Will Opportunity Zones Result in Benefits for Residents In Need?

Will Opportunity Zones Result in Benefits for Residents In Need?
Brett Theodos, Brady Meixell, Carl Hedman
Urban Institute
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The Tax Cuts and Jobs Act included Opportunity Zones, a new federal incentive program in which corporate and individual investors can receive tax breaks for investing in areas that need revitalization. Eligible census tracts included low-income communities with a 20 percent minimum poverty rate, communities meeting a median family income percentile requirement, and certain communities contiguous to these. A new analysis of the Opportunity Zone designations explored whether states maximized their Opportunity Zone selections, considering both need (i.e., recognizing that the return on investment for public subsidy likely will be higher among communities that struggle to access capital) and benefit (i.e., recognizing that low- and moderate-income residents will need to be able to stay in their communities once they are revitalized). To evaluate this, the authors ranked all eligible tracts within states in terms of the investment flows (i.e., commercial lending, multifamily lending, single-family lending, and small business lending) they have recently received and the social and economic changes they have experienced. Investment flows were ranked on a 1-to-10 scale, with 10 being the highest score. The authors then created an indicator to examine whether tracts have experienced high levels of socioeconomic change to determine whether the Opportunity Zones will benefit low- and moderate-income residents. The study emphasizes the need for the federal government to track capital flows as a result of this incentive program.

Key findings

  • Opportunity Zone designations appear to have only slight targeting toward low-investment areas relative to nondesignated but eligible tracts. Just under a third of Opportunity Zones are in tracts with the lowest levels of investment (scored 1, 2, or 3). Meanwhile, about 30 percent of nondesignated tracts scored a 1, 2, or 3.
  • Twenty-eight percent of Opportunity Zones are in tracts that attract the highest levels of investment (scored 8, 9, or 10). Meanwhile, 30 percent of nondesignated tracts scored an 8, 9, or 10.
  • States that selected areas with the lowest levels of preexisting investment include Alaska, Georgia, and Montana. The same was true of Washington, DC.
  • US tracts that experienced socioeconomic change from 2000 to 2016 were more represented among designated tracts (3.2 percent) than among eligible nondesignated tracts (2.4 percent).
  • There appears to be targeting to need along other dimensions, however. Designated tracts have lower incomes, higher poverty rates, and higher unemployment rates than eligible nondesignated tracts. They also have lower home values, rents, and homeownership rates.
  • Opportunity Zones have not been targeted on the basis of urbanization.