Opportunity Zone Magazine Opportunity Zone Magazine Volume 1, Issue 1

62 OPPORTUNITY ZONE MAGAZINE | VOLUME 1 • ISSUE 1 Opportunity Zone funding doesn't have to suffer the same fate, and it won't if investors and Opportunity Fund managers add a third metric to assess the return on their investments: Will it provide a positive social impact on those distressed communities? Adding that third metric is called triple bottom line investing, and it might be the only way to ensure that the new law has the effects that congress intended. A GROWING WEALTH GAP & MEDIA BACKLASH Opportunity Zone tax incentives were a bipartisan effort in congress to address the widening wealth gap and the unintentional consequence of financial reforms arising from the financial crisis as well as other factors. The poorer half of Americans lost over 55 percent of their wealth over the last decade and control only 1.3 percent of U.S. wealth. Meanwhile, the wealth of the top 1 percent of Americans increased by 29 percent. That 1 percent now controls 38 percent of the nation's wealth. 1,2 3 Opportunity Zone data reveals that 52 million Americans live in these low-income communities and 71 percent of the Opportunity Zones meet the U.S. Treasury Department’s definition of “severely distressed” communities. 4 U.S. taxpayers can receive significant tax relief by investing in Opportunity Zones to stimulate economic activity, job creation and address socioeconomic needs. There are approximately 8,700 Opportunity Zones across the U.S., and the federal government expects Opportunity Zones to soon attract billions of dollars of investment. With Opportunity Zone tax benefits that can increase after-tax returns by over 50 percent, private investment capital has an incentive to flow into these Opportunity Zones in a big way. The goal in creating these Opportunity Zones is to convert a portion of what the Economic Innovation Group (EIG) estimates is $6.1 trillion in unrealized capital gains to investments in distressed communities. 5 U.S. taxpayers can receive significant tax relief by investing in Opportunity Zones to stimulate economic activity, job creation and address socioeconomic needs. Similar to the EB-5 program, the first Opportunity Zone investments to be completed are real estate development transactions that would have been completed without the tax incentives. There has been a media outcry over these initial transactions where there appears to be a “rich getting richer” aspect to these investments rather than ways in which these tax incentives can be used to address the needs of distressed communities. In an apparent effort to address this media backlash and to try to encourage Opportunity Zone investment, congress recently issued a bipartisan “comfort letter” to the U.S. Treasury Department and the Internal Revenue Service clarifying the intent of the tax incentive legislation and encouraging these federal agencies to develop and implement rules to incent large scale investment broadly across the country. But that is easier said than done. The authors of this tax incentive policy, the Economic Innovation Group, summarize that a “network of leaders and stakeholders across public, private, non- profit and philanthropic sectors” are needed for catalytic investment and revitalization of Opportunity Zones. The authors maintain that Opportunity Zone tax incentives are merely a tool and do not assure economic resurgence for Opportunity Zones. 4 4 TRIPLE BOTTOM LINE INVESTING & TRUE OPPORTUNITY FUND INVESTMENT CRITERIA The idea of triple bottom line investing is to add another metric to assessing an investment: how will it have a positive social impact on distressed communities. That's in addition to the EB-5 double bottom line metrics: financial return and the amount of additional economic activity and new jobs. Providing a positive social impact could mean converting an obsolete retail space into a multi-use project that includes a medical clinic for community residents. Another could be multi-family housing for a downtown Main Street redevelopment effort. Another would be building senior living facilities in rural communities so that aging parents can remain in their communities instead of having to move somewhere far away. That allows older children to remain in a community instead of shutting down their businesses and moving away to care for their parents. As senior living facilities provide older people the ability to age in place, it helps stabilize communities. OPPORTUNITYZONEEXPO.COM

Opportunity Zone Magazine Opportunity Zone Magazine Volume 1, Issue 1 | Page 64