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