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In this keynote address from OZ Pitch Day Spring 2022, Shay Hawkins takes a look back at the first few years of the Opportunity Zone program and predicts what may lie ahead.
- The evolution of the Opportunity Zone program as bipartisan legislation.
- How the program was designed to bring private sector investment dollars into distressed communities across the countries.
- Differences between the Opportunity Zone program and previous community development programs, including the “local focus” and not “DC focus.”
- How the selection of Opportunity Zones played out in Ohio, including additional incentives approved by the state legislature.
- Interest from both parties in continuing and extending the Opportunity Zones program.
- Live Q&A with webinar attendees.
Featured On This Webinar
- Shay Hawkins for Congress
- Ohio’s 10% Opportunity Zone Incentive
- Opportunity Zones in Ohio
- Opportunity Zones in South Carolina
- White House Council of Economic Advisers (CEA) OZ Progress Report
Industry Spotlight: Opportunity Funds Association
The Opportunity Funds Association 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.
Learn More About OFA
- Visit ZoneFunds.org
Jimmy: Shay formerly was tax policy advisor to Senator Tim Scott. And today, he continues to champion the Opportunity Zone Initiative as founder of the Opportunity Funds Association, which is a trade group for OZ funds. And some recent news, he’s running for congress in Ohio’s 13th district and just yesterday received an official endorsement from Senator Tim Scott from the state of South Carolina, who was one of the original of the Opportunity Zone program.
So, Shay’s here to talk about the evolution of Opportunity Zones and where the tax policy may be heading and what investors need to keep in mind. Without further ado, please take it away, Shay.
Shay: Well, thanks, Jimmy. I appreciate you having me. It’s always great to attend or participate in these pitch days. We see some great companies. And so, a couple of our members, I think, are pitching today, CRE Development Corp, and some others. So we are looking forward to hearing from them.
So I just wanted to talk a little bit about the evolution of the Opportunity Zone policy, you know, kind of as a law. You know, and then leave a little time for questions at the end because I know people have a lot. So Opportunity Zones and tax reform were based on a bill, a bipartisan bill, called the Investing in Opportunity Act.
And so Investing in Opportunity Act had 88 House co-sponsors and 14 Senate co-sponsors. On the Senate side, leaders were Senator Tim Scott, my old boss, and Senator Cory Booker. And then we had seven senators, Democrats and Republicans, behind them. On the House side, we had 44 Democrats and 44 Republicans. The leaders on that side at that time were then Representative Patrick Tiberi from Ohio and Representative Ron Kind came from Wisconsin.
So from the beginning, Opportunity Zones was a bipartisan concept, even though we passed it in a bipartisan bill. And of course, the goal was to bring private sector dollars into distressed communities in order to create jobs, in order to bring new goods and services to those communities, and in order to improve property values in the 8700 census tracts across the country.
And so one of the key differences between Opportunity Zones as a policy and community development programs, and things like that, is that it’s locally focused, not DC-focused. When I say this, every Opportunity Zone was selected by the governor or the executive officer of the territory in question.
So, you know, for instance, here in Ohio, where I am now, we had 1200 distressed communities, communities that meet the criteria for financial distress. It could be a 20% or above poverty rate or an average income is less than 80% of the state average.
We have 1200 communities that meet that criteria. So our governor, back when the policy was passed, was able to select 25% of distressed census tracts in Ohio. So that worked out to just over 300 census tracts here in Ohio as Opportunity Zones, as places that are eligible for this investment benefit.
And we gave those governors three non-binding criteria for when they selected zones. The first criteria, we wanted them to look for areas where there was a good opportunity. Where an investor, you know, like the folks who are, you know, on this call, can easily turn $1 into $10. Right?
We also asked them to look for areas that experienced significant economic disruption and distress, particularly areas that had seen negative impacts from outsourcing or negative impacts from rapid technological change, you know, that’s caused a lot of job displacement.
And finally, we wanted governors to look for areas where there were mutually reinforcing state, local, and even federal policies that kind of put the Opportunity Zone policy on steroids, you know, and really, really reinforce the policy and make it work all the better.
So, in many cases, you know, governors had in mind, existing policies and programs. But in other cases, governors literally helped to create local policies. Local cities and villages and towns created their own local reinforcing policies. And the federal government, you know, refocused their efforts to favor Opportunity Zones.
So an example here in Ohio is that our governor and our state legislature implemented a 10% state income tax credit for all investing in Opportunity Zones. And so that’s a benefit that folks investing here in Ohio would have, you know, on top of the basic Opportunity Zone on benefit from the federal level.
And the beauty there is that has allowed our government to track Opportunity Zone investing in a way that is not currently available on the federal level. And we could say, “Hey, look, you know, we’ve got a half a billion dollars in new investment in the state of Ohio in this time period.” So, you know, many of the governors had different methods of selecting the zones.
In South Carolina, that governor had each county ranked their top three choices for Opportunity Zones. And so, you know, if someone were to ask later why a particular zone was selected over another, then there could be, you know, clear criteria and clear list to say, “Hey, look, local governments reached out and asked to be designated.” And I know in South Carolina, of the 44 counties I think there are in South Carolina, 46, each county had at least one Opportunity Zone. That was a goal of the policy from that standpoint.
So that’s kind of a key differentiator, you know, for this policy, and we’ve been seeing, you know, great results so far. Back in 2020, a White House Council of Economic Advisers report estimated that $75 billion would come into Opportunity Zones over the next 10 years. And that a million Americans will be lifted out of poverty during that period of time. And that the poverty rate within the zones would drop by 11%.
More recently, a GAO report noted that 29 billion had come into Opportunity Zones, just on the equity side, so just into the funds, just into the vehicles that make Opportunity Zones the best.
Jimmy: And that was only through 2019 as well, Shay.
Shay: And that was only through 2019.
Jimmy: It doesn’t even capture the last couple of years. Shay, we’re running a little bit short on time here. We just have time for a couple more minutes here, unfortunately. I know you could talk about this for an hour. Maybe I should have like a Shay Hawkins 60-minute special one of these day.
Real quick, though, what do you think about the future of OZs? Where are we heading? What is like the one or two big things that you think you’re really going to move the needle with this program over the next few years?
Shay: Yes. So one of the great things is, even though we’ve seen a change in the leadership of government, so we’ve seen a democratic takeover in the House, Senate, and White House, we have seen support for Opportunity Zones remain consistent. And that’s because we have so many, you know, Democratic mayors and governors and city council folks and state legislatures that are seeing the benefits. So that’s one thing is that we feel good about the future of the policy overall.
And some things that we might look at in the horizon, you know, on the Republican side, there’s a big priority around extending the policy and extending both the overall end date for new investments in Opportunity Zones, but also extending the step up and basis, which we can do retroactive. And so you see a great appetite around that.
On the Democratic side, you see some real concern around very high average income census tracts. And so that’s something that may be addressed through sunsetting very high-income census tracts and then allowing governors to re-designate those zones.
And then both parties have a real interest in implementing some basic transparency reporting requirements that will allow us to track the benefits of Opportunity Zones to local communities. So that we can have the argument, make the argument to expand the policy even further. So we might see changes or comprehensive bills that address those three areas.
Jimmy: Awesome. That’s be great, Shay. I’m rooting for an extension of the program. I know you have been as well for a while.
Jimmy: Hey, we got one really good question from for you here. We have 60 seconds left before I have to bring our next presenter on stage. So real quick, this person asked, what do you think of Ron Wyden’s investigation? He puts it in quotes. And what, if anything, do you think may come of it?
It seems like there’s a lot of support across both parties. But there are a small number of loud opposing voices like Senator Wyden. Give us your hot tip on Senator Wyden’s investigation?
Shay: Yeah, I don’t think much will actually come of it. You know, he’s put out very hostile, you know, reports and things along those lines before. And what it really is, in the absence of transparency reporting, Senator Wyden is under a lot of political pressure to “do something” because rich people are making money in Opportunity Zones. And obviously, what people on the ground know is that also distressed communities are benefiting immensely, you know.
And so what this will lead to is that comprehensive legislation we were talking about that gives us the transparency reporting, so that there’s no need for Wyden-esque reports, but also makes some of the other positive change that we discussed around extension of the policy.
Jimmy: Terrific. Well, Shay, unfortunately, our time has expired already. Can you believe it? I need to have you back for a longer session at some point in the future. Really appreciate all of your insights, Shay, and good luck with your campaign this summer.
Shay: Oh, absolutely. Yeah. Yeah. And like I said, thanks for having me. And thanks for bringing a few of my members on here. I know, you’ll see here from CRE Development today. I think there’s a post from Americano Media watching that are gonna try to use the policy to build out their Sirius radio program into a television program. So you’re doing some exciting things, Jimmy, and keep up the good work.
Jimmy: Fantastic. Awesome. Thanks for the kind words, Shay, appreciate it. I’m gonna kick you off the stage and bring on our next presenter now. Thanks so much.
Shay: That’s good.