Opportunity Zone Magazine Volume 1, Issue 3 | Page 55
OPPORTUNITY ZONES AND ECONOMIC IMPACT: A PRACTICAL FUND APPROACH
55
In addition, the Housing Urban Development agency
(HUD) administers incentive programs to further encourage
development in distressed communities. For example,
Community Development Block Grants (CDBG) program
funds, in part, finances housing development to revitalize
neighborhoods, promote economic development and improve
community facilities through local government agencies. 12
HUD’s Home Investment Partnerships (HOME) program
provides direct financing for developers to build, buy, and/
or rehabilitate affordable housing through local government
agencies as well. 13
The tax incentives associated with these programs benefit
the private sector, providing economic tools to revamp
communities nationwide. As such, the OZ program is evolving
this notion further through community engagement, creating
even more vital economic tools.
COMMUNITY ENGAGEMENT
Job creation in OZs is unanimously stated as a top-tier
objective by communities and economic development
agencies. The economic development objectives, however,
vary substantially across OZ communities. The widely
publicized criticisms of some OZ projects so far are due to the
lack of participation by individuals in the OZ community in
establishing local economic development objectives and in
participating in the OZ investment. To offset this, they should
engage local agents into asset selection and due diligence
processes, and have main-street investors participating in the
QOF.
Establishing and utilizing local
partnerships in searching for
high-growth, impactful OZ
businesses is critical.
LOCAL AGENTS
Community engagement can be defined as the collaboration
and relationship between organizations, government, and
public for the purpose of achieving a long-term, sustainable,
and customized vision for their community’s future. Programs
and projects that strategically engage the community often see
foundational benefits such as:
• Community-wide acceptance and participation
• Trust between community members and governance
• More effective, diverse, and targeted solutions
• The development of a community network
• Elevated problem-solving skills and subject knowledge
• Inclusion of community members from varying
backgrounds
• And a united front for a common good
Establishing and utilizing local partnerships in searching for
high-growth, impactful OZ businesses is critical. Without
these resources, government-sponsored programs, like the OZ
initiative, are vulnerable to threats at both the implementation
and long-term stages.
For the OZ market, true community engagement – and
ultimate success – will only be reached if participants tap into
the well of local, grassroots resources. These include local
economic development teams and leaders, local philanthropic
foundations, and local universities.
The practical approach to utilizing local partners is exactly
that, practical. It comes in the form of diligent, targeted
outreach and it is often as easy as sending an email or making a
phone call. By opening the lines of communication with local
advocates such as state and municipal economic development
offices, local incubators and universities, designated OZ
leaders and so forth, investors, fund managers, and developers
become directly linked to the communities they’re impacting.
And through this connection and collaboration, OZ will see
smarter, more customized and unified, sustainable change.
MAIN STREET INVESTORS
A powerful method of community engagement is to enable
individuals in the community to directly participate in the OZ
investments.
Under a mosaic of IRS OZ and Securities and Exchange
Commission (SEC) rules, the ability of QOFs to bring in
main street investors has been viewed as very limited. By SEC
securities registration exemption rules, QOFs must effectively
raise capital through exemption Rules 506 of Regulation D
under the Securities Act. 14 However, Rule 506 offerings
are largely limited to “accredited investors” that have high
income and/or high net worth. 15 This is the standard offering
rule used by the SEC to maintain investor protections in
private offerings. What’s more, QOFs under Rule 3(c) of the
Investment Company Act allow for general marketing but
further limits the QOF to a maximum of 100 investors.
Simply put, the OZ tax incentives only operate through
accumulated, taxable capital gains that are concentrated in
high net worth individuals, which was the design of the tax
legislation. This means that residents in OZ communities who
do not have large accumulated capital gains and do not qualify
as accredited investors are not being marketed to as potential
investors by QOFs.
OPPORTUNITYZONE.COM