Treasury risks dropping the ball on Opportunity Zones accountability

Opportunity Zones have inspired hope for many, but also a growing fear. The hope is that the tax break will spur investment in distressed communities where real wages are falling and rents are rising, where small businesses are closing and inequality is widening. The fear, for proponents and critics alike, is that greedy speculators will run up the tab for taxpayers while harming current residents.

The die will be cast when the Treasury Department releases final regulations governing Opportunity Zones. It’s up to Treasury to weigh these risks against the potential returns for our communities.

By some estimates, more than $1 billion will flow into Opportunity Zones this year, with more capital expected to follow. Hundreds of millions of tax dollars will be forgone as a result, money that otherwise could have gone to vital services or infrastructure. But if this massive public investment pays off, we’ll see revitalized local economies and millions of Americans will share in the dividend.

How will we know if we’re getting a good deal? Unfortunately, unless Treasury acts, we may never get an answer.

I recently joined market participants and community advocates to testify at an IRS hearing on Opportunity Zones. There I delivered a simple message: Opportunity Zones must include clear, consistent and transparent reporting standards.

Reporting was included when more than 90 bipartisan co-sponsors signed onto the Investing in Opportunity Act in 2017. The original legislation mandated transparency and accountability, and it gave Treasury Secretary Mnuchin broad authority to ensure that the tax benefit would be used appropriately to create productive economic activity in low-income communities.

But reporting requirements were stripped out of the reconciliation language, and despite having clear authority to do so, Treasury has yet to reinstate them or to articulate clear rules to prevent abuse. These items should have been first on the agenda, but instead Treasury waited until the eleventh hour.

Fortunately, past evidence helps show us what’s needed. Impact investors have decades of experience investing in underserved communities, including Opportunity Zones. They will tell you that without transparent and timely access to data about investments, residents will have no seat at the table as priorities are set and decisions are made about their economic futures. And, impact investors will tell you, without the community at the table, the Opportunity Zones policy is destined for failure.

Last month the Presidents’ Council on Impact Investing, a group of impact investors and philanthropies convened by the U.S. Impact Investing Alliance, issued a call to action for government and other stakeholders. “Success hinges,” they wrote, “on the extent to which Opportunity Zones enable current residents to engage and equitably participate in defining how new investments ultimately reshape and strengthen the physical, social and economic fabric of their communities.”

Such authentic community engagement demands reliable data. Residents need information to know what works within Opportunity Zones and what doesn’t so they can engage proactively. Data will show where capital is flowing, how that capital is being used and the outcomes generated. The only way to ensure this data is consistent and actionable is through clear standards of reporting and transparency.

From there, we need tools to set the table for productive engagement between investors and community stakeholders. In some places, local government and philanthropy are stepping up. For example, in Birmingham, Alabama, and Stockton, California, local organizers and policymakers have sprung into action, identifying potential deals, building community support and connecting entrepreneurs to investors. The Rockefeller Foundation is replicating this model by funding “Chief Opportunity Zones Officers” in another six cities nationwide.

Impact investors like Jim Sorenson have staked their own investments on models that can take Opportunity Zones capital off the coasts and into deeply distressed and rural communities. And philanthropies like the Kresge Foundation are using innovative approaches, like credit guarantees, to push more fund managers to embrace community engagement.

What ties these stories together is the shared desire of residents and stakeholders to have a voice in how Opportunity Zones impact their communities. To ensure they are heard and their needs are met, the missing piece is access to reliable and useful information from Treasury.

There is still time for Treasury to act. Everyone can agree that we must invest in the economic potential of America’s communities. But as capital flows and advocates ask if Opportunity Zones should be expanded or extended, we need to answer the basic question first: Are the American taxpayers and the residents of these Opportunity Zones getting a good deal?

Fran Seegull is executive director of the U.S. Impact Investing Alliance.