What We Learned from Supporting Opportunity Zones: A Debrief
By Bradford Davy
Hotly contested in Northeast Ohio and beyond is whether Opportunity Zones have achieved what they were designed to do: encourage investment in low-income communities. Admittedly, the Fund for Our Economic Future saw great potential in Opportunity Zones, established through the Tax Cuts and Jobs Act of 2017, to spur economic activity and create jobs in places plagued by decades of disinvestment. We sprang into action, digging into the fine print, mobilizing partners and devising a plan for how Northeast Ohio could and should take advantage of the tax incentive included in the legislation. Along with Greater Cleveland Partnership, The George Gund Foundation, local governments, and many others in the region, we worked to ensure that any investment in Opportunity Zones in Northeast Ohio would result in good-paying jobs and wealth-building opportunities for residents who have been systematically excluded from such opportunities.
We undertook three strategies to advance this goal:
- We invested in a license for specialized mapping software. This enabled us to launch the Opportunity Exchange, a portal that enabled project sponsors and investors to share, explore and connect with projects in Cuyahoga County.
- We supported the development of a prospectus and social impact scorecard to elevate investment opportunities with strong social impact. The Fund convened 20 local stakeholders, including the Urban Institute, Greater Cleveland Partnership, the Cuyahoga County Land Bank, Cuyahoga County, the city of Cleveland, The George Gund Foundation, and the Cleveland Foundation, to identify, define and market social ventures to mission-aligned investors through the effort known as OpportunityCLE.
- We made supplemental grants to position efforts for future investment. Central Kitchen, a training center and business incubator for culinary entrepreneurs, and CentroVilla25, a business incubator and micro-retail space in the Clark-Fulton neighborhood, each received funding to study feasibility and implement a capital campaign.
Three years in, the Opportunity Zone activity to date in Northeast Ohio has seen mixed results.1
First, as predicted, investments funneled to the coasts, according to data from Novogradac, a leading financial consultancy that tracks Opportunity Zones data. Cleveland, however, ranks third in total Opportunity Zone investments across the country, behind New York and Los Angeles, bringing in more than $302 million in reported investments. Ohio also ranks third at the state level behind California and New York.
While that’s a significant inflow of investment funds, they mostly went toward real estate development for market-rate housing and commercial properties—neither of which are significant job creators, and which likely would have happened anyway, judging by long-term development trends. And while our collaborative work through OpportunityCLE elevated dozens of high-potential entrepreneurial opportunities, only three of those projects attracted funding from investors. The impact of Opportunity Zones on equitable job growth in Cleveland over the two years we worked on OpportunityCLE is, unfortunately, negligible.
Despite this disappointment, Cleveland can celebrate some key Opportunity Zone wins. First, the way our community mobilized and collaborated to support deals that would result in more equitable outcomes for people is commendable; many places around the country reached out to develop similar models and learn from us. Indeed, Forbes named OpportunityCLE one of its “OZ 20,” affirming the value of our innovation and leadership as a collaborative in this work. And the Opportunity Exchange platform referenced above was developed and seeded right here in Cleveland by Fund alumnus Peter Truog.
What’s more, there are examples of Northeast Ohio projects that have leveraged Opportunity Zone funds that are doing good things. These projects should not only be celebrated, but replicated:
Our takeaway from all of this?
Opportunity Zones may not be the best and most effective means to support our long-term vision of a growing economy creating good jobs and rising incomes for everyone, but we can take what we learned and the tools we developed through this effort to support good growth in the region. We can continue to support local initiatives that connect qualified Opportunity Funds to projects that advance our mission. We can link promising projects we identified through OpportunityCLE to other funding streams. And we can use the Social Impact Scorecard to evaluate our support of other projects that are meant to contribute to the well-being of residents.
The promise of Opportunity Zones may not be what we thought it was—but we still advanced the ball down the field in the right direction.
It’s important to know that data around Opportunity Zones is incomplete, as reporting is voluntary. Novogradac, the firm that produced the Opportunity Zones Investment Report: Data Through Dec. 31, 2021, compiled data from public sources such as the Securities and Exchange Commission and press releases. Proprietary and private funds owned and managed by principal investors have no requirements to publicly report the activity of Qualified Opportunity Funds. An added state tax incentive in Ohio that required investors to report these investments to qualify gave us a clearer picture than other states, but it remains a limited representation of the full program.