Why does a trade association for Qualified Opportunity Funds want more data collection and reporting? And could the Opportunity Zone program be renewed at some point in the future?

Senator Tim Scott’s former tax adviser, Shay Hawkins is founder and CEO of the Opportunity Funds Association (OFA) — a Washington, DC-based advocacy, education, and communications group for the Qualified Opportunity Fund industry.

Click the play button below to listen to my conversation with Shay.

Episode Highlights

• Shay’s role in getting the Opportunity Zones statute passed through Congress and some of the biggest challenges that he faced along the way.
• Why Treasury’s Opportunity Zone reporting mandate was stripped out of the final version of the bill that passed into law, and what Shay is doing to redress this issue.
• How Senate Bill 1344 aims to restore the reporting mandate.
• Why it was critical for Shay to work closely with Treasury during the regulatory phase.
• The mission of OFA: advocacy, education, and communications.
• How OFA provides a vehicle for OZ funds and investors to participate in public policy and establish best practices.
• The goal of getting the Opportunity Zones policy renewed, and what that would mean for re-drawing the map.
• How OFA’s charter member Virtua Partners is investing in Opportunity Zones.
• The tools that municipal government can use to limit resident displacement.

Featured on This Episode

• Shay Hawkins on LinkedIn
• Opportunity Funds Association
• Senator Tim Scott (R-SC)
• Senator Cory Booker (D-NJ)
• Congressman Pat Tiberi (R-OH)
• Congressman Ron Kind (D-WI)
• Congressman Jim Renacci (R-OH)
• Byrd Rule
• Senate Bill 1344
• Economic Innovation Group
• Bipartisan Letter to Treasury
• Treasury Official Dan Kowalski on the Opportunity Zones Podcast
• Treasury’s Request for Information on Data Collection
• Virtua Partners
• Quinn Palomino
• Congressional Black Caucus
• Ways and Means Committee

Industry Spotlight: Opportunity Funds Association

Headquartered in Washington, DC, OFA is an advocacy, education, and communications organization established to enable Opportunity Fund managers and investors in Opportunity Funds to participate in public policy, share best practices, and communicate the industry’s contributions to distressed rural and urban communities across the country. OFA will help connect Opportunity Funds to investors and promote the successes of Opportunity Funds in the local communities and on Capitol Hill.

Learn more about the Opportunity Funds Association

• Visit ZoneFunds.org
• Email [email protected]

About the Opportunity Zones Podcast

Hosted by OpportunityDb.com founder Jimmy Atkinson, the Opportunity Zones Podcast features guest interviews from fund managers, advisors, policymakers, tax professionals, and other foremost experts in opportunity zones.

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Show Transcript

Jimmy: Welcome to the Opportunity Zones Podcast. I’m your host Jimmy Atkinson. When the Opportunity Zones legislation was first introduced to the Senate in February, 2017, it was cosponsored by Senator Tim Scott, a Republican from South Carolina and Senator Cory Booker, a Democrat from New Jersey. Joining me on the show today is Senator Scott’s former tax adviser, Shay Hawkins. Shay was instrumental in getting the Opportunity Zones Legislation passed by Congress and also lended his voice to Treasury’s regulatory efforts. He left Senator Scott’s office earlier this year to establish the Opportunity Fund Association, a trade group for qualified opportunity funds. Shay joins us today from his office in Washington, DC. Shay, thanks for coming on the podcast and welcome.

Shay: Thanks, Jimmy. Thanks for having me. It is a pleasure.

Jimmy: Absolutely, absolutely. I’m excited and looking forward to speaking with you. Quite the intro I gave you and I really want to drive home this point. I wanna make sure that we’re not understating your importance to the Opportunity Zones Tax Policy. I recently heard someone on your team make the analogy that Senator Scott may be the Bill Belichick of Opportunity Zones, but you are the Tom Brady. Senator Scott was the one calling the plays, but you were the one actually running the plays on the field and making sure that this policy not only got passed, but then was interpreted correctly by Treasury. Is that a fair thing to say?

Shay: I think that’s fair. It’s funny to hear but it was really great to be on Capitol Hill at this time and to be working closely with Senator Scott during this process. I’m not, you know, a long-time Capitol Hill staff, you know, my background is investment banking, but I was on the Hill at the right time and working with the right member and somebody who was really central to the process in tax reform and who had a great policy in the Investing in Opportunity Act that we were able to draft a version that could fit into the tax reform framework, you know, and get it across the finish line. So it was a pleasure, one of the most exciting experiences that I’ve had on Capitol Hill and definitely one of the most exciting experiences in my career.

Jimmy: I’m sure. Hey, can you tell my listeners and I a little bit more about that story? How did you get that piece of legislation across the finish line and what were some of the biggest challenges that you faced?

Jay: Sure, sure. As you know, the Opportunity Zones Provision and Tax Reform is based on a bipartisan, bicameral bill called the Investing in Opportunity Act. That was actually introduced not just in the 115th Congress, but it was introduced in the 114th as well. And again, you know, key co-sponsors of the Investing in Opportunity Act on the Senate side were my old boss, Senator Tim Scott, and then Senator Cory Booker from New Jersey on the Democratic side. And then on the house side, you had Congressman Pat Tiberi. You could look at him as sort of the Republican version. I mean the house side version of Tim Scott. And then you had Representative Ron Kind as well.

And so beyond that, on the house side, 88 co-sponsors and 15 senate co-sponsors on that bill. Okay. And so the, you know, the real challenge was taking that bipartisan bill and finding a version that could work in the tax reform process with required reconciliation, which means that there’s only so much you can add in terms of debt and that amount is decided upon ahead of time. And so you really have to now take a bill that had bipartisan agreement, but really put it in the vehicle of the day which is the case with any bill. It’s very, very rare that a bill passes as a standalone. So whether it be a continuing resolution or a tax reform bill or appropriations bill or what have you, you’re always gonna have to find that vehicle. And with this being fundamentally a tax bill, tax reform is the right vehicle.

Jimmy: Good. And what were some of the biggest challenges in getting it across the finish line? And was there any pushback from senators and other congressmen who may have championed the new markets tax credit program and other tax credits who may have resisted this bill at first if they didn’t quite understand how it all fit into the tax policy?

Shay: Right. And so, you know, the reality, I’ll start with the reality and go with that, you know, and then deal with some of their perceptions. The reality is that Opportunity Zones in many ways, highly complementary with existing policies such as the new market tax credit program, LIHTC, Low-income Housing Tax Credit program and others, most of those programs focused on debt. Opportunity Zones focus on equity. Those programs have a cap in terms of the total amount available, whereas Opportunity Zones the amount available is really unlimited when you’re looking at private sector capital. Those programs can be implemented really, you know, really anywhere, whereas the Opportunity Zones have certain, you know, kind of geographic limitations. And so, you know, they’re really complementary. But in the process, there were folks who felt that Opportunity Zones would act as a replacement for, you know, for some existing programs. And so one, you know, Opportunity Zones is, while complementary, very different. You know, but two, that wasn’t the intent of folks like Senator Scott who were moving this forward. They basically see those two as complementary. But that perception created a little bit of pushback early on before folks were fully educated. And because it’s a political process, they’re always getting the people involved would have liked possibly use Opportunity Zones as replacement for some existing programs.

And so, that process can kind of help aid that pushback. But my old boss and myself on the staff level and some are outside stakeholders really worked hard, you know, to educate folks across the Hill and in the White House and in the ambient, that outside stakeholder community. And even amongst those were proponents of new markets and LIHTC to really help them understand the, you know, the potentially complementary nature of Opportunity Zones.

Jimmy: Yeah. The Opportunity Zones program not meant to replace those former tax credits, but in many ways can work with them to help.

Shay: Absolutely. Absolutely. And a lot of investors are using them together.

Jimmy: Yes, absolutely. Shay, I wanna back up for a second here and get a little bit of your personal story. Can you tell us a little bit more about yourself and how you got your start and basically tell me the story about how you got to where you are today?

Shay: Yeah, sure, sure, sure. So, you know, I have really benefit from the free enterprise system all throughout my career. I did my undergrad at Ohio State in economics, came out to New York to work in finance, work for two and a half years at an investment bank and ended up getting a full fellowship at the Columbia business school by that same investment bank. So saved me a ton of Columbia. Ultimately, went back into investment banking after business school, focusing on the sales side, merges and acquisitions for technology, media and telecom companies. And so, you know, all during that time, I was really able to earn and save and give in ways that I never would have thought possible back when I was an undergrad at Ohio State. So, you know, got so much from this free enterprise system. So appreciative of it.

And so the investment bank that I was at was not, although a relatively small, was not unaffected by the financial crisis. And so I set in my mind at that point that I was gonna take some of my educational background, some of my experience in finance and give that back as it were to help preserve our free enterprise system that they’ve given me so much and provided so much opportunity for me. And so I set my mind to try to get myself involved in government at least for some time. And so, you know, got back to Ohio State, get myself to law school. And after law school, I ended up coming to DC to work on a tax fellowship in Congressman Jim Renacci’s office. He’s a Cleveland area congressman, and I am from the Cleveland area.

And so Congressman Renacci had his own tax plan. And he was advancing his tax plan against the house blueprint and at the time, the president’s proposal. So I was assisting Congressman Renacci and the tax councils that he had working in his office in advancing his plan. And so around May of 2017, Senator Scott was pulling his team together. He knew at that time that he was gonna be a critical part of the tax reform effort. And so in May of 2017, Senator Scott brought me over to join his team. And, you know, we really hit the ground running over there and I was able to, you know, to advise him. Throughout the tax reform process, I handled a Senator Scott’s entire finance community portfolio, which really would have included tax but also trade and pensions.

And so given that he was a conferee, and one of the key drafters for the Senate-side bill, which really led the process of, you know, on a lot of what became the ultimate bill. And again, he was a conferee, which is just to say that he was part of a smaller team that help reconcile the house bill and the Senate bill ultimately. And so, and again, advise him through that entire process. And so where we are now in terms of my presidency of the Opportunity Funds Association, you know what I looked at this association as is a platform to continue to promote Opportunity Zones, you know, to promote good behavior in the zones and have this great, great policy be ultimately, you know, extended and expanded so that more folks in distressed communities can benefit from private sector capital. So it’s, you know, it’s been a great run, but it ultimately is on the same theme. I feel blessed, you know, to be living and working in a free enterprise system and, you know, do whatever I can to both preserve that system, but also to expand it and make sure that people in all aspects of our society and on all levels can participate.

Jimmy: Right on. Yeah. And I’ll ask you a little bit more about opportunity funds since season here in a few minutes. But it’s interesting that you praise the free enterprise system as much as you do. This Opportunity Zones Tax Policy, it’s a federal tax initiative, but it’s very much a free enterprise system. It’s largely free of oversight from the federal government. It’s regulated by the federal government, but there’s no pre-approval process. There’s no really centralized authority that you have to go through. The funds can self-certify and there’s a little bit of a tension there, I guess, because on the one hand, I like that it’s a free enterprise system. I like that it’s largely being driven by the free market system and there’s very little oversight. But on the other hand, you do wanna make sure that the program’s working and you want some level of accountability and reporting. The original piece of Opportunity Zones Legislation that was introduced to Congress was titled the Investing and Opportunity Act and it gave Treasury or reporting mandate. But by the time that the policy was passed as part of the Tax Cuts and Jobs Act in December of 2017, that mandate was removed. Can you tell me what happened there exactly and why that was removed?

Shay: Yeah, sure. Absolutely. And so, you know, again, our challenge in drafting language based on the investing in Opportunity Act and making that the Opportunity Zone Provision and Tax Reform, the challenge there was the reconciliation vehicle that we were using, you know, in order to pass tax reform. One key aspect of the reconciliation vehicle, you know, it’s technically called budget reconciliation. And what that means is that basically, the tool requires that everything associated with the process and any policy that’s passed within the bill has to be directly budget-related has have a budgeted impact?

And so if there’s a provision that doesn’t have the budget impact or you know, adds to or subtracts from the budget, then it can be removed based what’s called the Byrd Rule. It’s a rule that’s named after a former senator from West Virginia, Senator Byrd. And you know, this rule basically says that, hey, if anything that has no budget impact is presented in a bill, then they can be removed and everything associated with it. And that’s removed either on the Senate floor as the bill is being passed or it can be evaluated by a parliamentarian ahead of time. And people who are against the bill can lay out the things they plan on challenging, and it will give the people and the majority who support the bill a chance to just remove things rather than have been challenged on the floor.

And so we put the Investing in Opportunity Act reporting requirements in whole, you know, we added those in. And so those are part of my drafting. But unfortunately, it became clear that those reporting requirements we’re gonna be challenged. And so rather than risk the entire Opportunity Zone provision, we will move those reporting requirements and we had to just hope that there’ll be bipartisan support for adding those reporting requirements back in a later. And again, we were definitely happy to see Senate bill 1344, which adds those reporting requirements bypassed. But at the time, we couldn’t risk the entire provision because those were gonna be challenged.

Jimmy: Right. Yeah. That reporting mandate could have potentially jeopardize the entire program. So I can understand why you proactively removed that part of the statute from the provision. So before you…

Shay: In a perfect world, you know, somebody from the minority would have just said, hey, can you guys let this one slide? But it’s not a perfect world.

Jimmy: And you had some people on the other side who threatened to challenge the bill otherwise. Is that right?

Shay: Right. Yeah, yeah, yeah. It was clear that they were gonna challenge that portion.

Jimmy: Good. Before you left Senator Scott’s office, and you just referenced this a minute ago, you helped author Senate bill 1344 which restores that reporting mandate. It was introduced to the Senate floor last month. Can you tell me a little bit more about that bill and when do you think we can expect to vote on it?

Shay: Sure. So essentially, what Senate bill 1344 does, it’s a bill we worked on closely with Senator Booker’s office. It was a big priority for both Senator Scott and Senator Booker. You know, basically what it requires, it requires very basic information to be collected by Treasury from bonds, and it requires bonds to give very basic information to Treasury. So it’s not anything that would jeopardize, you know, competitive advantage or anything like that. It’s just basic information that any fund manager should know, they should know off the top of their head. So these are things that could literally be check boxes, basic information about how much capital is invested in Opportunity Zones, what zones the fund has investments in, broad categories regarding the type of investments. So real estate, property, operating business, you know, within the operating businesses, we could be looking at him information on the SIC code level and then the amount of direct jobs created, you know.

And so, you know, whether you’re running a multi, you know, multimillion dollar fund that’s investing all across the country or whether it’s three individuals that got their money together to invest in a restaurant franchise, they should know this information it should be in a noble and ascertainable and reportable. And so it’s a bill that restores what we had. It goes a little further, but then also is not so onerous that it keeps capital out of the market. It’s critical that report requirements aren’t so onerous that if you’re not a fund that’s large enough to hire large numbers of accountants and lawyers, you won’t be able to participate in reporting and therefore comply. So we wanted to be information that’s valuable and useful in evaluating the effectiveness of the policy down the road, but not so onerous that it keeps investors out of the market, smaller investors.

Jimmy: And then Treasury would be responsible for releasing this data annually. And they would also submit a report to Congress on the effectiveness of the program. I believe five years after the law is passed. Is that correct?

Shay: Right, right, right. Because Treasury needs, you know, Congress needs to understand how effective have, you know, coordinate the original intent that the policy is. So if there are adjustments that need to be made, then those adjustments can be made. And if we see, I would just, well, we expect that the policy’s bringing large amounts of capital into distress communities and that capital is benefiting existing residents, then, you know, we can possibly look at an expansion of the policy in the future. And so reporting is important. It’s always been important to the original sponsors, the investing in Opportunity Act, again it’s the priority for Senator Scott and Senator Booker, which is why we got it put back. And, you know, we think the stakeholder community and you know, definitely in the Opportunity Funds Association, all of our members, you know, see it as important because again, we need to give Congress that tool to see how effective the program is.

Jimmy: And when do you expect we can see a vote on that bill and do you expect it to pass?

Shay: And so I’ll answer your second question first. What we’ve seen is in terms of the bipartisan support for things that involve Opportunity Zones, you know, we’ve really seen that both in the original bill , which again was a bipartisan bill, but even, you know, even in the hearings, you know, from the small business community to the joint economic committee to what we’ve seen on the finance committee, you know, you hear folks on both sides of the aisle saying that this is a great cool in a toolbox of community development. And we also see evidence, legislative evidence in the fact that in the first continuing resolution following tax reform, we were able to get bipartisan support. We’re allowing Puerto Rico to…the territory of Puerto Rico to designate 100% of the distressed census tracks on the island as Opportunity Zones. And this was partially in response to some severe hurricane hit the island had just suffered.

And so we saw folks come together in a bipartisan way to expand Opportunity Zones in a way that was beneficial for folks in the distressed area. And so when we look at something like reporting, which is something that’s been a priority for Democrats and Republicans, we think the chances of it passing if we can get a vehicle for it are very high. And we have reason to be optimistic there. And so it’s really just a matter of there being an appropriate vehicle that kind of comes along for this to come along side of. And so, you know, from there, you know, anytime we’re looking at a continuing resolution or budget bill, those are possibilities if we look at, you know, bill around it as a tax element. So if we do something along the lines of extenders or retirement then that obviously presents a chance. If we can do something with infrastructure, you know, that presents a chance as well. So it’s really just a matter of finding the vehicle in terms of the timing. But in terms of it passing once we get the vehicle, I think that’s very reasonable.

Jimmy: Did you get a sense that there may be any vehicles coming down the pipeline pretty soon here or do you have any sense of timeframe?

Shay: Well, you know, we would hope, you know, looking at things in a broader way, we would love to see something, see a vehicle sooner rather than later. I would imagine that everything gets more difficult once we cross into the actual election year. And that would apply to both, you know, the primary portion in the year as well as the general election portion in the year only because, you know, with so many folks, particularly in the Senate running for president, you know, those folks are kind of running against each other and each others policies, unfortunately. And then ultimately, you know, one of those people will be running against the president. And so that can kind of chill the legislative process a little. So I think sooner rather than later would be great.

Jimmy: I love to see something past during this session of Congress, hopefully before the holiday break at the end of the year, right?

Shay: Sure. That’d be ideal.

Jimmy: Yeah. As I mentioned earlier, you were not only involved with the legislative piece of the puzzle, but you’re also involved with regulation, getting the Opportunity Zones regulated by Treasury. What efforts did you go through to make sure Treasury interpreted the statute in a manner that was consistent with congressional intent and how involved were you with that part of the process?

Shay: So, yes. So that was really job one is making sure that the regulations associated with Opportunity Zones, one come out one at a timely manner, but to come out consistent with what the House of Senate voted for in tax reform. And so I was the, you know, the point person obviously on the congressional side for this process because, you know, Senator Scott was the point person in terms of, you know, in terms of on the member level. And so this is a critical process, but it’s tricky because once the law is passed Congress’s official role, it’s sort of finished there and certain really just working carefully and as closely as possible with Treasury to make sure that each, you know, each sort of line within the provision is ultimately charge it to a proposed regulation, you know, that does what Congress voted for.

And so the key there is to weigh in with Congress, with the actual text of the provision in hand, and say, look, this is where your interpretation is, you know, is not in line with congressional intent or inconvenient. And here’s where, according to the statute, you know, when you see us needing to make a correction. And that’s critical because Treasury is bound to that statutory language. So if you can’t point to what you’re looking for from within that language, then you really don’t have a leg to stand on. And so you know, that process is critical. You know, there’s a lot of back and forth and a lot of coordination with outside stakeholders. So there’s key folks, you know, like the folks at the economic innovation group who were really, you know, really critical in the conceptual phase around Opportunity Zones. And as they brought it to folks like Senator Scott in those early phases, what they envisioned and what Senator Scott envisioned there that there’s what came out in the investing in Opportunity Act and then was I ultimately passing the Opportunity Zone’s provision.

You know, you have to kind of coordinate all of those stakeholders involved in all those different levels. Communicate the Treasury, you know, in those terms. You know, there’s democratic members who did not vote for the actual tax reform provision. But who could be valuable in weighing in when the Treasury in a bipartisan way, whether that be through letters, whether that be through meetings, through phone calls. You know, to say, look, this is what we we’re looking at and this is what we consider to be a key priority now. And, you know, in the interpretation these provisions. So yeah, so just a lot of coordinating members, a lot of coordinating other staffers and a lot of letter writing and phone calls with Treasury.

Jimmy: Yeah. There was a letter that several members of Congress addressed to Treasury, I believe it came, correct me if I’m wrong, I believe it came after the first tranche of guidance had been issued, but before the second tranche of guidance had been issued and getting them to speak with one voice, you were a central player in that. Is that correct?

Shay: Yes. Yes, absolutely. So, you know, so one key thing there and sort of an example of why that’s so critical is that we sawin IRS hearing and it was literally a situation where you had five officials from the IRS and you had about 21 speakers who came in and, you know, really spoke about that first tranche of regs. A lot of comments sort of also involved desired interpretations of what was coming in the second tranche of regs. And so of the 21 witnesses who spoke to that IRS panel, and this is a, you know, an unprecedented IRS hearing. I mean, it was standing-room only. The IRS employees literally had to give up their seats to allow for the folks who are still waiting in line outside, you know, to get into this hearing well.

Jimmy: And some people still got turned away from what I understand.

Shay: And many people still got turned away. And so of the 21 speakers who weighed in with that panel, probably 15, you know, while I was still there, reference the letter that we drafted, you know, again with Democrats and Republicans from the House side, Democrats and Republicans from the Senate side. We just laid out the priorities for this second tranche of regs and they thought about things like, you know, looking at reporting. They talked about things like really making me environment conducive to investing in operating businesses. That was absolutely critical. There were some provisions that, you know, that when we looked at the proposed regs, the ultimate proposed regs in the second tranche, you really see where that letter, you know, had effected organizing those stakeholders.

Jimmy: Yeah. Then that was pretty powerful and I think you got what you wanted out of that second tranche regulations. Correct me if I’m wrong, but what’s your take on the second tranche of regulations that we received a couple months ago now?

Shay: I think Treasury made a great start there. And so obviously, you know, yeah, the Opportunity Fund Association will be weighing in our comments where we landed, but I think overall, Treasury made a great start in terms of making the policy conducive to operating businesses, clarifying some of the remaining issues that were out there for folks that would be doing real estate investing, you know, and really asking for feedback on some important areas, sort of like reporting. And so, yeah, we were, overall, very pleased.

Jimmy: When I spoke with Dan Kowalski over at the Treasury Department, he indicated to me that, you know, their tax policy experts, they’re not social scientists and they couldn’t rewrite the statute, so they couldn’t really provide or mandate the same level of reporting that I know that you probably are looking for. But I suspect, I get the sense that they’re doing their best there and they’re making a good attempt to at least listen to it’s different stake holders. And I know they’ve recently submitted that request for information on that very topic as to how they can collect and report on data. So I get the sense that in some way, somewhere along the way here, we’re gonna get some more clarity on what type of data is gonna be required from the Treasury Department with or without Senate bill 1344 going through.

Shay: Right. And, you know, one of the things we definitely agreed, you know, Treasury without Congressional action and, you know, more importantly without volunteering action from fund managers. Treasury does have those limitations, I mean, the tax experts. And both, you know, we were just glad to hear it in the conversation. And to see, you know, Treasury requests for comments followed up by the legislative action from Congress. And you know, getting that movement out there, keeping the conversation and we’ll be in a good place.

Jimmy: Right. So let’s shift our conversation now and I wanna talk about the Opportunity Fund Association. Can you tell me a little bit about it? Who’s on the team and what is your mission over there?

Shay: Sure. So the Opportunity Funds Association is basically, you know, an advocacy education and communications organization. It’s the trade association for opportunity fund managers. And, you know, it’s a vehicle that will allow opportunity fund managers to an investors to participate in public policy. So we’re looking at three main areas. One will be communications. So we’ll be communicating the industry’s contributions to distressed rural and urban communities across the country. So that’s gonna be critical because we have already, you know, our members are already putting shovels in the ground, they’re already funding businesses. And so we wanna make sure that we communicate those contributions, out of the media to the public, and we make sure we communicated to folks on Capitol Hill or in state legislatures.

So we also wanna make sure that we act as a standard-setting organization for reporting and transparency in opportunity funds. And so, you know, as a trade association, that’s a key role. At the end of the day, we need to be able to point members of Congress, folks in state legislatures, governors, and the rest of society to the tangible benefits that opportunity funds have created in distressed communities. And in order to do that, we need rigorous reporting. And so regardless of whether or not Senate bill 1344 passes, our members are always gonna adhere to rigorous reporting requirements and rigorous framework just so that information is available both the Treasury into the public.

And so the final aspect of the Opportunity Funds Association is advocacy. So we will be working with members on Capitol Hill to educate them about Opportunity Zones, educate them about the opportunities on investments that are occurring in their districts, but then particularly working closely with members of the tax writing committees. So finance community, the Senate side and ways and means of outside to expand, preserve and ultimately expand the Opportunity Zones Provision.

You know, right now after 10 years no more new investments can be made in Opportunity Zones. And so we wanna do is really demonstrate with data and with the good work and stories that opportunity funds are doing and distress communities. We wanna be able to say, “Hey look, there’s an argument here to extend this for another 10 years or maybe even make it permanent.” So those three areas, communications, transparency and reporting, and then finally, advocacy are the roles that the Opportunity Funds Association will play.

Jimmy: That’s great. And I would love for the program to get extended. I would imagine that the map would be redrawn every decade or so. Perhaps the Opportunity Zones that were designated a while back by the different state governors and certified by Treasury are in effect through the end of 2028 I believe. So possibly that would mean that we would have to redraw the map every 10 years or so. Is that right?

Shay: Well, Yeah. You gotta understand Jimmy, we wanna be regionally in that map, correct. We don’t want the same 8,700 census tracks to be distressed. It is rural and urban areas after we’ve had the chance to draw capital into them. We expect currently distressed communities, but many of them to not be distressed at the end of this and you know, not be the criteria at the end of this process. And so, yeah, we absolutely hope to redraw the maps. No question.

Jimmy: Yeah, I’m with you there. It’s the hope that these 8,700 plus Opportunity Zones are no longer Opportunity Zones by 2028. Otherwise, the program hasn’t worked as initially planned. Which qualified opportunity funds have signed on as a member so far with the Opportunity Funds Association?

Shay: So we’re really proud about charter member Virtua Partners out of Arizona. So Virtua Partner CEO is one named Quinn Palomino. And they are really aggressively committed to social impact. And so outside of Opportunitiy Zones, you know, they are about a three and a half billion dollar real estate private equity fund. And you know, they are looking to do hundreds of millions of dollars of Opportunity Zone investing over the next 10 years and just are committed to impact in opportunity funds.

We had an opportunity to bring Quinn Palomino to Capitol Hill a couple of weeks ago. And so she was meeting with some Congressional Black Caucus members who also serve on the ways and means committee just to discuss some of her plans for impact in the areas where they invest, some of her plans to guarantee that affordable housing is available in the zones where they invest, you know, in proportion to what they invest, you know, to build out in the real estate space. And we had some, so broad smiles after that. I think there were some real concerns amongst the members of the Black Caucus. In fact, they sent a letter to the Treasury, you know, to voice some of these concerns around making sure that minorities gain in terms of jobs based on the opportunity funds and then also making sure that gentrification doesn’t become a problem in the zones and zones where these members district sit.

And so again, you know, the ways and means members made a tax writers, we wanted to make sure that we got our charter member into town to speak with them. And it was a great visit overall because the next day Quinn was able to time with my old boss, Senator Tim Scott and Treasury Secretary Mnuchin at minority investors summit. And so and at that summit really communicate with the Treasury secretary the different ways in which federal agencies can facilitate Opportunity Zone investments along the lines of what the White House has really laid out as bare intent. And so, yes. So it was great to have her up here and they are great partner as our charter member.

Jimmy: Good. Yeah. I’m sure they are. They were one of the first, if not the first to launch a qualified opportunity fund toward the beginning of 2018. They were one of the early adopters of the program and they’re based in Phoenix, Arizona I believe. Is that right?

Shay: Yes. And so we’re all actually gonna be out in Arizona next week for groundbreaking on an Opportunity Zone project that Virtua Partners is investing in. And so we’ll be out there, you know, with the governor and Quinn too. I’ll be out there as well. And again, just celebrating and communicating the good work that members like Virtua are doing on Opportunity Zones. So we’re excited.

Jimmy: A little bit earlier we were talking about getting this program extended. What work have you been doing to frighten work toward that goal of extending this program so it works beyond 2028?

Shay: Right. So what’s key there is education. So educating numbers, educating the public, making sure that all stakeholders understand really the potential that I would Opportunity Zones represent, you know, they’re still gonna be folks, you know, governors are clear. There’s still gonna be folks on the local level across the country who not fully aware of the policy and a lot of folks aren’t aware of how they can utilize it. And so, you know, education is gonna be key, but then also again, transparency reporting. People have to know what’s happening in the zones. They have to know what the impact is in order to evaluate its extension. You know, that’s quite natural.

Jimmy: And we wanna see more of these groundbreakings all over the country as well, is that right?

Shay: Absolutely. Yeah, absolutely.

Jimmy: And so a minute ago we were talking about resident displacement. It’s an issue that comes up on this podcast pretty frequently. You’ve mentioned that you’ve been involved with the Congressional Black Caucus and they’ve expressed concerns of gentrification leading to resident displacement. What are you doing specifically and what is Virtua of doing specifically to ensure that you’re limiting resident placement. Are there any specific strategies or tactics that you’re doing?

Shay: Sure. So there’s a couple of things we’re gonna look at. You know, one, you know, it’s important to note that they’re 8,700 census tracks toll. And so of these 8,700 census tracks, gentrification has only really, you know, on trend or a possibility and a very small percentage. There’s different estimates out there, but one estimate is that there’s is about 4% of the zone that are better on a gentrification train. And so we really need to concentrate on those. We’re looking at the problem. I mean there’s areas, you know, the rural areas are, you know, certain parts of the country where there’s really no amount new capital that can come in and you know, create any type of displacement. So that’s important.

But the small number of potential zones where diversification could be a problem helps us because we can look closely and look at all of the tools that are in our toolbox. So the one obvious tool you have is, you know, local zoning. And so, you know, the local governments have a lot of sway in what gets built, what doesn’t get built and the trajectory of up development. You know, we’ve also been encouraging local action that helps create affordable housing and job trainings. So those are the key things. But so when you look at areas like DC, the mayor of DC is designated $25 billion for affordable housing and job training in the two most distressed wards in DC, which you know, comprise about 17 out of the 25 Opportunity Zones in the city. The governor of Baltimore has similarly designated $56 million to affordable housing and jobs training. So again, if we see, you know, growth can be affordable housing stock and we also see folks being trained to potentially take on the jobs that are associated with the new economic activity in the zones, then we can see that as a bulwark against gentrification.

Another thing with our members, you know, we’re encouraging members to partner with credible local developers when you’re talking about real estate, because again, you know, one of the good things about operating business investments is that it’s less likely to contribute to any gentrification trend there. But, you know, we really stopped by gentrification problems potentially, you’re talking about real estate. And so real estate projects, we encourage people to partner with credible, existing local developers, you know, who understand the process, understand the zoning, understand the neighborhoods, who understand people and can help make sure that the capital comes in ways it does not displace existing residents. So that’s our partners’ program.

And then folks like Virtua, I mean, they have very extensive internal policies that help to make sure that they come into the area, they come into the zone as a beneficiary. So even the way they manage their employee programs and the people that they hire into the different hotels that they build, their human resources structure is designed so that somebody can start up at the front desk and end up in management. And I would love to actually have our charter members, CEO Quinn on your podcast and she could explain the details, but it’s absolutely, absolutely amazing. And then even in the way they construct the hotels, you know, we can estimate the amount of potential low housing displacement that building a luxury hotel would create. And then Virtua actually builds affordable housing alongside to make up for any displacement there in that housing stock. And so just really amazing stuff that we’re saying as member-initiated efforts to curtail any potential gentrification.

Jimmy: Well, that’s great. That’s great to hear and let this serve as an official invitation to Quinn to come on the podcast if she wants to. I’d love to speak with her more about this.

Shay: Yeah, no, she is amazing, has an amazing story. And so you know, you’re going to love having her on and I will pass the invitation on.

Jimmy: Yes, please do. Before we go, we wanna give you one last chance to plead your case here, Shay. In your view, why is reporting such a critical, critical element of this program and why is it so crucial that we get this right from the get go?

Shay: It’s critical because you know, there’s no question that there’s gonna be tens, you know, possibly as much as a hundred billion dollars, a coordinated Treasury secretary that comes into distressed neighborhoods over these next 10 years. You know, so, there’s no question that tens to billions of dollars are coming in, at least. That’s not the problem. The policy in itself guarantees that what’s critical, what’s critical is that as this capital changes the lives of existing residents in these distressed communities, in these distress rural and urban areas, it’s useless if we can’t show congress what’s happening. So if we can’t tell the story in numbers to Congress, we have no chance of getting this great provision extended.

Jimmy: And that’s the ultimate hope here, right? We want this program to go for a very long time. If we can get it extended, all the better.

Shay: Sure. If I could wave a wand, magic wand, then, you know, not only would we extend it, but we would allow governors that designate more than 25% of the zones. I mean, we, you know, we want every distress community be a potentially benefit in a perfect world. So there’s a number of rational expansions of this policy and obviously the extension to the policy. That would make sense, but you have to be able to show, you had to be at a show in numbers, the good work you’re doing. And if you can’t do that, then it’s just a collection of stories, which won’t be enough. You know, and what the key is that our members, you know, are committed to having that data available, whether Congress mandates it because they are gonna be doing great work and are today doing great work in Opportunity Zones. And we’re gonna be able to tell that story and we’re gonna be able to tell that story numerically

Jimmy: In God we trust, but all others show me the data. Am I right?

Shay: Right. Yeah. There you go.

Jimmy: Well, tell us where we can go to learn more about you and the Opportunity Funds Association before we go. And if I have a qualified opportunity fund, how can I join?

Shay: Absolutely. So you know, so you can reach out to us. You know, our website is zonefunds.org. And so you can go there and you can learn about a little bit more about my background, the rest of our team. We got a great group of people brought here together to communicate and advocate and to set up our reporting framework for members. And so you can directly email us at [email protected], and we’ll reach out to you and get members sign up, invite folks to apply. And if a member, a potential member is in line with our priorities around how we behave in a zone and zones and the commitment to transparency reporting, then we’d love to have people sign up.

Jimmy: That’s great.

Shay: The more, the merrier, Jimmy. The more, the merrier.

Jimmy: The more, the merrier, of course. So for our listeners out there, I’ll have show notes on the Opportunity Zones database website for this particular episode. You can head to opportunitydb.com/podcast to find those show notes on today’s episode with Shay Hawkins and you’ll find links to all the resources that Shay and I discussed on today’s show. We’ll have links to zonefunds.org. You can find out more about Virtua Capital, Senate Bill 1344 and all of the other resources that Shay and I discussed today. Again, that’s at opportunitydb.com/podcast. Shay, this has been awesome. Thanks for your time. I really appreciate you coming on and joining us today and sharing your story with us.

Shay: Well thanks, Jimmy. I appreciate you having me. I appreciate the chance to get on here and really discussed, not only this great policy in Opportunity Zones, but you know, great association with great members that’s set up to advance them and makes sure that we get a chance to get this policy extended.

Jimmy: Absolutely. I wish you luck. Thank you.

Shay: All right. Thanks, Jimmy.