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Why Operating Businesses are Key to the Long-Term Success of Opportunity Zones

During his time as the former senior tax and economic policy advisor to Sen. Scott, Shay Hawkins pondered every legally available option for the initiative to grow. In fact, Shay helped draft the Opportunity Zones legislation in 2017 with Sen. Tim Scott, so he definitely knows a thing or two about what needs to happen in order to continue the initiative’s success in the coming years. Shay, who is now president of Opportunity Funds Association, recently spoke with us about a critique he’s heard about Opportunity Zones and operating businesses. He also sets the record straight on impact reporting requirements for the initiative, and why President-elect Biden’s administration needs to continue supporting the bipartisan efforts from across the aisle.

One critique about OZs is that the initiative doesn’t support operating businesses. Do you believe this is true or not, and can you provide any examples?

The clear Congressional intent behind the policy was that operating businesses thrive as well as real estate projects. This intent is clear in the plain language of the provision, but it was also carried forward in the implementing regulations. The final regulations gave Investors the information needed to understand the parameters for investing in businesses, which tend to have physical and human assets within and outside of Opportunity Zones. The White House for its part has offered support through the Opportunity and Revitalization Council. The Council bends the community development resources of various agencies to favor OZs in clean energy, broadband, 5G and several other areas. It makes sense that much of the early investing in OZs is real estate focused because the incentive in a place-based incentive and typically the physical real estate assets and the income derived from those assets is inside the Zone. Ultimately operating businesses are the key to the long-term success of the policy because operating business is where the long-term job creation will occur.

Measurement is not only crucial, but important, when it comes to OZs. Can you share any update or insight on the IMPACT Act or future legislation surrounding measurement?

Both Joe Biden and Donald Trump have expressed support for reporting in Opportunity Zones. We have also seen bipartisan support for the IMPACT Act in the Senate which would reinstate and expand reporting requirements to determine the impact of the more than 8,700 Opportunity Zones across the country. When Opportunity Zones were passed as part of the 2017 tax reform package, Senate Democrats utilized procedural rules to strip the reporting requirements initially included with Opportunity Zones from the bill. Senator Scott has been a consistent advocate for reinstating these reporting requirements since then. Given that congress has not been able to agree on a COVID 19 relief package, it is not likely that lower-level priorities will be addressed in the lame duck before Christmas. However, in the 117th Congress next year, Democrats are likely to only hold a maximum of 222 seats. That means the GOP could have 213. It takes 218 yeas to pass anything in the House if all 435 members show up. This environment will be ripe for bipartisan bills like the IMPACT Act that have already drawn support from both sides of the aisle.

The Improving and Reinstating the Monitoring, Prevention, Accountability, Certification, and Transparency Provisions of Opportunity Zones (IMPACT) Act is a bipartisan bill that includes a variety of reporting requirements, fully listed below, to provide for the most robust and granular analysis over time on the targeted impacts of investments in Opportunity Zones. With more than $63 billion already in anticipated investments, it is critical that this analysis is in place. The IMPACT Act’s requirements do this while protecting taxpayer privacy laws and preserving the ability of communities to utilize a wide variety of possible investments without overburdening entrepreneurs and local governments with mountains of unnecessary paperwork.

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