How Opportunity Zones Can Help 7.5 Million Students Left Distressed by the Pandemic

It’s no secret that before the pandemic hit the U.S. hard earlier this year, the more than 8,700 designated Opportunity Zones were already distressed and in desperate need of an economic boost. Opportunity Zones, a bi-partisan initiative, was enacted in 2017 to help incentivize economic development and growth in communities previously overlooked by investors. The initiative has grown considerably with communities getting the help they need through the support of impact-focused investors, who in return, receive tax benefits.

And while most of the focus on Opportunity Zones has been on job creation and the growth of real estate and operating businesses, there is one group that, until recently, received relatively little national attention: the children who live in OZs.

According to the Economic Innovation Group (EIG), there are more than 7.5 million children who live in Opportunity Zones. In their latest report, Advancing Education and Child Development in Opportunity Zones, EIG further details how the coming years will be formative ones for these children, especially since they will be mid-career when the tax benefit expires in 2047, as well as how businesses such as the 78 Fortune 500 companies headquartered in Opportunity Zones can help.

To learn more about their latest report, we spoke with Rachel Reilly, Director of Impact Strategy at EIG, about how OZs can truly help steer students and working families towards a successful trajectory as well as how measuring impact will successfully help the initiative do the good it’s intended to do.

Systemic Issues

As your report highlights, children in 9 out of 10 Opportunity Zones lack adequate access to high-quality early childcare and schools, safe places to live and play, and economic opportunity. Of course, COVID-19 has only exacerbated the issue. Can you talk a little about the systemic issues going on in these communities, and how OZs are primed to play a potentially transformative role in reversing the cycle?

The vast majority of Opportunity Zones have lacked adequate private investment for years, if not decades. Many lack basic amenities, like grocers, sit-down restaurants, and convenience stores, which offer employment opportunities for residents and generate tax revenue for local governments. The erosion of local tax bases and lack of economic opportunity has left local governments with fewer resources to invest in their community and address the needs of residents. This downward cycle of distress has created systemic barriers that limit a child’s ability to realize their full potential.

The environment in which you grow up directly influences your development and your understanding of what’s possible in the future. Distressed communities have limited resources to support schools, housing, early learning, broadband expansion, playgrounds, and more. More than 7.5 million children live in Opportunity Zones. They were not positioned for success prior to the pandemic due to the condition of their neighborhoods, and they are now at risk of being left behind.

The pandemic has highlighted how inadequate access to resources like the internet and affordable childcare can undercut educational attainment and workforce productivity, but the subsequent economic fallout has left local governments with fewer resources to deal with these issues. The Opportunity Zones policy has already helped generate additional tax revenue for distressed communities by redirecting billions in private investment. Increased local revenue can be used to fund child-centered assets like schools, but there’s potential for investors to directly impact children in Opportunity Zones. Investments that expand learning and childcare space, support businesses delivering education and care, and build workforce capacity can help address the education and economic losses disproportionately affecting low-income children and their families.

Opportunity Zones’ Potential

The report articulates a number of things that government leaders and others can do to maximize the potential of OZs and drive capital to where it’s needed most. What do you see as those key factors/strategies? And what’s getting in the way of OZs’ potential in these contexts (regulatory challenges, measurement, etc.)?

Early activity in the Opportunity Zones marketplace has demonstrated that collaboration between public and private sector leaders can drive desired outcomes for both investors and communities. Opportunity Zones is a relatively new policy, so the lack of established norms can create a barrier as otherwise interested stakeholders are uncertain of where to start. This report is an effort to address those knowledge gaps, provide proven models that can be replicated, and inspire action. It also demonstrates that, no matter where you sit, you can take a leadership role in addressing an issue in which we all have a vested interest.

For example, the report highlights the benefits of leveraging vacant and underutilized property to attract investment and control use of the property. That’s a strategy that can be taken by the local government, or any other stakeholder that has site control, including businesses, universities, faith-based organizations, and even non-profits like a YWCA. There are 85 YWCAs located in Opportunity Zones, and leadership at the non-profit is interested in exploring partnership and investment opportunities. Surprisingly, there are also 78 Fortune 500 companies headquartered in Opportunity Zones. When you look at the deep impact Erie Insurance has had in Erie, PA, it’s exciting to think about the magnitude of impact possible if their peers adopted similar Opportunity Zones strategies.

Measuring the OZ Impact

Measurement is obviously crucial when it comes to OZs. Are there any unique challenges (or opportunities) when it comes to measuring the impact of the types of projects you discuss in the report? Why is it so important to measure impact, specifically in the context of child development?

Intentionality drives impact. Investors and fund managers have to be committed to certain principles at the outset, and those principles have to be baked into their investment thesis and strategy. Once you understand the type of impact you’re targeting for any given project, you can use evidence-based strategies to make projections, like jobs created or children served, and establish a method for tracking against those projections and measuring the actual impact of your investment.

The long horizon of the policy is conducive to impact measurement, because long-term positive outcomes may take years to come to fruition. Measuring outcomes tied to the development and well-being of children may be a true indication of the policy’s efficacy given the extent to which they are influenced by neighborhood conditions. Pre-teens living in Opportunity Zones will be young adults when the investment window closes, so investments made during these formative years may significantly change their life trajectories by the time they graduate high school in 2026.

Identifying gains in educational achievement and well-being for children will be a powerful indication of the policy’s success. This type of impact measurement ultimately ties back to evaluating the efficacy of the policy. Absent reporting requirements, the long-term integrity and continuity of the policy may hinge on our collective ability to measure the impact of Opportunity Zones investments and demonstrate improved conditions and outcomes in these distressed communities.

Get More

Please join our Chief Revenue Officer Reid Thomas, Catalyst Opportunity Funds’ Jeremy Keele and Economic Innovation Group’s Rachel Reilly as they discussed the importance of impact investing and measurement in Opportunity Zones, Watch Now!

Innovative Strategies for Tax-Advantaged Investing Webinar

A JTC Americas’ webinar
Wednesday, August 24th, 2022
2:00 pm — 3:00 pm ET

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Join us for a free webinar to learn how industry leaders are approaching 1031 Exchanges, Opportunity Zones, and other tax incentives in 2022.

Titled “Innovative Strategies for Tax-Advantaged Investing” the webinar will feature a panel of industry experts discussing how investment strategies are evolving, the future of 1031, and how other programs like Opportunity Zones can help you defer capital gains and build wealth. They’ll also be answering questions from attendees so you can ask about specific situations and get the facts from those in the know.

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