Role # 1 Stakeholder Convening
Philanthropies can play a stakeholder convening by helping cities organize for success by coordinating efforts within government and across key institutions and sectors. Unlike state governments and the federal government, cities are networks of institutions and leaders who co-produce the economy and co-govern many aspects of urban life. The most effective local governance occurs in places that not only deploy the formal and informal powers of government but create and steward new multi-sector networks to advance inclusive, sustainable and innovative growth. Maximizing the potential of Opportunity Zones, therefore, requires the full engagement of different sectors and stakeholders which can leverage their collective assets and align their collective decisions. Cities should accordingly take a “full city” approach and unlock the combined resources of mayors and other elected officials, economic development entities, local universities and colleges, community and other foundations, local banks and corporations, high net worth individuals and impact investors, community development enterprises and community groups, and business and technology intermediaries and support institutions. No one sector is large enough, resourced sufficiently or empowered to do all that is necessary to realize the full economic and social potential of this tax incentive; this must be a product of network governance. Philanthropies are well placed to convene stakeholders from multiple sectors so that they are aware of the Opportunity Zone incentive and have an honest conversation about how each might engage with a strategic effort through, for example, direct or aligned investment, coalition building, board/alumni networking, and technical assistance.
Role # 2 Asset Mapping
Philanthropies can play an asset mapping role by supporting the design and marketing of Opportunity Zone Investment Prospectuses. In March 2018, Accelerator for America engaged New Localism Advisors to create a replicable product — an Investment Prospectus — to enable cities, counties and states to communicate their competitive advantages, trigger local partnerships and identify sound projects that are ready for public, private and civic capital. The aim was to help communities and investors get smarter and more precise about the broad range of investment possibilities that exist in Opportunity Zones and, literally, help make and shape markets where there were none.
Role # 3 Market Making
Philanthropies can play a market making role by supporting the collection of market data, advancing the conduct of market research and catalyzing the investment of patient and impact capital. As discussed above, an Investment Prospectus is written initially to unveil competitive assets and attract private capital that is enticed by federal tax incentives. But the Prospectus does not solely focus on private investors. The transactions that most cities seek to drive inclusive growth (e.g., investments in workforce housing and local businesses) will require a blended “capital stack” of debt, subsidy and equity. Cities will, therefore, need to align broader pools of public, private, civic capital and create new forms of innovative financing that can be captured, codified and transferred from city to city. Weak market cities will also need to create business demand by increasing employment density within nodes of Opportunity Zones (e.g., the downtown initiative pursued by Erie, PA). The major observation here is that wealth doesn’t just reside in technology capitals like Silicon Valley or New York City but is distributed across the nation. To this end, cities do not have a capital problem but an organizing challenge and the Investment Prospectus is an impetus for unlocking local wealth and driving smarter local investment and location decisions. Opportunity Zones could catalyze the aggregation of smart public, private and civic capital for multiple purposes. Smart public and civic investments in community infrastructure (e.g., parks, libraries, broadband) and human capital can provide a foundation and platform for private sector investment. In low-demand cities and Opportunity Zones, smart public, private and civic financial instruments (e.g., subordinated debt, recoverable grants, impact investing) can attract and de-risk tax advantaged capital to move markets. Certain typologies of Opportunity Zones (e.g., central business districts, hospital districts, industrial districts, residential communities) might even become the focus of organized funds that operate across cities, diversifying risk and enhancing Opportunity Fund performance.
Role # 4 Community Builder
Philanthropies can play a community building role by helping residents who live in or near Zones obtain skills, start businesses and help improve the quality of life in the neighborhood. The 10-year life of the tax incentive creates an intriguing proposition: an 8-year-old living in an Opportunity Zone today will be 18 years old and ready for participation in the labor market when the Opportunity Zone incentives sunset. Ensuring that that child is ready to succeed will require targeted investments among networked entities that integrate multiple parts of the cradle-to-career system. Cities have a unique potential, given the localization of many schools and skills institutions and initiatives, to focus on giving residents who live either within or near Opportunity Zones the ability to access existing and future employment opportunities — whether working at a new Opportunity Zone business or building an Opportunity Zone development. Cities can go further and drive inclusive growth more broadly through supporting the expansion of minority owned businesses, minority homeowners, affordable housing and neighborhood amenities. Philanthropies can play a major role in linking market-oriented Opportunity Zone investments to investments in human capital and other strategies that maximize impact for lower income residents.
Role # 5 Institution Building
Philanthropies can play an institution building role by enhancing the capacity of existing public, private and civic organizations and by creating or supporting new institutions or intermediaries that can help cities design, finance and deliver transformative investments. Realizing the full potential of Opportunity Zones requires that a disparate group of urban institutions act with purpose and discipline along multiple fronts. Yet the current health and capacity of local government and other institutions make this a challenge. In many communities, local governments simply do not have the capacity or professional expertise to design, finance and deliver sophisticated market and social initiatives. The public sector is also highly fragmented, divided across multiple layers of government, specialized agencies and independent public authorities. On the private and civic side, most communities collaborate through loosely organized informal networks that do not have sufficient capital or capacity. In addition, many nonprofit organizations are either too small to affect systemic change or too circumscribed in focus to drive sustainable impact. Cities should use Opportunity Zones as a vehicle for modernizing and redefining their institutions to maximize economic, social and environmental impact. Philanthropies can play a series of roles to grow the capacity of existing or new institutions.
Role # 6 Innovation Inducing
Philanthropies can play an innovation inducing role by using challenge grants and other mechanisms to source pathbreaking ideas among urban stakeholders or pushing key players (e.g., community foundations) to coalesce around coordinated neighborhood investment strategies. The evolution of Opportunity Zones will be characterized by a broad array of players — investors, developers, city governments — being first movers on such critical components as the creation of Investment Prospectuses, the formation of Opportunity Funds and the creation of novel funding structures around workforce housing and other much needed investments. Erie, Louisville, Oklahoma City, South Bend and Stockton, for example, have already released beta versions of Investment Prospectuses, sparking national media attention and investor interest. An Opportunity Zone Challenge could inspire disparate cities to innovate on different ways to drive inclusive growth in disadvantaged places and for disadvantaged people. An Opportunity Zone Challenge issued by a national foundation could also be a catalyst for local foundations to carry out many of the steps identified.
Role # 7 Information Sharing
Philanthropies can plan an information sharing role by speeding the process by which innovative strategies, practices and instruments are captured, codified and communicated. Cities are learning networks. While the federal government will ultimately write the basic rules, the evolution of the Opportunity Zone tax incentive will also take place via market norms and policy and practice innovations that are invented in one city and then replicated or adapted in rapid fashion across multiple communities. Already, many city-focused organizations and intermediaries like Enterprise Community Partners, LISC and Accelerator for America are identifying and codifying innovations that are emerging in vanguard cities, speeding the pace of scaling. Opportunity Zones are one of the first federal tax incentives to evolve Wikipedia-like from the bottom-up rather than the top-down. Philanthropies could provide enhanced support to national intermediaries so that they have the bandwidth to share information across multiple dimensions and for multiple cities and stakeholders. Alternatively, philanthropies could support constituency organizations that represent key urban stakeholders (e.g., city and/or county governments, community foundations, public housing authorities, community development finance institutions, hospitals, universities) so that tailored information can be delivered in customized ways.