The U.S. Congress passed the Tax Cuts and Jobs Act of 2017 last December, which created opportunity zones to encourage investment in low-income urban and rural communities. Private investment vehicles that place 90 percent or more of their funds into a declared opportunity zone can earn tax relief on capital gains generated through the investments.
On Thursday, the Quattrone Center for the Fair Administration of Justice at Penn Law School, the Penn Institute for Urban Research (Penn IUR), Enterprise Community Partners, activist and musician John Legend, and guest speakers took part in an “Opportunity Zones and Inclusive Community Development” panel in Penn Law’s Fitts Auditorium. Moderated by Legend, the group conversed about the challenges and opportunities of the new opportunity zone tax incentives.
A 1999 College graduate and a Quattrone Center advisory board member, Legend has a long-held passion for improving his community and impacting “people’s lives who are often overlooked and not heard.”
“A lot of that work has taken me into looking at education, a lot of that work has taken me into looking at criminal justice reform—but we can’t talk about either of those issues without talking about space,” he said, “without talking about where we live, where we work, and how that impacts our lives.”
John Lettieri, president and CEO of the Economic Innovation Group (EIG), which was instrumental in convincing Congress to create the opportunity zones, opened the dialogue with talk of economic inequality.
He said the topline national statistics that show a flourishing economy and robust recovery from the Great Recession do not reflect the local reality in most places. EIG research has shown that in the prime years of economic recovery, the top 20 most prosperous zip codes generated more net new jobs, net new businesses, net new population growth, and advanced degree holders than the bottom 80 percent of zip codes combined.
Peering across the vast array of struggling and left-behind communities, Lettieri said a common theme is lack of access to capital.
“It matters where you live and what you look like in terms of how you access capital,” he said.
Lettieri said opportunity zones were designed to connect long-term equity capital with communities that often lack access to it, which the zones accomplish by taking advantage of the fact that the United States is a capital-rich country.
“There’s a record amount of capital gains wealth accumulation in this country, and that can be used for very powerful purposes,” he said. “The problem is that it’s often segregated from productive investment in low-income areas.”
Panelist Michael Nutter, a 1979 alumnus, former mayor of Philadelphia, and Senior SP2 Executive Fellow at Penn IUR, said opportunity zones are tools that can be used, along with other resources, to invest in people and places, and deal with some of the major issues facing Philadelphia, such as intergenerational poverty, and health and education disparities.
Governmentally, Nutter said there needs to be “intentionality.” The money is going to flow where investors think there will be the greatest return, but he said public officials have a responsibility to encourage investment in underserved areas that are in line with the city’s goals.
“I think the government should not put itself in a position where it is a passive actor,” said Nutter.
Enterprise Community Partners, which co-sponsored the panel, has invested $36 billion in local communities through public-private partnerships since it was founded 30-plus years ago.
CEO Terri Ludwig said the nonprofit’s work requires an understanding of the local context and making sure they are lifting up the local community voice and understanding their needs.
“We think about our work as three main pillars,” she said. “One is how do we bring capital into a community, but we also know capital doesn’t just flow. That’s great that we have this new source of capital, but how do we marry that up with the programmatic needs on the ground?”
Ludwig said opportunity zones are another form of capital coming into local communities, “and it’s incumbent upon us to listen to our communities and say, ‘How do you want that capital to flow? Where is it most useful, and how do we structure it such that things that need to get done on the ground actually get done?’”
Margaret Anadu is a managing director in the Urban Investment Group at Goldman Sachs, which invests a billion dollars annually in underserved neighborhoods. She said they are “incredibly excited” about the opportunity zone incentive, while also “cautious and nervous” about some of the potential downsides.
Anadu spoke of inclusive community development and the importance of taking the time to understand communities, their histories, and engaging genuinely with stakeholders.
“We can’t be ahistorical,” she said. “None of the communities—and we’re talking about close to 9,000 independent census tracks across the country—became underserved overnight. There were reasons—intention, legal, historic, racism, et cetera—so we also don’t think that the challenges in these neighborhoods get solved overnight.”
An impact investor for two decades, Jim Sorenson, chairman of the Sorenson Impact Foundation, said he sees the opportunity zones as a tremendous motivator to attract new investors to become impact investors, and a great opportunity where communities come together where there is a specific strategy that focuses on the needs and opportunities of those vested in the community.
“Clearly, capital alone is not a strategy,” he said. “I think this is a tool that needs to leveraged with other incentives and priorities in the communities. I think the key to this is really going to be in the collaboration between the state and local leaders, and they need to lead out, they really need to take advantage of this new legislation.”
Legend concluded the hour-long conversation with a brief discussion of the history of redlining, and housing and racial segregation in America, concentrations of poverty in certain communities that have been persistently left behind, and how development affects those communities.
“How do we think about balancing both of those issues where we don’t want the neighborhood to be segregated, we don’t want there to be high concentrations of poverty where it’s left behind and blighted for a long time, but we also don’t want to push people out of their neighborhood that they’ve grown up in?” Legend asked.
“This will sound rather simplistic, but I think it’s still important: I think the first part of that is we have to think about it,” Nutter said. “We just need to recognize it and kind of call it for what it is. On a continuum, there’s revitalization and down a particular path, at some point in time, when do you get to gentrifying?”
Ludwig said: “You cannot overstate how our whole housing financing policy was built around intentional structural racism. We have to think about what does that mean to our country, what does that mean for our places, and how can we be just as intentional about undesigning that red line?”
Legend said we all have a responsibility as individuals to not be a part of the problem.
“A lot of this [discrimination] happens in an urban environment, or blue areas in red states, and we think of us all as liberals,” he said, “but a lot of times folks don’t want to live in the same neighborhood as ‘those people,’ and they don’t want their kids to go to the same school as ‘those people.’ You can’t be one of those people that doesn’t want ‘those people’ in your school and in your neighborhood. You need to walk the walk if you think of yourself as someone that’s liberal-minded and progressive. You can’t be a not-in-my-backyard progressive where you want racial equality but you don’t want ‘those’ kids in the school with your kids. That can’t be a part of your equation.”
Photos by Penn Law