Are you worried it’s too late for your nonprofit organization to get involved in an opportunity zone? It’s not. There is still plenty of time for private foundations, nonprofit healthcare organizations and other nonprofits to make an impact in this new area of opportunity.
A brief background on opportunity zones
Created by the Tax Cuts and Jobs Act (TCJA), opportunity zones are low-income census tracts or areas adjoining low-income census tracts that were nominated by the governor of each state, district or U.S. territory and then certified by the Treasury. They cover 12% of all U.S. territory, from rural areas to major metropolises.
Many investors are interested in opportunity zones because it allows them to 1) defer the capital gain tax on their investments for a period of time, 2) gain step-up benefits in the capital gain they’re deferring and 3) eliminate the capital gain altogether if they hold the qualified opportunity fund (QOF) investment for 10 years or more.
While the incentives around opportunity zones are targeted towards investors and businesses, they still need a guiding hand when it comes to what they invest in and the impact they make. And that’s where nonprofit organizations come into play.
Guiding investors and their qualified opportunity fund
Since opportunity zones were established more than a year ago, many funds have been launched , and many projects are currently underway. However, the government is still providing updated guidance on opportunity zones and their requirements, which means few investors and groups are far enough along that your nonprofit can’t get involved. This includes a void of regulations on tracking the community impact (e.g., housing, jobs and education) of the projects and funds.
Some projects have yet to develop full strategies. Others are still seeking funding. Some may have a location, but the asset or activity is still to be decided, or the program to support long-term success may still be needed.
You can get involved in shaping those decisions. Here are the steps you can take to get started:
1. Understand the geography of opportunity zones
Before you start looking at opportunity zones, you have to answer some critical questions. Are you in a zone? Is the community you serve in a zone? Do you work closely with any organizations in a zone?
If any of those answers is yes, it could be beneficial for your mission to get involved in an opportunity zone.
2. Understand the opportunity of opportunity zones
There is reasonable concern from nonprofits that opportunity zones are going to result in the gentrification of low-income and distressed areas. However, the benefit of nonprofits getting involved is that they can track and better control the outcome of an opportunity zone by being a social impact partner, or even a fellow funding source.
Larger foundations are starting to back opportunity zone projects that are more community-focused than they are investment-return focused. With their financial support, they’re increasing the likelihood of a return for other investors who join them and can therefore draw investors away from more commercial QOFs.
But you don’t have to be a foundation or have funding to spare to make a difference here.
3. Understand who in the community is already organizing funds and projects
Many investors and developers are actually interested in the community impact in addition to the financial rewards of opportunity zone projects. This means that if your organization has insight to provide and ways to measure impact, you could make a difference by contacting fund managers or project developers and explaining how you could work with them.
For example, a lot of brokers and developers are great at measuring financial outcomes and returns on investment (ROI), but they aren’t as familiar with how to evaluate effectiveness that from a community-wide standpoint.
Your nonprofit is likely very practiced at explaining what you do, what impact you make and what dollar amount it takes you to make it. Metrics you could provide on community impact factors — such as people displaced, people employed, and people trained for jobs — are very valuable.
Whether it’s integrating program initiatives directly with the new opportunity zone projects or more broadly within the same community, this can be a valuable chance for you to also capital campaign and think optimistically about what these projects can do to further your purpose.
So rather than stepping back because gentrification could drive up costs in your community and potentially push incumbents out, can your organization take steps to increase home ownership, business ownership and job skills so that these next 10 years of opportunity zone investment can improve a distressed community? With nonprofits involved, opportunity zones can have the impact the government intended by creating them in the first place.
If opportunity zones are new to you, or you are uncomfortable with some of the perceived negative consequences, be proactive and take control of what you can as an organization. Investors are eager to get started with opportunity zones regardless of nonprofit involvement. But if you are involved, you have a much better chance of directing the outcome in a positive way that benefits your community and helps fulfill your mission.
Interested in learning more about opportunity zones? Read our article on investor benefits to further understand their perspective, and visit our page to see what services Wipfli provides QOFs to help get them off the ground.