Everyone’s talking about Opportunity Zones, not enough are talking rural
Snuck into the 2017 Tax Cuts and Jobs Act, the federal Opportunity Zone program is designed to spur private investment in economically distressed communities and neighborhoods across the country.
By offering deferral, reduction, and potential elimination of federal gains taxes, the program targets the trillions of dollars currently unrealized in the stock market and provides strong incentives and few restrictions to deploy those gains in projects in federally-designated Opportunity Zones.
A powerful tool, to be sure — and some of that power lies in its difference from other federal tax credit programs in that there is no cap to this program — but one with potential pitfalls.
Consider the tale of two Opportunity Zones: the first, the waterfront in Long Island City, New York (or, for the census tract-lovers out there, tract 36081000100; population of LIC: 68,117, population of greater NYC: 8,398,748); the second, downtown Caruthersville, Missouri (tract 29155470400; population: 5,702), a Mississippi River town just minutes to Tennessee and just a few more minutes to Arkansas.
The area in Long Island City may be familiar to those who followed Amazon’s HQ2 bid last year — this would have been the site of not only the new Amazon New York headquarters, but the resulting housing, retail, infrastructure, and other mixed-use development that a concentration of high-paid tech workers brings with it.
Caruthersville, on the other hand, on paper looks like one of many rural communities in flyover states — a poverty rate above and median household income below national averages.
In this story, imagine you are an investor without specific ties to either community, looking to find Opportunity Zone projects where an investment will yield the return you are looking for. Where would you decide to first look for projects?
It is hard to imagine a scenario in which you take more than one moment to look at Caruthersville before deciding on Long Island City. Even with Amazon’s decision to not build the northeast HQ2, Long Island City is still Long Island City, and an investment there — be it in luxury apartments, mixed-use development, or business expansion — seems to make a lot of sense.
It’s a shame you only took a moment to look at Caruthersville (better luck in your next imaginary scenario), because in that moment you probably didn’t catch the signs of life emerging from this community rebounding from a shift away from manufacturing:
- Lady Luck Casino, a 21,000 square foot riverboat casino, opened in 2000 and has become a strong regional employer;
- Grizzly Jig, one of if not the biggest seller of crappie tackle in America, transitioned from a garage enterprise into a multi-facility powerhouse, and their annual Grizzly Jig Spring Tackle show draws in thousands of people for a weekend every spring;
- Caruthersville native Cedric the Entertainer recently purchased land to potentially build new housing; and
- The Caruthersville Area Arts Council, in collaboration with a new mayor, is working to renovate a historic building to be the home of a new River Museum and multidisciplinary community space.
At McClure Placemaking, we are working with rural communities across the country to be bold in reimagining and revitalizing their towns through action plans for specific projects, ranging from housing to cultural centers to shared streets programs. While the communities with which we work all have a unique story to tell, we have found some common threads that paint a more nuanced picture than what you might read in the New York Times:
- Rural America has jobs. In town after town we hear from business and community leaders who are dealing with vacancies they can’t fill, from hourly service industry staff to skilled trades to management positions. Companies large and small are making conscious decisions to stay in rural communities, but they are struggling to stay because of the talent shortage.
- Rural America needs housing. One of the biggest impediments we hear to workforce development is a lack of available housing, as an aging housing stock and lack of modern apartments create gaps in the market — the exact gaps a young potential employee may be looking for.
- Post-industrial rural communities are getting creative in their response to a changing workforce. Look no further than Jefferson, Iowa, a town of 4,376, where the first rural Forge, a coding academy concept created by Pillar Technology, will offer a coding academy program with a guaranteed job starting at an annual salary of $50,000. The jobs are based in Jefferson, so the town is now not only retaining the next generation of workforce but also injecting a significant amount of external capital into the community.
- Rural communities have committed local leadership, and making an impact in your rural community has a huge ripple effect. Look to Stanton, Iowa, a town of 700 which has seen $39 million in investments in the past ten years and continues to look to the future, including our recent Placemaking plan, which laid out steps for the community to develop an artist residency program, address housing needs, invest in greater trail connectivity, build a makerspace, start a grocery locker system, open a restaurant, and rehab an early 1900’s Masonic lodge to hold two retail bays and several modern apartment units.
To be sure, rural communities face significant challenges: aging infrastructure, a “brain drain” of 20-somethings to larger urban areas, barriers to accessing fresh food, fast internet, and more. In addition, many rural communities face similar challenges to some urban areas which should not be overlooked: wealth disparity, unequal access to generational equity and educational opportunity, and strained relationships between different groups.
However, these challenges are not the whole story. And that brings us back to Opportunity Zones, and the central question we and others are seeking to answer:
For a program that was designed to deliver sustainable investment across the country in places that need it most, how can we best position the 40% of Opportunity Zones designated in rural areas to solicit and be made stronger by these projects?
An Opportunity Zone “world” has emerged since the introduction of the program, where industry leaders have written extensively about the promise and peril of Opportunity Zones. Building on their great work, and hoping to find others working in the rural Opportunity Zone space, we have started to sketch out a roadmap for the simplest introduction to a complicated but highly impactful program.. A significant asterisk to what is below: each community need will be different, and this process is not one size fits all. However, this is where to start, and if you’re interested in diving deeper, so are we.
1. The Opportunity Zone Prospectus
Both Accelerator for America and the state of Colorado’s Office of Economic Development and International Trade have put together great guides for building a community investment prospectus. This prospectus helps communities paint a picture of their community, one that lays out distinct assets and advantages of the zones as well as local data to help contextualize potential projects.
For rural communities, building a prospectus doubles as a chance to bring community members together and identify shared priorities and goals. Consider your community’s strengths — have you recently invested in broadband access? What is your proximity to major transportation routes? Does your community have large areas of city-owned land within an Opportunity Zone that could entice new development? Taking stock of what you have — and, in the process, identifying a common need among community leaders — helps paint a picture to investors of a community ready for this type of investment.
2. The Opportunity Zone Ecosystem
Another issue we have encountered working with rural communities is a lack of resources to build local awareness and capacity of what to do with Opportunity Zones. Consider the Opportunity Zone “Ecosystem” you need to create in order for projects to emerge — local knowledge of Opportunity Zones and Opportunity Zone funds should extend across your community, as these projects have the potential to bring multiple groups to the table. A workshop for local leaders — from elected officials to Main Street directors to local banks and financial advisors — can help bring those people to the table and create the shared understanding needed for strong project ideas to be identified.
3. Unlocking local capital
Go back to the imaginary scenario of the two census tracts. In a similar non-imaginary scenario, the most common outcome of that situation would be for that investment to flow to New York, where the major players to create a project — investors, developers, Opportunity Zone experts — are in high supply.
So what if the answer is not to compete but instead bring new investors to the table? As Bruce Katz writes in FT:
The law’s greatest effect, ironically, has been to unveil a treasure trove of wealth in communities throughout the nation. Some of the country’s largest investors are high-net-worth families in Kansas City, Missouri, and Philadelphia; insurance companies in Erie, Pennsylvania, and Milwaukee; universities in Birmingham, Alabama, and South Bend, Indiana; philanthropists in Cleveland and Detroit; and community foundations and pension funds in every state.
Opportunity Zones present a chance to start these conversations — are there family farms in the area confronting generational change? Are there local financial advisers who may have a client base who would like to see investments in their own backyard? Building an ecosystem that can identify and promote investor-ready projects can help bring new potential investors to the table.
4. Be bold in closing the gap
While Opportunity Zones represent a powerful tool to spur investment in underdeveloped areas, Opportunity Zone investments still demand market rate returns and low-risk investments. For many rural communities, it is hard to make that work on paper, for a number of reasons and particularly with housing.
This is where cities, counties, local philanthropic organizations, major employers, and others can be creative. How can local resources be pooled to create financing mechanisms that can attract investors to projects?
Consider Kossouth County, Iowa, where local employers are struggling to fill jobs and hold on to employees. These employers, along with the city, county, and potentially state of Iowa, are working to create a revolving loan fund, where a mix of low-interest and forgivable loans provide the gap financing to make new housing project successful. Note, while Kossouth County is not in an Opportunity Zone, it is easy to see how a similar program replicated elsewhere could create Opportunity Zone projects.
As I was drafting this Medium piece, I saw another doom and gloom article about rural America come online, this time in Citylab. The “rural America is dead” narrative has grown in power since the 2016 election, and it will only pick up steam in the coming months and years as attention is turned back to these places and the electorate.
Opportunity Zones present a chance to challenge this narrative and tell a new story, one defined by community strengths and, most importantly, community ability to think big and work across disciplines, industries, community groups, and political parties to ensure communities not only survive but thrive, now and in the future.
Mickey Davis is Community Placemaker at McClure Placemaking, a group working on creative catalytic projects in rural areas to bring about population growth and economic vitality.