American Idea Foundation

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Coalition recommends Federal Reserve detail eligibility for Opportunity Zone & Community Reinvestment Act credits

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BY: AIF STAFF

Created as part of the 2017 Tax Cuts and Jobs Act, Opportunity Zones are a poverty-fighting tool designed to stimulate job creation, investment, and economic development in distressed neighborhoods. These nearly 8,800 census “zones” are found in all 50 states, ranging from very rural to very urban areas, and the law provides tax incentives for long-term investments that will ultimately benefit these communities and those residing there.

The American Idea Foundation has convened panel discussions with legislators, investors, and academics to discuss how Opportunity Zones can spur community development and help fight poverty as these projects begin to get off the ground. The Foundation has also profiled successful initiatives underway in Opportunity Zones like Erie, Pennsylvania, where private-sector investors have teamed with local leaders and businesses to reinvigorate some of the city’s poorest Zip Codes. Similar promise has been seen in communities as diverse from Provo, Utah to Baltimore, Maryland.

While the tax incentives provided through Opportunity Zones have started to bear fruit, former Speaker of the House Paul Ryan and the American Idea Foundation believe that additional reforms and changes should be made so the program meets legislators’ original intent.

As Speaker Ryan has said, because of reconciliation rules related to the consideration of the Tax Cuts and Jobs Act, lawmakers were unable to get all of the desired accountability and transparency tools, among other things, in the 2017 legislation. Thus, for Opportunity Zones to reach their full potential, it is imperative that the federal government continue to make modifications. As the Foundation works with policymakers to make legislative improvements to rules around Opportunity Zones, there are also regulations being promulgated of great importance to these areas and those interested in investing in these communities.

This is why the American Idea Foundation joined a diverse coalition of stakeholders in sending a letter to Ann Misback, the Secretary to the Board of Governors of the Federal Reserve, focused on expanding the access and eligibility of Community Reinvestment Act tax credits for those working in Opportunity Zones. 

The letter offers a series of comments in the hope that regulators will provide additional clarity and transparency about the activities and projects in low-and-moderate income communities that are potentially eligible for tax credits from both Opportunity Zone legislation and the Community Reinvestment Act. With greater clarity and information, more investors and financial institutions will hopefully be comfortable in providing capital to these areas of the country that badly need it.

The entire letter is available here and some of the comments are summarized below.

Natural Overlap between Community Reinvestment Act & Opportunity Zone Goals

As the letter notes, both the Opportunity Zone legislation and the Community Reinvestment Act are designed to benefit low-income communities and their residents. Both are intended to tackle persistent poverty, and as such, the impact of the Community Reinvestment Act and Opportunity Zones would be “maximized by providing eligibility for investments in both programs.”

Because of the similarities in how low-income communities are defined in Opportunity Zone legislation and the Community Reinvestment Act — not to mention that both are aimed at providing long-term, patient capital, the letter requests that regulators consider providing Community Reinvestment Act credits for additional Opportunity Zone investments that benefit low- and moderate-income communities.

Further, the letter calls for the Federal Reserve to explicitly include “examples of activities in low- and moderate-income communities that would qualify for credits under the revitalization and stabilization component of community development.” Given the logical overlap between Community Reinvestment Act and Opportunity Zones, the Federal Reserve should strive to identify activities that would allow investors, institutions, and community organizations to be eligible for both credits.

To Maximize Community Reinvestment Act & Opportunity Zone Activities, Provide Illustrative Examples

To ensure that only deserving investments in Opportunity Zones are eligible for potential Community Reinvestment Act credits, the Opportunity Zone Coalition letter calls on the Federal Reserve to provide an illustrative list of qualifying Opportunity Zone activities that may be eligible for the Community Reinvestment Act credits. Because there is uncertainty over what community development activities may qualify for Community Reinvestment Act credits, financial institutions and investors may be hesitant to engage in Opportunity Zone projects.

The letter suggests that when the Federal Reserve approves an activity for Community Reinvestment Act purposes for one institution, it should make this information public so other institutions and investors can determine (with full information) whether to undertake similar investment activities in other Opportunity Zones. The letter outlines a few examples of activities that could be presumed to benefit low- and moderate-income communities and also comply with Community Reinvestment Act requirements:

  • Qualified opportunity fund investment that finances construction of a grocery store in an LMI Opportunity Zone.
  • Qualified opportunity fund investment that finances construction of a new manufacturing facility that creates jobs for local residents in an Opportunity Zone that is also an LMI census tract.
  • Qualified opportunity fund investment that finances the construction or renovation of facilities oriented toward serving low-income children, such as charter schools, day care centers, and early childhood centers in LMI Opportunity Zones.
  • Qualified opportunity fund investment that finances the construction of affordable residential apartments in an Opportunity Zone that is an LMI census tract in which at least 20 percent of the units will be offered at median rents that do not exceed 30 percent of 100 percent of the area median income.

Providing examples that are eligible for additional credits, like the ones above, would provide investors and financial institutions with the certainty and confidence necessary to lend capital to projects in these low- and moderate-income areas that are hungry for economic growth.

The letter also calls for the Federal Reserve to develop a mechanism by which interested stakeholders can submit examples of potential activities that could qualify for Community Reinvestment Act credits in Opportunity Zones. This is a simple but important suggestion to ensure that those interested in investing in these areas are able to determine their eligibility for credits at the outset.  

Maintain Incentives for Community Development Investments

The final comments in the letter raise a concern with the proposed idea to “combine community development loans and investments under one subtest.” The Opportunity Zone Coalition believes this might decrease, not increase community development levels going forward. The letter notes that by “measuring loans and equity investments together, banks would be disincentivized to engage in equity investments to meet their Community Reinvestment Act requirements.” Because equity investments have higher capital requirements, banks may opt to just make loans.

This letter, which details the natural overlap between the aims of the Community Reinvestment Act and Opportunity Zone legislation, suggests a few common-sense ways that the Federal Reserve can provide clarity, transparency, and additional information to potential investors, community leaders, and financial institutions. These simple steps — of outlining examples of activities that would qualify for Community Reinvestment Act and Opportunity Zone credits, of providing illustrative examples, and of maintaining incentives for banks to pursue community development projects – will hopefully attract additional interest and investment in these areas. This increased interest and investment will then benefit the residents of these areas over the long-term.

This letter is just the latest example of stakeholders raising awareness and working to expand the potential impact of the tax benefits available through Opportunity Zones. At  a June 2020 event in Columbia, South Carolina, Senator Tim Scott and HUD Secretary Ben Carson met with local bankers and community leaders to discuss how some activities in Opportunity Zones may be eligible for credit under the Office of the Comptroller of the Currency’s (OCC) new Community Reinvestment Act (CRA) rule.

These types of events and the correspondence from the Opportunity Zone Coalition to the Federal Reserve will hopefully ensure that individuals in Opportunity Zones, particularly those who are low- and moderate- income, realize the benefits of this law and that it expands economic opportunities in areas that need it most.

Social Impact Partnerships: Leveraging Strengths from Communities, the Government, & Private Sector to Improve Outcomes

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BY: AIF Staff

Former Speaker Paul Ryan created the American Idea Foundation to help promote and scale solutions that are supported by evidence and data and that spring from innovative partnerships between local leaders, community researchers, and policymakers. The Foundation’s mission is to highlight local success stories, reinforce their efforts with research and data, and work with legislators on public policies to replicate these winning strategies in other parts of the country. This approach was the motivation behind many of the accomplishments during Speaker Ryan’s tenure – from Opportunity Zones to rethinking the government’s approach to poverty, and it continues to motivate him to this day.

One new policy that embodies Speaker Ryan’s and the American Idea Foundation’s approach is the Social Impact Partnership to Pay for Results Act (SIPPRA), which was signed into law in February 2018. The premise of the legislation is simple, as Speaker Ryan said at a January 2020 forum on evidence-based policymaking:  

“With the passage of Social Impact Partnership and the Pay for Success Act, we provided funding for states to partner with the federal government, to identify key metrics for social programs and make payments when results are delivered. What a novel concept!”

As the Department of the Treasury details, the purpose of SIPPRA was to “improve the lives of families and individuals in need in the United States by funding social programs that achieve real results.” It is, in short, a “pay for success” model.

To fund an initial round of demonstration projects, SIPPRA appropriated $100 million to the U.S. Department of the Treasury, $15 million of which was set aside for evaluation costs, to support state and local governments in building a foundation for outcomes-based decision making. Though the funding goes exclusively to state and local governments, it can be used by an entire umbrella of social service providers – from those tackling issues as diverse as homelessness, childhood health, vocational training, obesity, and family stability. The common thread is that any selected program that receives SIPPRA funds must focus on outcomes and measurable results as government funding is contingent on hitting quantifiable metrics rather than satisfying subjective, partisan whims.

Distilled down to its essence, SIPPRA has two primary benefits:

First, SIPPRA takes an evidence-based approach to lifting Americans out of poverty: Funding flows to programs whose methods have been evaluated using data, supporting real-world efforts that achieve positive results. The legislation moves funds away from ineffective programs and towards those that have demonstrated track records of accomplishment. And the federal government is only on the hook financially if the program achieves its stated aims and outcomes. This ensures that policymakers are not only being good stewards of taxpayer dollars but also are prioritizing funding for programs that actually help Americans in meaningful ways.

The Office of Senator Susan Collins of Maine succinctly described the major steps associated with obtaining SIPPRA funding:

  1. A state or local government explains the desired outcome, the program and services provided, any past evidence of positive results and savings expected
  2. A state or local government provides a feasibility study that shows the providers have the capacity needed to run the project; have experiencing serving the targeted population; and have the ability to raise additional funds from other investment sources
  3. If selected, the federal government designs an independent evaluation to assess a program’s progress in achieving the desired outcomes. This ensures that the results have been achieved before taxpayer dollars are spent.
  4. If the desired outcomes are realized, the federal government then pays the state or local government and its investment partners a pre-negotiated amount for funding the project and taking on the risk of success.

The various steps of the program highlight the second major advantage of this pay-for-success model. As the Department of the Treasury detailed, SIPPRA encourages “public-private partnerships that bundle philanthropic or other private resources with existing public spending to scale up effective social interventions already being implemented by private organizations, nonprofits, charitable organizations, and State and local governments across the country.”

One of the long-time proponents of this approach, Senator Todd Young of Indiana, provided a real-world example of a program that would benefit from SIPPRA funding as the Indianapolis Star reported:

“One program Young’s office pointed to as a good Indiana candidate for funding is a service that connects registered nurses with low-income pregnant women.

“Run by Goodwill Industries of Central Indiana, the Nurse-Family Partnership makes sure expectant mothers get good prenatal care, improve their diets, understand the benefits of breast feeding and other healthy behaviors. Since the program started in Indiana five years ago, 90 percent of the babies were born at a healthy weight, 90 percent of the mothers initiated breastfeeding and two-thirds of the mothers who had smoked quit, according to Goodwill.

“A 2005 independent study of the program, which operates in communities throughout the country, concluded the return for each $1 spent could be more than $5 worth of health and other benefits. The Indiana program serves 1,100 mothers a year, a fraction of the estimated 14,000 who could benefit…”

As the example of Goodwill Industries of Central Indiana shows, by prioritizing evidence and outcomes and by directing federal funds to programs with local support, non-federal resources, and track records of achievement, the federal government can more effectively address issues like early childhood health and development.

SIPPRA funding only represents a small fraction of the overall amount that the federal government spends on fighting poverty, but it represents a marked change in our approach. It ties together the best local initiatives that are making true impacts; the investors who care about the future of their communities; and the federal government, as it incentivizes evidence-based interventions.

SIPPRA is just getting started. The Commission on Social Impact Partnerships has identified 9 deserving organizations, ranging from a New York Clean Energy Project to an Oklahoma Substance Abuse program. The common theme is all of these programs are making amazing impacts in their communities and hopefully, represent the next generation of successful solutions that are grown locally and supported federally.

In building programs based on evidence of what works, SIPPRA has the potential to finance the most effective solutions for fighting poverty, which originate not from Washington D.C., but from leaders on the ground in communities across the country. SIPPRA funding will support individuals and organizations that have been making a difference in their communities for decades, while bringing their ideas to policymakers to expand their reach. This intersection of community-based approaches and government support is what will ultimately most improve the lives of Americans in need.

Ryan discusses the “American Dream” with Bush Institute’s The Catalyst

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By: AIF Staff

Washington, DC – In the latest edition of The Catalyst, a quarterly publication produced by the President George W. Bush Institute, American Idea Foundation President Paul Ryan discusses the importance of keeping the American Dream alive.

As part of an interview with the Bush Institute, Speaker Ryan details the work being conducted by the American Idea Foundation and elaborates on how policymakers can embrace success solutions being implemented in communities around the country. Ryan also shares his thoughts on how the Biden Administration can successfully work across the aisle on common-sense issues that expand economic opportunity.

Speaker Ryan’s full conversation with The Catalyst is accessible here and some excerpts of the discussion (edited for length and clarity) follow:

How can policymakers ensure America remains the land of opportunity?

“This is basically what I have dedicated my post-Speakership to. My whole foundation is designed on this and the work I do with the American Enterprise Institute and at Notre Dame is all focused on just this topic…. I think there are specific policies and efforts that need to be deployed because right now, there are whole generations of Americans, millions of Americans who just don’t see that the American Dream is there for them today. I think the good news in this story is that it’s right around the corner if we put the right policies and the right efforts in place to get at this.

“I frankly believe we’re on the cusp of some really good breakthroughs in poverty policies and policies designed to ignite upward mobility. If we can accomplish these goals, get these policy achievements, and change these mindsets, I really believe we can reignite this core, glorious idea that the condition of your birth doesn’t determine the outcome of your life. This idea that if you work hard, you can make it. You can you can be the best version of yourself and that the opportunity of the American Dream is alive and well and most importantly, everybody sees that it’s there for them and that they can achieve it.”

Why do public policies focused on expanding opportunity matter?

“What I really believe we can do is scale up solutions to criminal justice and just get ourselves into a virtuous cycle where we’re actually repairing things. I think Opportunity Zones is another area where we are using private capital to flood the zone in the poorest of the poor communities. It’s something that I helped put in the tax reform to revitalize – not residential properties, but revitalize communities. This is another area, and we spent a lot of time at the American Idea Foundation on this, where we can really move the needle on poverty and get capital to capital-starved areas, so that we can create opportunities and upward mobility.

“All of these efforts that we’re just talking about now have one thing in mind behind them: It’s never too late for redemption. There is always hope. And in this country, you can make a great and better life for yourself and you can leave your kids better off than you were. There are too many people who don’t believe that these days, but I really fundamentally believe if we apply ourselves to these policies that are just coming online and do more, we can reignite the American idea so that it’s really bought into…. I see things like this as helping bring us together to revive civil society and get us all focused on making sure that one another does well. And so, that to me is an inspiring movement, that to me is the politics of hope, inclusion, and inspiration. It’s what I’d like to see more of frankly.”

Why is the American Idea Foundation focusing on ideas outside of Washington, DC?

“I think the best thing that can be done is to go and find those diamonds in the rough, those programs out there that are really making a difference, learn from them, and then build, scalable, recordable models that can be replicated.

“Let’s take [an example] in Texas. Let’s take Catholic Charities in Fort Worth. I spent a pretty good deal of time with Catholic Charities Fort Worth. They have, in my mind’s eye, one of the best anti-poverty programs and they have a case-management program called the Padua Project. The Padua Project is a program that this wonderful lady named Heather Reynolds, who now is the Executive Director of Notre Dame’s Lab of Economic Opportunity (LEO), founded. The Padua Project, which is you get a Catholic Charities caseworker who is attached to no more than say 20 families to help them set up a plan to get out of poverty. It takes not just six months or eight months; it takes three or four or five years. They work with them, building a plan that is erected with incentives and disincentives, carrots and sticks, to troubleshoot and activate all the resources that are available, so that each person can work themselves out of poverty and build a better life for themselves….

“We have run a randomized clinical trial (RCT) on Padua and we have concluded it makes an enormous difference. So, setting up this sort of case-management program in the right way, with the proper incentives and controls is something that now we’ve sort of scientifically proven. We built an evidence model. We built procedures and practices. This could be built and rebuilt and replicated across the country and really move the needle on helping get people out of poverty. There’s just one example of something that has nothing to do with Washington, DC or the federal government.

“Catholic Charities has got the secret sauce. They figured out that it can be replicated. We figured out how to replicate it and now what we’re trying to do is amplify this effort. This type of program and these success stories can be seen again and again and each place will customize it a little bit, but there’ll be a base from which to operate from. So, charitable efforts to get people out of poverty aren’t having to go back and reinvent the wheel every time. They can pick up where others left off, and really, produce successes.”

How is the American Idea Foundation working with policymakers to advance pro-growth policies?

“This is the other thing that my foundation is working on, though COVID has presented a little bit of a problem, but I’ve spent a lot of my time touring poor communities around the country. I went with my friend, Bob Woodson, for a couple of years touring the poorest of the poor communities, just on listening tours and holding listening sessions. I’m trying to train other policymakers to do the same. It’s one of the things the American Idea Foundation is working and doing, which is getting people out of the comfort zones and out of their Congressional Districts, going into the poor communities. If you represent a rural area that’s not poor or a suburban area that is wealthy, go to these poor areas, listen, learn, observe, take away and build relationships, friendships, and alliances, and then go make a difference. That’s something that I was able to do and I feel I’ve really benefited from it.”

Why work on fighting poverty and expanding evidence-based policies after leaving Congress?

“It’s some of the most gratifying work that I did when I was in government, I always found myself — and when you’re Speaker of the House, you have to deal with national security and that was actually a big project of mine, but I always found on my discretionary policy time, I found myself going back to this issue. It’s just what really moves me.

“I’m a cradle Catholic, so this is a big part of your upbringing. It’s a big part of Catholic social teaching, so it’s something that I just always believed in and I just found that every time I had a little bit of spare time from managing members to scheduling legislation, this is where I wanted to spend my time. This is the legislation that really helped, that was fulfilling….

“And so, I decided after my speakership that I wanted to go work on making sure these laws were well executed. I want to make sure that these laws stand the test of time and get executed well. We didn’t write the laws as perfectly as I would want to, but that just means there’s more follow-up and more follow through. The American Idea Foundation is basically focused on this topic and in particular, it is focused on executing these laws and making sure that they’re properly designed.”

How can the Biden Administration successfully advance reforms that help the American people?

“They should start on incremental reforms that are confidence-building measures, that are bipartisan in nature, stay between the 40-yard lines and bang out a bunch of reforms. I know [President Biden’s] doing Executive Orders that appease the base. I don’t like those Executive Orders but that’s just what they’re going to do. Especially with impeachment coming down the path, that’s going to inflame the situation and it’s going to make it much more partisan, so stay within the 40-yard lines and bring a bunch of incremental reforms that get bipartisan buy-in.

“I pray to God that they keep the filibuster and my guess is [Republican Leader Mitch McConnell] will be able to get a deal to do that…. but bang out a bunch of incremental, bipartisan reforms as confidence-builders, that show the institutions are strong, that the country can still work, that we can reduce the rhetoric, and just start banging out some compromises and some reforms that fulfill the theme that Joe Biden put out in his inaugural speech. I was sitting not too far away from President Bush. The inaugural speech was pitch perfect, but, you know, words must be followed with actions. So, the actions that should follow the words are bipartisan, incremental reforms.”

How can America move forward, together, during these tough economic times?

“I think the biggest mistake that President Biden could make is using reconciliation to try and rip up the tax code that we just fixed. And look, I understand that progressives who play class warfare would like to do that but they will slow down economic growth. The tax reforms that passed were way overdue. They made us internationally competitive. They kept jobs here at home. They created more investment, but most importantly, the kind of an economy that these tax reforms created was the fastest wage growth among the lowest income-earners in the country.

“[President] Joe Biden will be able to get a nice recovery out of this. I think he needs to go easy on the regulatory footprint. I know that he’s going to go after Carbon and I think that’s regrettable but if [President] Joe Biden focuses on confidence-building measures before partisan measures and doesn’t go after the tax code, he will inherit an economy built for growth, particularly coming out of COVID and that will give people jobs. You have a lot of unemployed people, a lot of people in debt. You have to have fast economic growth to get people back into jobs and into the workforce, and to get wage growth, the policies are there, [President Biden] just needs to allow it to happen.”