The Future of Opportunity Zones, With Shay Hawkins

What does the future hold for the tax-incentivized Opportunity Zone investments? Will there be a reasonable expansion of the OZ policy in the coming years? While future legislation for OZs remains open to debate, this bipartisan investment program offers distinct financial benefits with social and economic impacts.

Shay Hawkins is the co-founder of the Opportunity Funds Association, an organization that enables Opportunity Fund managers and investors to participate in public policy, share best practices, and communicate the industry’s contributions to distressed rural and urban communities across the country. 

Click the play button above to listen to our conversation with Shay.

Episode Highlights

  • Potential threats against Opportunity Zones and the current outlook for OZ fund investors.
  • The origin of the Opportunity Zone legislation and the misreporting and misconceptions associated with OZ law.
  • Importance of establishing reporting and transparency requirements for OZ funds and investments.
  • Important dates for the Opportunity Zones program and what the future holds for this investment tool.
  • The power of Opportunity Zones to generate positive social impact alongside risk-adjusted returns.
  • Where Opportunity Zone dollars are being invested today and potential regulatory hurdles that may arise. 

Featured On This Episode

Industry Spotlight: The Opportunity Funds Association

The Opportunity Funds Association connects investors with qualified Opportunity Zones and promotes the successes of OZ funds in the local communities and on Capitol Hill. Launched in May 2019, OFA is the only member-driven 501(c)(6) trade association exclusively for Qualified Opportunity Funds, their parent companies, and preferred service providers.

Learn More About The Opportunity Funds Association

About The Opportunity Zones Podcast

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

Show Transcript

Jimmy: I have Shay Hawkins, president and founder of the Opportunity Funds Association, joining me up on stage for our fireside chat. We are gonna be discussing the future of opportunity zones. Shay, there you are. How are you doing this morning?

Shay: I’m doing great, Jimmy. Thanks.

Jimmy: All right, well, great to have you here. We interacted with each other in person just a couple of weeks ago in Cleveland, Ohio, at the Novogradac Opportunity Zone Conference. I know a lot of my partners and some of the attendees here today on the call, and yesterday, on day one of OZ pitch day, were there as well. So these online meetings are great, right? But it’s fun to meet in person every once in a while from time to time. So it’s great to see you out there, Shay, and it’s great to see you here this morning as well.

Shay: Yeah, of course. Thanks, Jimmy. We really appreciated the chance to kinda connect in person. It had been kind of a while. So yeah, so it was great. And we wanna keep the momentum going, so I appreciate you having me.

Jimmy: Sure, it had been indeed. So, before we get going, why don’t you tell our audience a little bit about your background? You were formerly in Senator Scott’s office, and now you are the president and founder of the Opportunity Funds Association. Tell us a little bit more about your background and your involvement with the inception of opportunity zones.

Shay: Yes, absolutely. So, when I first came to Capitol Hill, I was working for Congressman Jim Renacci for the Cleveland area, where I’m from. He had his own tax plan. And so I was advancing his tax plan against the House blueprint and the President’s tax plan, with the goal of getting some key elements of that plan into the final tax reform bill. So, that put me on Senator Tim Scott’s radar from South Carolina. Obviously, Senator Scott was a conferee. So you can look at a conferee as somebody who reconciles the House and Senate side bill.

So I ended up having to draft about one-quarter of the Senate side bill. The Senate side bill became most of the tax bill, and that included Senator Scott’s top priority, which was opportunity zones. And so I drafted the language for opportunity zones into the tax bill, and then I was responsible for the oversight from the standpoint of Congress in the implementation process at Treasury, which, as you guys know, what kind of comes out of the regulatory process is oftentimes just as important as what was written in the initial law. And so, once we were comfortable that the regulations were at a good place, in May of 2019, I left Senator Scott’s office to found the Opportunity Funds Association.

And we have two purposes. One is to communicate to the public and to Congress the good work that our members are doing in opportunity zones. And so our members are fund managers, investors, entrepreneurs, and developers operating in opportunity zones. And so we wanna communicate the good work they’re doing because that’s critical. And then second, we advocate for reasonable expansions of opportunity zone policy, and then step up when opportunity zones are under threat, which they were actually just threatened just last week as a part of the proposed billionaires tax. And so we gotta stand in between hostile federal leaders and the policy, but then also advocate and work with friendly legislators to reasonably expand the policy.

Jimmy: That’s perfect, Shay. Well, thank you for all the good work that you’re doing. Can you tell us a little bit more about Opportunity Funds Association? How many funds do you have as members? What type of data are you tracking on them?

Shay: Sure.

Jimmy: And then I’ve got more for you, but we’d love to hear more about OFA for a second.

Shay: Sure. So, OFA, again, is made of investors, developers, entrepreneurs for operated businesses on that side of things, and fund managers in opportunity zones. We also have a few service providers that we work with and kind of organizations that we have special relationships with. So, for instance, when you guys drop on our website and take a look at our opportunity zone map, we very conveniently structure that map by congressional district. So every congressman can get in there and look and see where the opportunity zones are in a congressional district. So that map was developed by OpportunityDb. And so, we have special relationships.

But in terms of our formal members, we’ve got some folks like… We’ve got about 38 funds, which is what our goal was. We wanted to have 10% of the overall funds. So capitalized funds. We want 10% of those. And we are pushing close to our goal for the assets on the management side. What we wanted was we wanted those funds, the funds in the association, to comprise about a quarter of the assets under management overall. And so, our members tend to be some of the larger funds, although we do have some small funds. So we’ve got about a quarter of the assets under management and about 10% of the funds overall. And that puts us in a position where we can all be pulling in the same direction and when we approach Capitol Hill when I’m testifying before Congress, for instance, which I’ve done probably six times now since opportunity zones were implemented, the people I’m talking to on Capitol Hill know that we can credibly speak for the industry.

Jimmy: Absolutely. You were instrumental in the inception of the legislation to begin with. As you mentioned, you helped draft the Senate version of the bill. Maybe we’ll get into talking about how the sausage was made if we have time toward the end here. But I know I’ve asked you about that in the past, and I think we have a podcast episode about that that maybe I can post a link to at some point. But today, I really wanna talk with you more about how your association is lobbying Capitol Hill for reasonable expansion of the OZ policy and what you think the future might bring. But first, I wanna go back to one point that you just made about some threats by some hostile members of government against opportunity zones, either directly or indirectly. I think the one from last week, the billionaires tax, so to speak, was more of an indirect.

Shay: Right.

Jimmy: Can you tell us a little bit about that, and how it may impact opportunity zones, and what your suggestion might be there with that one particular threat?

Shay: Sure. Sure. So, let’s first talk about kind of our most recent threat. And so, as a part of the, we’ll call it, Build Back Better plan, which is a reconciliation vehicle, which is a process where you can get a bill through the U.S. Senate without any votes from the minority party, if you have 51 votes. And it requires that every provision affect the budget in some way, that it add costs to the budget or cut taxes in some way. So, in any case, as a part of this plan, the Senate Finance Chairman, so the chief tax writer in the Senate, Ron Wyden, proposed a billionaires tax. And what this billionaires tax would do is it would basically tax the 700 billionaires in America on their unrealized capital gains.

So it’s just to say that if I have $1 million worth of Microsoft stock, and that $1 million goes to $2 million in the course of the year, then whether I sell that stock or not, I am taxed on a $1 million capital gain that occurred during the course of that year. So, that’s pretty painful, obviously, to everyone. And it wouldn’t ultimately stop at just billionaires. It just starts and works its way down. So a little bit disturbing.

But in the same provision, it’s about 100-page bill that Senator Wyden, that Chairman Wyden proposed. In that same provision, there were two mentions and discussions of opportunity zones. And what the bill would have done is it would have prevented America’s 700 billionaires, the people who are subject to that billionaires tax, it would have prevented them from investing in opportunity zones, right? And the thinking behind, you wanna call it thinking, the rationale, was that they didn’t want opportunity zones to become a loophole for folks who were gonna get those unrealized capital gains tax on a yearly basis. And so they wanted to close up opportunity zones as an option to make the billionaires tax as effective.

And it was disturbing not because there’s a disproportionate amount of billionaires investing in opportunity zones. There are some, you know. But it’s most disturbing because opportunity zones from their critics are labeled as something that helps the wealthy more than it helps the poor. And again, you start with billionaires being restricted, but eventually, you’re gonna work your way down the income chain to the point where, you know, pretty much anybody investing in opportunity zones are being foreclosed.

And so, we had to organize some friendly folks who are still a part of the process, meaning, you know, folks who are Democrats, in this case, folks who are a part of the majority, and make sure they voice their concerns about the damage that this could do in terms of opportunity zone investing overall. And so it looks like the billionaires tax itself will not be a part of the reconciliation bill. But the point is, even if it is, and it does end up being a part, we wanna make sure that opportunity zones are shielded and, to use the Capitol Hill term, carved out of that policy.

Jimmy: Right. So what are some Democratic priorities right now for opportunity zones? What are they looking to do with opportunity zones? And also, how high up on their list of priorities is it at the moment? It doesn’t seem like… I’ve heard too much direct talk about opportunity zone changes, more just high-level tax policy changes, tax rate changes, but what specifically with opportunity zones does the Democratic Party wanna do since they control the balance of power in Congress now?

Shay: Yes. Yes. And so, it depends on which Democrats you talk to. If you’re talking to Rashida Tlaib, who was kind of one of the Democrats who used to be further to the left, if you’re talking about Representative Ocasio Cortez, also kind of further to the political left. And the political left just indicates more concern with equality than growth, if you will. If you had asked them, they want opportunity zones eliminated. So both have introduced bills to eliminate opportunity zones. Rashid Tlaib’s bill was a direct bill to eliminate. And Representative Ocasio Cortez, who sits on the Financial Services Committee, hers was a little more nuanced. She would just eliminate Treasury’s budget for regulating opportunity zones. And so she would effectively repeal them.

But those folks are definitely out. And so, that’s the good news. And in fact, in a hearing that I had testified for before the House Oversight and Reform Committee, Rashida Tlaib aggressively bemowed the bipartisan support that opportunity zones were getting. And I hear you. She said, “I’m just sick of the bipartisan…” I forget the word she used. It was pejorative, but it was basically the bipartisan support for opportunity zones. And she said, “Billionaires have ruined our opportunity zones,” which is an interesting nuance because she said our opportunity zone, which is to say that opportunity zones in and of themselves are not bad, just that some evil billionaires are ruining them in some way. And so, that in itself is progress for the way she would have described opportunity zones a year ago. And she, you know, probably didn’t even realize it in her rhetoric.

And so there is clear bipartisan support, and the people who are hostile to opportunity zones recognize that. We’ve seen folks like the governor of Colorado, who was in Congress and signed on to the initial Investing in Opportunity Act, which the language I drafted was based on, who now is Governor, are making great use of opportunity zones. And those people still have influence over their colleagues back in D.C. The Oversight and Reform Committee that I just referenced, the chairman of that committee is supportive of opportunity zones. Many of the subcommittee chairmen are supportive. And even President Biden, in his plan for minority outreach, in the campaign, placed opportunity zones as one of the key elements of that plan. And they indicated that they wanted transparency reporting requirements to be added to opportunity zones.

And the good news there is that transparency reporting is a bipartisan priority. My old boss, Senator Tim Scott, introduced the IMPACT Act with Senator Sinema from Arizona. And that IMPACT Act would do two things. It would require very basic information from opportunity zone managers, fund managers, basic information about how many jobs they expect to create, how much they plan to invest, where, in general, geographically they plan to invest, and whether they plan to invest in operating businesses or real estate. And so this is information that any fund manager taking money from other people would have to have on hand anyway, right?

And then beyond that, it requires the Treasury Department to measure the impact of opportunity zones, to measure the economic impact of designated opportunity zones against non-designated zones, right? Places that were not actually chosen will meet the criteria, right? To compare the economic performance of opportunity zones that were designated versus just census tracts overall that are not distressed, right, and to track the performance of opportunity zones that were designated over time. So where do they start and where do they end up? And so, all of this is information.

For those of us who are active in opportunity zones policy and in the industry, we know that people are being lifted out of poverty, that property owners in distressed communities, you know, are seeing increases in value. We know that people living in opportunity zones have access to products and services that they didn’t prior to. So we know this, but the information from Treasury and that evaluation will communicate what we know to Congress and make it public. And so, that’s gonna be critical to actually expanding the policy going forward.

And many of the Democrats who have been supportive of opportunity zones, they need that data. They need those good numbers in order to justify supporting a policy and expanding a policy that was technically passed in a Republican-only tax bill, because just for reference, the Republicans used the reconciliation process that the Democrats are trying to currently use in order to pass tax reform. So, although opportunity zones were a bipartisan policy with bipartisan support, they were technically written into law in a partisan bill. And so…

Jimmy: As part of the Tax Cuts and Jobs Act in December 2017.

Shay: As part of the Tax Cuts and Jobs Act.

Jimmy: Right.

Shay: Yes, absolutely. So, transparency reporting is kind of the foundation of any positive changes. And transparency reporting is definitely the top Democratic priority.

Jimmy: What about some other priorities from either party, or maybe it has bipartisan support specifically? Or is there any intention to nix a small number of zones? Is there any intention to maybe designate additional zones at some point in the future? And then possibly, most importantly, is there any potential to extend that deferral period beyond 2026, maybe to 2028, or maybe make it permanent?

Shay: Sure.

Jimmy: Talk to us about what you know there.

Shay: Sure. So we’ve got a few priorities that have ended up and that have come up in bipartisan discussions on this, and one was what you mentioned. There was some concern because there’s a small number of zones where the average income is above, you know, $120,000 per resident. It is what it is. New York and California, you know, that just can’t happen. But it’s a bad optical thing, you know, to say, “Hey, there’s an opportunity zone, but people here make $100,000 on that.” So the idea would be to sunset those zones, sunset new investments in those zones that have that very high average income, and then allow governors in those states to redesignate zones that have a lower average income. And so that’s something that’s definitely key priority.

Senator Booker, who was very active in the initial Investing in Opportunity Act, he had helped to draft a version along with Senator Scott. That’s a key priority of his, I know, is to sunset those very high-income zones. Another priority you see is along the lines of what you mentioned. We do have a deadline for the 10% step-up in basis, and that deadline would be, under normal circumstances, the end of this year. So we will be working to push that deadline out for this 10% step-up basis in tandem for deferral overall, as you mentioned, about two years.

And so, the idea there would be that the most timely issue with opportunity zones is that 10% step-up in basis. And we did have COVID-19 hit, which affected opportunity zone investing, and we’ve made some regulatory changes to account for that time. But this will be a legislative change that could account for the one or two years that we dealt with COVID and the time it took us to actually implement the policy. And so there’s bipartisan support for looking at some sort of change there. And the way that tax policy works is if we don’t hit it right at the end of the year, you know, we would still have some time because tax changes can be retroactive, obviously, especially for something like this that has kind of a long tail on it. So we would probably realistically have about a year past the December 31st 2021 date to get a retroactive change in as well.

Jimmy: So timeline, is it possible that some sort of opportunity zone revision legislation could get passed before the end of this year at all?

Shay: It’s possible.

Jimmy: Or are you anticipating it’s gonna happen maybe in Q1 of next year or even beyond that?

Shay: Well, our job is to push it and get it done as quickly as possible, because the way legislation works is that there’s windows of opportunity, no pun intended, and you have your shots based on other legislation that’s moving. So there’s never gonna be a situation where all of Congress votes on opportunity zone changes and that’s the only thing being considered, right? It’s always gonna be part of a larger bill. And so, when you look at things like the need to increase that ceiling, the need to do a continuing budget resolution, you know, those types of things, those are chances to tackle this reporting and transparency, the extension, and things like that. And so, we would seek the opportunity to make these changes all throughout the end of this year. And then if we spilled in Q1 next year, then we would push hard as well. As it gets closer to the election of 2022, changes are harder to come because people don’t wanna give wins to the other side. And bipartisan legislation could be spun as a win for anybody.

Jimmy: Yeah. So the closer we get to next November, the tougher it is, right?

Shay: Yes, the tougher it is to get cooperation.

Jimmy: Sure. And so what might that legislation looked like? Is it gonna be Senator Scott’s IMPACT Act? Is it gonna be one of these other pieces of legislation? Might it be a Frankenstein of a lot of different bills that will end up working its way or…?

Shay: Yeah. So what typically happens is you try to fold in the best version of what you have. So, there’s other transparency reporting bills out there, not really industry vetted with some unhelpful elements. The idea is that everybody pretty much agrees that Senator Scott’s IMPACT Act and Senator Sinema’s IMPACT Act, Scott Senator’s IMPACT Act is the best. And so we probably fold that in as the foundation of the transparency reporting piece and then add language to deal with some of those other priorities like sunsetting zones and building the extension in.

Jimmy: We’ve got a few more minutes here. I wanted to get to some questions that we have. By the way, if you have any questions for Shay, and Shay is the man when it comes to knowing where all the bodies are buried on Capitol Hill. That’s how I referred to you yesterday, I think, in the happy hour. And we did have your former colleague, Emily Lavery, on a panel yesterday, so she touched briefly on some of these points, but glad we had some time to drill into it a little bit more with you this morning here.

So, if you do have any questions for Shay, that was getting back to my original point here, this is the time. Please do now enter them into the Q&A tool. It should be toward the bottom of your screen here, like a little Q&A toolbar you can click and submit your questions. So, first question from Terrence. Terrence references former President Trump. He said Trump said that he has done more for black Americans than any president since Lincoln. I think we all remember that quote by the former President.

Shay: Okay.

Jimmy: He often referenced opportunity zones as an example for what he had done for black Americans. You, Shay, were involved in helping to craft that. Have you seen opportunity zones actually doing that?

Shay: Yeah. So, when the President made that comment, I think opportunity zones were on a list of things that he referenced. So he talked about criminal justice reform and some of the disparities in the criminal justice system disproportionately affect African Americans. And so that’s one thing he talked about is support for HBCUs, which, you know, was objectively historic and literally has educated billions of African Americans over the years. And then he talked about opportunity zones, and then he talked about the economy. And beyond that, during the period after tax reform, we saw the lowest unemployment rates for African Americans, lowest unemployment rates for Hispanic Americans, lowest unemployment rates for Asian Americans in history. And so I think the President was putting those facts together, some of the things that he did directly and some of the things that were indirect as a result of tax reform, and saying that, you know, that there’s been a positive impact regarding opportunity zones.

Now, what I can tell you is that $24 billion with a B has come into opportunity funds for investment. And obviously, all of us on the call know that that’s levered up multiple times when you talk about real estate deals. And we expect that, you know, about $75 billion are coming into opportunity zones over time, and that a million residents of opportunity zones will be lifted out of poverty, and that we’ll see an 11% drop in poverty rates in opportunity zones over that. So the residents of opportunity zones are disproportionately minority, you know. So if African Americans are 10% of the population, they’re in the high 30s in terms of percentage of opportunity zone residence.

So, if you look at it in those terms and you assume that a proportional amount of those billion people who are lifted out of poverty are African American, well, then there’ll be a lot of impact there. And so I don’t know that we have the data to confirm President Trump’s statement. That’s a pretty bold statement. But I think his overall political point was that he’s done significant amounts for African Americans and that more should vote for him, which, you know, he doubled his share of the black vote from the last election, so I guess a couple of people are listening.

Jimmy: We had a question from Katrina which referenced HBCUs, historically black colleges and universities you just referenced a moment ago. She asks, “Tuskegee University got left out of opportunity zones. Is there a process for HBCUs to ensure inclusion at some point down the road potentially?”

Shay: Yes. And so, in designating the opportunity zones, we left it to the governors to choose the actual zones themselves. So California’s governor chose their zones. Alabama’s governor, which I believe is where Tuskegee is located, chose their zones. And so, one of the additional changes that we’re looking to make is once we have the data of transparency reporting and we can see that opportunity zones are effective, we would love to allow the current governors to designate an additional, say, 10% of their distressed census tracts as opportunity zones. And this would allow for areas that weren’t designated kind of in the first round to be included now that we see opportunity zones are effective. And so that would give Alabama’s governor and places like Tuskegee, you know, a chance to possibly be designated.

The good news, particularly for Alabama, is you’ve got some great organizations like Opportunity Alabama and some great bipartisan advocacy around opportunity zones in the state, particularly from ways and means member. So she’s a tax writer, Congresswoman Terri Sewell, who represents the Birmingham area. She’s a great advocate for opportunity zones, and she has some great ideas that we’re looking to move forward around allowing CDFIs, Community Development Finance Institutions, to have a greater and more direct role in opportunity zone investing. That will also help places like Tuskegee to be able to get more directly involved, because I do know that CDFIs are active in investing in and around Tuskegee as an institution.

Jimmy: Fantastic. So, we’ve got so many good questions. I do wanna ask you one or two more good questions. Tom asks, “If they do extend the opportunity zone timeframe, what year do you anticipate it would be extended to?”

Shay: Right. So there’s kind of two things within that. One is an extension of the 10% step-up in basis, right? And so I imagine that would be a two-year extension, you know, just because other tax extenders, things like the new markets tax credit and other things like that are extended for two years, and just because we kinda lost a couple of years in the pandemic. So that’s one potential extension that would have an immediate relevance. I’ve also seen drafts that would extend the overall deferral window from December 31st 2026 to December 31st 2028.

Jimmy: Fantastic. Real quick, what’s the likelihood of that getting extended at some point within the next year, let’s say? 50/50?

Shay: I would say 50/50, no greater than 60/40, and no worse than 40/60.

Jimmy: Okay. Now, there’s been a couple of questions about, what about allowing after-tax noncapital gains dollars to benefit at least from that 10-year benefit? I get this question all the time, “Hey, can I just put ordinary money and understand that I won’t get the deferral or the basis step-up, but I should be able to benefit from the 10-year benefit, right?” But that’s not the case. Is there any plans to potentially include that in some future legislation for opportunity zones?

Shay: So, that’s a priority to have testified about. I’ve advocated for it directly, and it makes perfect sense to allow after-tax dollars to be utilized in opportunity zones. There’s no reason why if somebody wants to take money that they’ve already been taxed, and they’re willing to sit that in a distressed neighborhood for 10 years and grow something, that they shouldn’t have 1% or 2% step-up in basis. And so, yeah, that’s an absolute priority, and something that has been discussed, and something that was contemplated in the original Investing in Opportunity Act that we weren’t able to get to the tax reform version.

Jimmy: Fantastic. Well, Shay, I think we may end it there. Thank you so much for participating today. It was great seeing you. How can our listeners, our viewers today, learn more about Opportunity Funds Association? How can they get in touch with you? I know we didn’t get to all of the questions. Maybe is there a way that they can get their questions directly to you or to your organization?

Shay: Sure. Our website is just My personal email address is [email protected]. You can reach out to me. We need as many members and as many folks pulling in the same direction. Even if you’re not a large fund, we can figure out a way to help get you engaged and get you involved. And so, feel free to reach out and keep us in the loop. If worse comes to worst, Jimmy Atkinson always knows how to contact me, so reach out to him and he can get you in contact with me.

Jimmy: Fantastic. Well, thank you again, Shay. I did just post links to and to Shay’s email address, [email protected]. Please do submit your questions to Shay and reach out to him. He wants to hear from you. So, Shay, thank you so much.

Shay: Thanks for having me, Jimmy. Appreciate it always.


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