Civic Leadership

The potential for Rhode Island Opportunity Zones

Opportunity Zones, a new and very different type of incentive created by the Tax Cuts and Jobs Act of 2017, are getting a lot of attention nationally and locally. We’re delighted, because community capital is badly needed in Rhode Island.

We face high rates of poverty, lack of economic growth, and gross inequality, and both a shortage and an uneven distribution of resources to address these challenges. Anything that brings more capital to Rhode Island communities bears close study.

This new incentive is intended to encourage private investment, and ultimately inclusive economic growth, in low income communities. Opportunity Zones, selected in each state by the Governor, are Census tracts eligible to receive private investments through a qualified Opportunity Fund. Investors who direct capital gains into equity investments in Opportunity Funds receive federal tax benefits, which increase if the investment in maintained over five to ten years.

The 25 Opportunity Zones selected by Governor Gina Raimondo present tremendous potential. Together, the Zones are home to 111,000 people, representing diverse geographies, populations, and potential economic drivers. Numerous Zones are in old mill villages that have not yet recovered from the industrial downturn of the mid-late 20th century. Others are in coastal communities, where sometimes invisible pockets of poverty persist. Many residents in these Zones have limited personal and community resources. For example, 19 of Rhode Island’s Opportunity Zones have been designated by the USDA as low access to grocery stores, 16 are high housing needs tracts, 17 surpass the regional average for people with disabilities, and 14 are above the average for households without a vehicle. To learn more about Rhode Island’s Opportunity Zones, click on the map's "new map" link for indicators of community well-being within Zones.

Data mapped by PolicyMap, an online GIS mapping tool.

Targeted, focused capital could make an immediate, tangible difference for those communities and the state as a whole. And there is significant money at stake. U.S. households and corporations held an estimated $6.1 trillion of unrealized capital gains in 2017. Unlocking even a small portion of this would have a huge impact in Rhode Island.

But this is a different kind of program than we’re used to, and we need to be really intentional to make it work. As many in our state move forward to capitalize upon the promise of Opportunity Zones, we’d like to offer a few suggestions for ground rules.

First, investments made in Opportunity Zones should honor the spirit of this initiative: to improve quality of life and economic opportunity in low income communities. Let’s be sure that this incentive doesn’t encourage activity that leaves out people who live in the Zones, displaces residents, or gentrifies neighborhoods. If this program lives up to its potential, it will provide the long-term, patient capital that real community development needs. If it goes wrong, it hurts the communities it was intended to help and provides people with a tax benefit for things they would have done anyway.

Second, doing this well will require local leadership and deep engagement of residents. This is designed to create a market. Left to its own devices, it won’t direct capital to the places most in need and the projects that respond to those needs. That’s going to take local knowledge and local leadership. Not every Zone will receive investment; in fact, it’s unlikely to happen without strong local advocacy. As a state, we must develop a pipeline of community investments, wrap supports around them, and market them to investors. Community development corporations, local officials, and resident leaders who understand the needs of their neighborhoods must be at the center of these discussions.

And third, we need to guard against a lack of transparency and accountability. It is critical that we track results. What types of investment are happening, and how much? What happens as a result of each investment; are new jobs created, do new residents move to the zone, and do existing residents see an increase in their quality of life or economic stability? Does Opportunity Zone capital leverage additional public or private investment? Opportunity Zones represent a novel and promising approach to investing in low-income communities, but this kind of data is necessary to determine if it works.

Already across the country, we are seeing first movers take advantage of the Opportunity Zone incentive. Here in Rhode Island, we must be ready if we want to see the kinds of investment that our communities truly need.