How will we know whether Opportunity Zones have been successful?
That’s a question many investors and community leaders have been asking since the bill’s enactment in December 2017. The good news is, there may finally be a way to figure that out. The bad news? The official enactment may take a while.
A new proposal emerged in Congress on May 8, 2019, showing that a good faith effort is being made on the part of the original Opportunity Zone’s bipartisan panel of authors to meet the intent of the Opportunity Zone law: to create economic revitalization, increase jobs and reduce poverty. This comes just three weeks after the new guidance, which is timely by lawmaking standards.
Senators Tim Scott (R-SC), Cory Booker (D-NJ), Todd Young (R-IN) and Maggie Hassan (D-NH) announced legislation that would require investors to provide the Department of Treasury with important data so that it can measure the social impact being made around the country as a result of Opportunity Zones.
What information will OZ investors be required to provide?
First, the basics:
- The number of Qualified Opportunity Funds (QOFs) held;
- The amount of assets being held in QOFs;
- The composition of QOF investments by asset class;
- The percentage of OZ census tracts that have received investments;
- The impacts and outcomes on OZs, including job creation, poverty reduction, new business starts and any other metrics the Secretary may require.
That last bullet, the measurement of impact and outcomes, will likely raise some questions. But that's not all. Investors also submit:
- The total amount of their investment and the date on which the investment was made;
- The type of investment made, such as a new business, if it was the expansion of an existing business, or if it was real property;
- The location of the business or property;
- The type of activity supported by the investment, whether it's single-family or multi-family residential or commercial real estate;
- The economic sectors in which a business operates;
- The approximate number of full-time employees, if it's a business;
- In the case of real property, the total square footage and number of residential units, as applicable.
All of this ought to paint a clearer picture for Congress about the efficacy of the OZ program in the future; hopefully, without causing undue burden or costly expenses for investors. But when these items come up for review, outcomes need to reflect some critically real change and, hopefully, address causation.
Consider, for example, that poverty reduction in one Opportunity Zone might come as a result of the low-income individuals who have lived there getting better jobs and earning more money, thus raising their personal wealth, because QOF investments to that community will have brought new businesses and more economic activity to the area.
That is a very different type of poverty reduction when compared to the kind that could occur as a result of low-income individuals being predominately displaced from their neighborhoods and through harsh tactics removing lifelong residents from areas.
Causational metrics that explain why and how future outcomes, particularly regarding poverty reduction, get reached will go a long way toward achieving the overarching goal of OZ legislation.
When will these metrics need to be submitted?
Public reporting of the data collected from OZ funds must begin one year after potential changes to this bill are enacted. It would seem that reporting for Opportunity Zone fund managers would need to start almost immediately after this bill would be enacted, considering the proposed May 2019 language: “…such information must be made public not later than the date which is 1 year after the date of enactment of this Act and annually thereafter, following the initial reporting of such information by any qualified opportunity fund.”
“This time frame could create a crunch for OZ funds since it will take time for them to integrate necessary software and recordkeeping in their systems," explains as K&L Gates Government Affairs Counselor Mary Burke Baker. “But,” she adds, “while the odds of enacting this legislation may seem remote as we head into an election year, do not discount this proposal. Legislative proposals have a way of lingering until their time comes. It may not be this Congress, but it could be the next."
Meaning, now is the time to act. Now is the time to make clear suggestions to lawmakers regarding what and how you want specific reporting requirements to be implemented. What would be fair? What tools would clearly measure outcomes? What language could be changed, omitted or added to accurately define what "poverty reduction" and "social impact" really means? How could the data reporting be combined with other Opportunity Zone testing or tax reporting to not be duplicitous? How exactly could the data be collated and combined to ensure that individual, private information is not inadvertently being disclosed?
"By the time Congress does come around to reviewing and voting on this proposal, the time to raise your hand will have long passed," Mary Burke Baker states.
There is no time like the present.