Ben Hobbs, Former Special Assistant to the President for Domestic Policy at the White House, has a lot of insider knowledge about Opportunity Zones. He recently shared his thoughts on the initiative, including a special message for investors and entrepreneurs, during the National Opportunity Zones Virtual Forum, which was co-hosted by Akerman, JTC Americas, Brevet, and Cantor Fitzgerald.
“As [HUD] Secretary Ben Carson likes to say, we need more people pulling the wagon than sitting inside the wagon,” said Hobbs. “And that’s what Opportunity Zones are about. We need the next Uber or the next Google to be developed in an Opportunity Zone in the American heartland, or in some of the communities that haven’t seen investments for decades.”
Below is an edited transcript of Ben’s four takeaways on Opportunity Zones from the Forum, including goals of Opportunity Zones, what’s been accomplished so far, results of the Opportunity Zone initiative and what’s in store for the future. View the recording of the National Opportunity Zones Virtual Forum.
Goals of Opportunity Zones
In 2017, President Trump signed the Tax Cuts and Jobs Act, which established Opportunity Zones to incentivize long-term investments in low-income communities nationwide. More than 8,760 communities in all 50 states, the District of Columbia, and all 5 territories have been designated Opportunity Zones. That encompasses 35 million Americans living in communities that are designated Opportunity Zones. The average poverty rate in these Opportunity Zones is 32%, compared to the US average of 17% in the other census tracts.
One of the primary goals of Opportunity Zones is to bring back opportunities to these distressed communities.
As US Department of Housing and Urban Development (HUD) Secretary Ben Carson likes to say, “We need more people pulling the wagon than sitting inside the wagon.” And that’s what Opportunity Zones are about. We need the next Uber or the next Google to be developed in an Opportunity Zone in the American heartland, or in some of the communities that haven’t seen investments for decades.
Opportunity Zones are about meeting the challenges of the 21st Century. Look at the last recession. Uber, Pinterest, Airbnb, Square, Venmo — all started during the last recession. Not to mention General Motors, Burger King, Trader Joe’s, Hyatt, Hewlett Packard — all started in the depth of a recession or a depression in our American history, and they are pillars of American society. That’s what can happen, and that’s what Opportunity Zones can facilitate as we come out of the current COVID pandemic crisis.
Opportunity Zones are about the dignity of work. We are what we do. Just think about policemen, nurses, teachers, steel workers, lawyers, farmers, an accountant, or a service member. We all know those people. Those people define themselves by what they do. We all define ourselves by what we do, and then what we do brings pride and value to our communities.
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Now think of the chronically unemployed, the homeless, the gang member who finds family in the gang, a returning citizen or a newly laid-off worker, or the son or daughter who can’t leave a community because they need to stay home and take care of a family member. That’s who Opportunity Zones are also about. They’re about giving our fellow citizens, those citizens, the same opportunities to define themselves as a nurse, as a teacher, as a steel worker, as a farmer, as an accountant. Giving them the same opportunity in their communities, which they haven’t had.
One of the great things about Opportunity Zones is anybody can get involved. With Opportunity Zones, a city or a developer doesn’t have to hire a good grant writer and hold their hands out and say … please government, can I have a grant? They don’t have to hire a lobbyist in DC. All they have to do is find an investor, find an entrepreneur, and get a deal done.
In that sense, it’s truly bottom-up and accessible to every single community in the United States, no matter if you’re in Brooklyn, New York, or Alliance, Ohio. So, keep these goals in mind as we work through today: we’re aiming to revitalize communities, meeting the challenges of the 21st century and transforming lives.
What has been Accomplished so far
Everyone knows that the regulations are done and have been finalized.
Building off that success, the President established the White House Opportunity and Revitalization Council in December 2018. So far, 20 domestic federal agencies have been asked to target, streamline and coordinate programs and resources to Opportunity Zones. These 20 agencies have taken action in 322 unique programs.
Those 322 unique programs, across multiple agencies, represent $18 billion in available federal funding to help revitalize communities and augment the private-sector capital that’s flowing in. Quick examples:
Since 2018, the Economic Development Administration of the Department of Commerce has invested over $500 million in 365 different Opportunity Zone projects.
The Department of Transportation has awarded over $2 billion in Opportunity Zone infrastructure projects to help transportation and spur economic development and private-sector investment in Opportunity Zones.
Led by Secretary Carson, every single HUD program now has Opportunity Zone benefits. Furthermore, HUD has been working on some procurement pilot programs for small businesses in Opportunity Zones and helping reduce mortgage insurance application fees in these areas.
The Small Business Administration has been instrumental. SBA has pushed many of their entrepreneurship programs and loan programs towards Opportunity Zones by relaxing regulations to make these loans more available to Opportunity Zone businesses. Likewise, they are working with the Small Business Development Centers to ensure that those business centers all know how to work with entrepreneurs and utilize Opportunity Zone investment.
The Department of Justice has also been playing a massive role, targeting over 50 of their grants — dealing with reentry, gang remediation, youth engagement, family drug courts, and prisoner reentry — towards Opportunity Zone communities.
At the Department of Education over 15 of their competitive grant programs now have preferences for Opportunity Zones. Things such as charter school grants and teacher assistance grants. Likewise, at the Department of Labor, where over 13 of their competitive grant programs have Opportunity Zone benefits.
This summer the President took it a step further and signed an executive order requiring federal agencies to prioritize Opportunity Zones in the placement of new federal offices and facilities. The intent was that there will be no new federal facilities built in downtown DC on K Street, costing taxpayers millions of dollars. Instead, we’re hoping to move those investments to communities like Anacostia that need these anchor institutions and workforce that can provide a new avenue for local businesses to thrive.
Results of the Opportunity Zone Initiative
We’re already seeing transformative results across the country, and there have been great studies and analysis thus far on Opportunity Zones. We’re thrilled to say that the recently released Council of Economic Advisors report on Opportunity Zones estimates that $75 billion of investments have flown into Opportunity Zones over the past two years. $52 billion of that $75 billion would have never happened without the Opportunity Zones tax incentive.
These are billions of dollars going into communities just like my hometown, Alliance, Ohio, to reopen some of those shuttered factories; provide new affordable housing in places like Brooklyn, New York; or give a new coffee shop the opportunity to open. That $75 billion represents 500,000 new jobs in distressed American communities. 500,000 new jobs, simply because of Opportunity Zones.
Those 500,000 new jobs and $75 billion are on track to lift at least a million Americans out of poverty. That’s going to reduce the poverty rate in Opportunity Zones — which, remember, is at 32% —by 11%. That is the power of the private sector coming into those communities that haven’t seen it in decades.
What is Next?
We know that when Opportunity Zones were first put out there, it was a new program. Governors didn’t quite know what they had on their hands. Some took a very calculated approach, and others may not have. We know there are communities out there that have fallen through the cracks. It was our goal to expand Opportunity Zones and to give all of our nation’s Governors another shot, to make sure we pick up all those important communities across the country.
We also know we need to expand the timeline for investment. We have already passed the 7-year time horizon for 15% basis step-up, and we know that’s an important calculation. Not everybody is going to stay in for 10 years, but that 7-year 15% is important for various business models. So, we want to expand that timeline to ensure that all investors and all entrepreneurs have the ability to take advantage of Opportunity Zones.
Lastly, very importantly, is measurement. Unfortunately, we had to drop some of our measurement considerations within the Tax Cuts and Jobs Act, but we know the importance of measurement to learn and know the return on investment for the taxpayer. Is the American taxpayer getting a bang for his or her buck? And likewise, are Opportunity Zones transforming lives in the communities, as they’re intended to do? Measurement is going to be very, very important.
So we should expand the number of Opportunity Zones, extend the investment timeline horizon, and increase the measurement and accountability for Opportunity Zones.
How do Opportunity Zones help with the current pandemic? The next generation of start-ups are going to come out of Opportunity Zones. We already know and see many people are starting to move out of our major metropolitan areas due to COVID.
You have an opportunity, as investors and entrepreneurs, to track those individuals that are moving back home, getting new houses in small-town America, and medium-size America. Capture that and help them build new startups. That’s how Opportunity Zones will be able to capture that human capital and unlock new human capital to bring us out of the COVID pandemic.
Watch the full recoding of the National Opportunity Zones Virtual Forum today!