U.S. Sen. Cory Booker, who co-sponsored the bill that created Opportunity Zones, spoke to a group in Newark recently about the progress being made in setting up the various zones, and the regulatory framework that will come with them.
Booker (D-N.J.) said Opportunity Zones, which are an attempt to tap nearly $6 trillion in unrealized capital, are a new tool in the toolboxes for businesses, which is also creating a moral case for investment in urban and rural areas.
“I’m very proud that I’ve given the real practitioners of civic society, not senators or congresspeople, but it’s mayors — the hardest job in all of American politics — and giving mayors another good tool in their toolbox to prove who we are as a country and who we are in our urban space,” he said.
Steve Glickman, co-founder and CEO of the Economic Innovation Group, which helped in the creation of the legislation, also spoke to the audience — through a video conference from Washington, D.C.
“This is a program designed at addressing economic inequality, but it’s designed at addressing economic inequality at a level we don’t talk about a lot in this country, and this is inequality within and among communities,” Glickman said. “And, in those communities, your economic outcomes and life outcomes are very different. It almost is like we are talking about two different countries. And those countries start to feel more and more like these are places that are not in America, but in the developing world.”
That’s because there are pockets of the country that see life expectancies that are five years lower than the average, and the chances of climbing the socioeconomic ladder is in the single digits, rates of obesity and diabetes and opioid use are more than 50 percent higher than the average, Glickman said.
That, in a capital-rich country.
“In fact, we’re as rich as we’ve ever been,” Glickman said. “Stock markets are at record highs, profits are at record highs — and the idea here is: How do you tie the fates of those investors doing well in the economy with communities that have been overlooked for too long.”
Trying to spur the economy in some pockets is not a new concept.
The state created Urban Enterprise Zones, which recently have been reinstated. And incentive programs and empowerment zones have existed around the country.
But, while the rest of the country has generally gained businesses and jobs, distressed communities have lost 6 percent of their businesses and 6 percent of their jobs since 2000.
“That trend is pretty much a straight downward trajectory,” Glickman said. “From 2000 to the latest data we have a couple of years ago. And, if you’re not creating businesses, you’re not creating jobs, because almost all the net new jobs in this economy come out of the businesses.”
So how can Opportunity Zones work where other strategies have failed or not produced monumental results?
“This program was designed as a new approach,” Glickman said, citing former strategies that failed or did not live up to their potential.
“It was an intentional failure, it was a design failure. Those programs were designed with incentives going to businesses, and it turned out a lot of those businesses couldn’t take advantage of it. They were too small, they weren’t profitable, they didn’t have the bandwidth to take advantage of the incentives.”
Opportunity Zones, on the other hand, have a few advantages, such as:
- Scalability: There is no limit to the amount of capital that can move into these zones;
- Flexibility: All types of investors can engage, which allows areas like real estate and infrastructure and clean energy to be tackled as well;
- Equity investments: Doing this instead of tapping into debt will change the skin in the game.
The benefits depend on “patient capital,” Glickman said. “To really get the full extent of it, you have to stay invested for 10 years or more.”
Booker said he has seen the business community respond to the Opportunity Zones, and understand the potential provided by broad parameters and real freedom in creating investment funds.
“Some people are already working to organize investment funds which are completely privately run, which is just exciting to me,” he said. “Meanwhile, a lot of regs are being finalized by (the U.S.) Treasury.”
That means billions of dollars will soon be moved into low-income areas.
“I see really the perspective from New Jersey and I’m seeing a lot of different groups: impact investors, people that have a social mission,” Booker said. “There are some businesses that have a charitable foundation and (are) looking for ways to create a multiplier effect with their investment, which is exciting.
“And I’m seeing just savvy investors. As the EIG CEO said today, this could end up being the greatest economic development initiative in a generation in our country.”