Are Opportunity Zones boosting small, minority-owned and legacy businesses?

The massive new Opportunity Zone tax incentive was conceived as a tool to promote economic development, job creation, poverty reduction, and support for new businesses in areas of concentrated poverty. A couple years in, is it having the desired effects? Are the investments supporting small business stability and growth, especially for minority-owned legacy businesses?

We went to four cities (Miami, Atlanta, Louisville, and Washington, DC) to collect data and interview business owners, municipal staff, and Opportunity Zone fund managers to see what was happening on the ground.

What did we find?

Most investments are not being made into business enterprises, but into real estate. There are some structural reasons for this—including how investors pursue equity in companies (rather than offering debt) and the long required timeline for investing (ten years) that doesn't lend itself to business investments.

There's also often a mismatch between what investors are seeking and the needs of minority-owned and legacy businesses. There's also a spatial mismatch—those who are investing rarely are located or live in the same areas where their investments play out. It's also hard to measure the impacts carefully and track progress due to a lack of standard reporting requirements.

Unrealized Gains offers a number of recommendations to address the limitations we found by reshaping and tweaking the OZ incentive to help improve its ability to accomplish the stated goals of reducing economic disparities. And we are optimistic about the potential for improving it.

There is excitement and potential for the OZ incentive, but key changes are needed to guarantee that the benefits are reaching communities in tangible ways.

Smart Growth America


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