The Potential for an Opportunity Zone Impact Framework
At Third Sector, we work where “money meets the people.” We build data-informed feedback loops to tie government funding to the achievement of measurable social outcomes. Any program that can incentivize the achievement of real progress on social issues gets us excited, and the recent Opportunity Zone legislation has just that promise.
Opportunity Zones are a community development program authorized by the federal Tax Cuts and Jobs Act (2017), with the goal of encouraging patient capital to invest in long-term community development projects. The federal legislation allows newly authorized Opportunity Funds to aggregate and deploy capital by investing a minimum of 90% of assets in designated census tracts and investment types. In return, investors in Opportunity Funds can defer, reduce and even eliminate their federal capital gains taxes after five to ten years of local investment.
Third Sector views Opportunity Funds as a potentially transformative economic tool to improve life outcomes in low-income communities. However, we also believe that meaningful impact will only be achieved through the development of a thoughtful impact framework that holds us all accountable for achieving social outcomes.
We are especially excited by the Beeck Center, NY Federal Reserve, and the US Impact Investing Alliance’s recent push to define an impact measurement framework, and wanted to share our perspective on key stakeholder roles in this effort.
State Governments: States have an opportunity during the coming months to create supportive programs that mandate management to outcomes, encourage performance improvement, and strengthen the impact of local investments. Specifically, state legislators and administrators of the Opportunity Zone program could author amplifying legislation to provide additional reductions or deferrals of capital gains taxes for Opportunity Funds which report on outcomes, work towards specific priority outcomes, or otherwise define an impact measurement framework that encourages purposeful investments.
Investors: We encourage Opportunity Funds to be purposeful about not just the pool of funding and investment geographies, but also how the Funds will measure and improve on their social impact. Funds should take a proactive role in managing to outcomes, holding themselves accountable to social returns alongside financial ones. Doing so will enable key wealth management funds to differentiate themselves from competition as they enable savvy investors real time measurement of social as well as financial returns.
Philanthropists: We look to foundations and other funders to accelerate and encourage management to impact where the government can’t by pooling funding and tying it directly to the achievement of social outcomes. This could come in the form of additional grants, concessionary loans, or program-related investments for investments that show impact or meet specific additional criteria for place-based, community-oriented investing.
Third Sector: Third Sector is excited to be a part of the conversation and would be thrilled to work with partners who similarly want to ensure Opportunity Zones deliver on their social impact promise. We are seeking to partner with governments, investors, and philanthropists to define their own impact framework and develop structures to hold everyone accountable to achieving social impact. In each of our partnerships, we leverage our national experience in helping communities identify outcomes goals, select measurable metrics, and developing continuous improvement and data-sharing processes. We facilitate deep community engagement, building cross-sector collaboration and buy-in to ensure thoughtful Opportunity Zone implementation.