative, intended to help cities attract socially responsible investments.
Connecting stakeholders: As hubs of local networks, foundations are serving as local convenors, providing space, helping to host and participate in events, and actively connecting people and communities to build strong ecosystems.
Supporting mission-aligned advisors and fund managers: According to this Stanford Social Innovation Review essay, foundations may find opportunities to support transaction advisors, who "work with local government officials to prepare a pipeline of potential private sector investments." In addition to co-investing, foundations may be able to provide other forms of support to mission-aligned fund managers seeking to deepen their engagement and capacity.
Join a community or sign up for updates
Several organizations have established communities to share knowledge:
Form or join a working group: Examples include this working group by Novogradac and Co. Foundation members can use the Slack channel above to bring what they learn back to the MIE community.
Monitor news: You can create a google alert to search the Internet for mentions of Opportunity Zones (or, customize to your region or purpose) by clicking here. We recommend that foundation members join our Slack workspace, where we’ve begun setting alerts up for the community. If you’re an MIE foundation member, please contact Anjali Deshmukh for access to a special Slack workspace, which features daily news alerts on OZs and other topics.
If you have any suggestions for this page, please email Anjali Deshmukh!
This article was written by synthesizing and analyzing dozens of resources, from organizations including the U.S. Impact Investing Alliance, Economic Innovation Group, Enterprise Community Partners, Urban Institute, Pilot Management Resources, Summit Consulting, City Lab, Next City, Opportunity Finance Network, the CDFI Fund, Kresge Foundation, Rockefeller Foundation, Stanford Social Innovation Review, Community Foundation Public Awareness Initiative, and more.