An unfortunate narrative about Opportunity Zones has taken hold since this program was included in the federal 2017 Tax Cut and Jobs Act.
Hailed as a powerful new tool for attracting investment in low-income areas, the story now is that this tax incentive is really just a shelter for wealthy investors to park their money in real estate projects that were already viable. This is a legitimate criticism — and we agree that stronger guardrails are needed — but it is not the whole story.
Like any tool, the outcome depends on who is wielding the instrument.
Here in Washington, the state Department of Commerce put together a working group — comprised of the National Development Council, Mission Investors Exchange and the Federal Reserve Bank of San Francisco — to ensure that Opportunity Zone investments result in positive social outcomes in low-income communities.
To get this on the right track, our coalition turned to underserved communities themselves. We organized numerous Opportunity Zone (OZ) gatherings in tribal, rural and urban communities. We listened and learned from local stakeholders who identified priorities and heard advice about feasibility and pathways forward. These local sessions led to a larger event in Seattle, where project advocates sat down with potential investors — speed-dating style — getting feedback and guidance on the strengths and gaps of their ideas.
These efforts have yielded some promising results (more on that later), but the reality is one new tax incentive program doesn’t work like fairy dust.
Impactful projects require more effort than the low-hanging fruit favored by traditional market-rate investors and wealthy individual developers featured in much of the current OZ reporting. Locally driven projects can transform their communities, but they take time and resources to be ready for investment. Some need technical support to assemble a complex financial package; many need capital for predevelopment costs; some simply need help connecting to investors. Rural areas and communities of color are often hard-pressed to find these relationships close at hand.
To this end, the state of Washington is providing support so communities can move their ideas from concept to investment-ready projects. In addition to our technical assistance, the OZ coalition now includes philanthropies such as Philanthropy Northwest, as well as impact data experts and federal agencies.
It’s still early days, but promising collaborations and projects are emerging, such as the Emerald Coast OZ, a coalition of six tribes, four towns, two counties and two port authorities. Last spring, advisers and investors toured six potential projects, from a wood waste product manufacturing plant to a performing arts and conference center. Multiple tribes are looking at Opportunity Zone capital to fund relocations that would move communities to higher ground as rising sea levels and tsunamis threaten not only lives but commercial activity and social infrastructure along waterfronts.
Another example is the North Star OZ, a coalition of four counties and the Confederated Tribes of the Colville Reservation. This area covers more than 10,000 square miles in rural north-central Washington, anchored by the Greater Wenatchee metropolitan area with a population of 115,000. Several projects there are already attracting interest from investors, such as the Rock Island Brewery and Tech Center along the Columbia River. This former silicon smelter has been vacant since 2003 and needs to be reinvented for the 21st century. Tech jobs have been growing in the area, and this project would build on that success.
North Star OZ is also developing an investment strategy for projects such as the Supernova Business Launch Competition, which will be announced in mid-November. Open to anyone who wants to locate a business in the area, the winning applicants with the strongest business plan and greatest potential for social impact will be able to tap potential OZ investment funds. Creating small business ecosystems in rural areas is critical to closing the urban-rural opportunity gap.
In all, the Washington state coalition is tracking an estimated 40 impactful projects approaching $400 million. More than half of these are in underserved tribal areas and supported by the Affiliated Tribes of Northwest Indians Economic Development Corporation (ATNI-EDC). These include a behavioral health and wellness center, workforce housing, a transoceanic cable project and an industrial symbiosis project where waste from one manufacturing process will serve as feedstock for another. A proposal for an ice-making and storage facility for a tribal fishing fleet would replace ice that is currently trucked in. Renewable energy projects are also ripe for OZ investment, including microgrids for increasing community resilience, and a biomass heat system in a timber community.
Even when they are investment-ready, these projects may not attract traditional capital. That is why our coalition continues to meet with mission-driven investors who can realize tax benefits and gain a smaller financial return in exchange for measurable social impact.
Success will require attention, patience, resources and public/private partnerships to support local efforts. We hope this holistic approach to community-centered investment in Washington state can serve as a model nationwide and show that OZ investments can flow to where they are needed most.