Giving Compass' Take:

• Kristen Munnelly and Steve Dubb discuss the limited legal oversight for opportunity zones and the potential for philanthropy to get involved. 

• What opportunity zones in your area could use the support of philanthropy? 

• Learn how philanthropy can help build success in opportunity zones

Opportunity zones were defined in the “Investing in Opportunity Act” section of the 2017 tax bill. The act enables state governors to select low-income census tracts as opportunity zones, with “low-income” defined as having a poverty rate of at least 20 percent and a median family income at 80 percent or less of the median for the overall region. Investors are encouraged to fund projects like real estate and businesses in these zones, with the goal being to “reinvigorate” these areas.

The opportunity zone notion sounds plausible enough, but because it is a tax break, oversight is limited. The incentive comes in the form of deferred capital-gains taxes on profits made in the opportunity zones. As long as the investment is made in a qualified low-income census tract for a requisite period of time, you get your tax break.

Enter philanthropy…to the rescue? The Rockefeller Foundation announced that it would be making $5.5 million available to help six US cities shape responsible strategy around “opportunity zones.” For instance, Newark’s share of $920,000 “will allow a local nonprofit, the Newark Alliance, to hire a chief opportunity zone officer who will be embedded with the city, and two ‘community engagement specialists.’ The grant also comes with two years of technical assistance to help structure deals.”

NPQ has done extensive reporting on opportunity zones over the past couple of years, highlighting the potential problems with the law and the relative vagueness of the guidelines surrounding implementation of the policy and how the funds are spent. A central goal of Rockefeller’s initiative is to provide “philanthropic guardrails,” according to foundation President Rajiv J. Shah, to make sure the law actually helps the residents of these low-income areas within six cities.

Of course, the Rockefeller Foundation is only providing support for six cities. At best, the results of these six experiments might result in other cities imitating what these cities devise. Meanwhile, rural areas are not included at all, even though they make up about 40 percent of the 8,700 opportunity zones.

Another step the Rockefeller Foundation has taken is to partner with the Kresge Foundation to request letters of intent from “prospective fund managers around investments and investment strategies that create wealth, assets and opportunity in low-income communities, based on the federal Investing in Opportunity Act.” A key element of this request for letters includes a requirement for “impact measurement and equity.” Measurement of whether the opportunity zones stimulate economic gains for low-income regions should be a key component of any law that costs as much as this one does, and yet such regulation is notably absent from the law.

Read the full article about philanthropy and opportunity zones by Kristen Munnelly and Steve Dubb at Nonprofit Quarterly.