Employment Center Opportunity Zones

The Tax Cuts and Jobs Act of 2017 contained a bipartisan amendment with a new economic development incentive to spur private investment in 8,762 low-income census tracts designated by states as Opportunity Zones. In a partnership between Accelerator for America, Drexel University’s Nowak Metro Finance Lab, and The Governance Project, Bruce Katz and Colin Higgins conducted a first-of-it’s kind analysis of the top five percent of job-dense zones. These zones are important because they act as employment centers, giving them some degree of market traction. Yet, ninety-seven percent of these zones are in federally designated Low Income Communities, meaning at least 20% of their residents are living in poverty.  They believe this combination of social need and market traction gives these job-dense Opportunity Zones some of the highest potential for inclusive growth in line with the legislation’s intent.

Geography of Employment Center Opportunity Zones

These zones have a geography that differs from the controversial, and largely residential, tracts that have driven the media fascination of Opportunity Zone coverage. Their analysis finds that over three quarters (78 percent) of these 429 zones are located outside the twenty-five most affluent metropolitan areas. The highest concentration of these zones is in the Upper Midwest (16 percent), followed by the Pacific West and South Atlantic (15 percent each). Almost half (48 percent) of the 429 job-dense Opportunity Zones are in metropolitan areas with fewer than one-million residents. They are located in sub-geographies that function as different urban employment districts representing the breadth of America’s economy: from industrial and port areas rich in blue collar jobs; to downtown and anchor districts replete with high tech, professional, and service jobs.

Varied Recovery but Positive Trends

If these job-dense zones’ geographies reflect the economic development aims of the incentive, so too does their change in employment from 2010 to 2015. Two in three of these zones gained jobs coming out of the recession, providing some degree of market traction.  For these 281 growing zones, job growth has ranged from modest to significant: the employment in 123 of the zones grew by 15 percent or less from 2010; while the employment in 127 of the zones grew by between 15 and 50 percent from 2010. For comparison: over the same period, the highest growth tract in Brooklyn, NY (tract 808), anchored by Kings County Hospital, grew by 77 percent; and San Francisco’s highest growth tract (tract 168.01), anchored by the California Pacific Medical Campus, grew by 1,229 percent. Both are employment centers, but neither are Opportunity Zones.

Why employment centers?

Put simply, the employment center Opportunity Zones They identified have an economic momentum and a local geography that, together, give them a strong potential to improve their residents’ quality of life and economic security. The sub-geography of many zones indicates that along with having strong fundamentals, these areas have low displacement risks because they function predominantly as employment centers with comparatively few residents. These places will likely have good investments for private capital and are places where investment can also address social issues like wealth disparities, housing shortages, and a lack of good jobs.

These 429 job-dense Zones will be the proving grounds for the incentive applications beyond traditional residential or commercial real estate. Whether Opportunity Zones deliver startup capital for university spinoffs will be determined in anchored districts; whether they bolster manufacturing will be determined in industrial zones; whether they create vibrant places will be determined in downtowns and midtowns; whether they spark new local reinvestment ecosystems will be determined by the institutions that sprout up uniting all these disparate strands. We believe the application and evolution of this incentive will occur within this typology of zones.

Download the full paper with a full list of these 429 zones here.

The Governance Project’s Municipal Toolkit

Emphasizing the vital role that city/municipality support and technical assistance plays in Opportunity Zone success, The Governance Project developed insights and practical applications from active community discussions across the country to helping states and municipalities strategically deploy resources and develop local capacity.

We believe community leaders can take a few early steps to set the course for positive and transformative cycles of investment that ensure their communities benefit from the Opportunity Zone tax incentive. With visionary leadership, the incentive can be a big step forward for the inclusion of all Americans in municipal civic and economic life. Put together by leading nonprofits establishing norms for the Opportunity Zone
market, our toolkit outlines emerging best practices for identifying, prioritizing, engaging around, and advancing such projects.

The Five steps of our toolkit are:

1.) Start with a community vision or prospectus. Read more about work developing investment prospectuses from our partners at Accelerator for America.

2.) Identify Zone-Specific Needs. These fall into acute and chronic needs.

3.) Identify Community Resources. These include in-kind contributions, regulatory resources and the local asset base (such as anchor institutions and community groups).

4.) Select Priority Projects from the intersection of Needs & Resources. We recommend using our schematic below to find projects that are best suited for the Opportunity Zone incentive.

5.) Develop Financing Models to Refine Priorities. This includes building models to understand what elements of the capital stack influence social impact and project returns. We are currently working with generous support from MasterCard to build an interactive project-finance decision support tool. F

Read the full toolkit here