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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.

The Joseph Project delivers on the promise of redemption in Wisconsin

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By: AIF Staff

Chuck Grassley is an 87-year-old from Iowa who has spent nearly forty years serving in the Senate. Kim Kardashian West is a socialite and businesswoman from California who has spent nearly fifteen years starring on reality shows. At first glance, these two individuals could not be more different. The only thing this pair has in common, in addition to being entertaining on Twitter, is their commitment to reforming our nation’s criminal justice system.

Both have been instrumental in addressing issues associated with our criminal justice system and both were forceful advocates for the First Step Act of 2018. As Speaker of the House, American Idea Foundation President Paul Ryan helped lead this successful bipartisan effort to modernize elements of our justice system, uniting both the left and the right around policies that would allow individuals to serve their sentences, atone for their crimes, and then get back on the ladder of life.

As the American Idea Foundation has noted in past articles highlighting the main policy elements in the First Step Act: “It is rare to see meaningful legislation pass with 358 votes in the House and 87 votes in the Senate, and the legislation, which was backed by Governors, law enforcement groups, former federal prosecutors, and a constellation of advocacy organizations, showed that Congress is still capable of addressing complex issues that have a meaningful impact on the lives of individuals.” 

The First Step Act of 2018 was not merely an academic exercise for policymakers. Far from it. The problem of recidivism is very real for far too many American families. The American Enterprise Institute’s report, Rethinking Reentry, detailed the scope of the problem:  

“The vast majority of the nearly 600,000 people released from federal and state prisons every year cannot successfully transition back into our neighborhoods and communities, often swiftly returning to incarceration for new crimes. A 2018 Bureau of Justice Statistics report reinforces this dismal reality. The study examined nearly 68,000 people released from state prisons in 2005 and found that 83 percent—roughly equivalent to five out of six—were arrested again within nine years of their release.” 

It is simply unacceptable that individuals who commit a mistake and serve their punishments are then seemingly confined to a life of criminal behavior and incarceration, too often passing through the revolving door of America’s justice system.

Without question, efforts to reduce recidivism must begin while individuals are incarcerated, which is why it is encouraging that the Department of Justice and Bureau of Prisons are increasingly utilizing evidence-based strategies, like more robust initial risk assessments and increased vocational programming, to lower rates of reoffending. The Independent Review Committee of outside experts, which was established as part of the First Step Act, recently detailed some of the early evidence-based strategies, providing insight into how the federal government’s data can inform efforts while individuals are still confined. 

But reducing recidivism does not stop at the doors of America’s jails and prisons. Rather, these pre-release efforts seed the ground, creating the conditions for individuals to truly reform and reintegrate into society. They must then be supplemented by post-release efforts, which is why in July, the American Idea Foundation highlighted the successful pilot projects run by United Health Care and READI Chicago to help individuals reacclimate to society. The work being done by these groups is so important, because it helps rebuild families and communities, one person at a time.

Another local initiative that is achieving success and using an innovative approach in Wisconsin is the Joseph Project. As the Capitol Times reported:

“The program, named for the Robert L. Woodson Sr. book “The Triumphs of Joseph,” is a faith-based initiative that seeks to train men and women — often with criminal backgrounds — and find them jobs with Wisconsin businesses.”

The Joseph Project’s model is one that the American Idea Foundation believes holds promise and that could be replicated in other parts of the country. The organization was created by Senator Ron Johnson, local community leader Orlando Owens, and Greater Praise Church of God in Christ pastor Jerome Smith who were working on economic development initiatives in majority-minority communities.

The National Review described the Joseph Project’s genesis as a simple alignment of seeing a problem and developing a solution:  

“According to Smith, the idea for the project arose after he and several other pastors visited the Sheboygan Economic Development Corporation about an hour’s drive from Milwaukee, a visit facilitated by Orlando Owens…. It became clear during this trip that a number of corporations had unfilled manufacturing jobs, while Smith knew of countless people in the Milwaukee area who were looking for work.

And as the Wall Street Journal noted:

“There are tens of thousands of unfilled manufacturing and other entry-level positions in Wisconsin. Seven of 10 state CEOs had trouble finding enough qualified workers, the Wisconsin Manufacturers & Commerce trade group found in a July survey, and demand is rising. To try to resolve this mismatch between potential workers and the businesses that want to hire them, Mr. Owens and Pastor Smith last year started a partnership called the Joseph Project.”

As part of its programming, the Joseph Project puts individuals through a vetting process; teaches them interview skills, financial literacy lessons, and conflict management techniques; and then links them with Wisconsin employers. They assist individuals throughout the job-seeking and employment process. The employers, who trust the Joseph Project’s efforts, often provide flexibility in hiring individuals, particularly those with criminal records, so they are not excluded from opportunities.

The early results have been promising, as detailed in a 2016 Capitol Times article: “About 140 people have gone through the class, Smith said. Of those participants, about 120 have had interviews with employers, and about 85 have landed jobs. Those who have found employment have had about a 78 percent retention rate.”

As the Journal summarized: “Success builds on success, the faith-based program teaches a sense of spiritual solidarity. “The Joseph Project is really bigger than just you,” Mr. Owens says. “It’s really about the next person behind you, keeping the door open for the next person behind you.”

Like so many recidivism-reduction programs, the Joseph Project’s success is rooted in an approach that treats participants with compassion, dignity, and respect. And the program has continued to see results, recently expanding its footprint to Milwaukee, Madison, and Sheboygan.

The community buy-in, the individualized assistance, the long-term approach to helping individuals get back to living productive lives is not going unnoticed. In 2020, Trump Administration officials visited the organization to talk with its participants. During the conversation, Senior Advisor Ja’Ron Smith highlighted the integral role of these local groups, stating: “It’s much needed in partnership with the passage of the First Step Act or any type of reform that comes with giving people second chances,” he said. “Having local leadership like this is important.”

At the signing of the First Step Act, Speaker Ryan summed up the importance of these local efforts to ultimately expand opportunities for individuals looking to get back on their feet:

“For too long as the society, we have ignored those who have made mistakes and paid for those mistakes and we ended up turning what is the legitimate punishment for wrongs committed into a lifelong brand, eliminating the ability for individuals to turn their lives around, permanently separating parents from children and driving millions into despair.

“America at its best is an America that provides for second chances. If a small business owner fails, they pick themselves up and they try again, but for too long, we’ve decided that individuals who break the law don’t get a second chance. Of all the things that our country has demonstrated, it is the power of redemption and so we need to make sure that we realize the power of redemption in our criminal justice system, and with the First Step Act, we have changed that paradigm and formerly incarcerated individuals are now getting a second chance to lead better and more productive lives.”

Since its enactment, the First Step Act has allowed more individuals to better reintegrate into their communities, but it will require the collective buy-in from everyone to successfully reduce recidivism over the long-term. With bright lights like the Joseph Project leading the way in communities, the number of people who are truly given a second chance to pursue the American Dream will undoubtedly increase and that could make a hug difference.