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One Community at a Time, Opportunity Zones begin to Germinate

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June 16, 2020

By: AIF Staff

In his “farewell address,” American Idea Foundation President and former Speaker of the House, Paul Ryan noted:

“You all know that finding solutions to help people lift themselves out of poverty is a personal mission for me. I think we have made real progress here in a relatively short time…. We have begun to break this monolith. New opportunity zones, part of tax reform, will bring more investment to distressed communities….

“I believe firmly that solving our poverty challenges once and for all will require not just a great undertaking, but a great rethinking of how we help the most vulnerable among us. It begins with realizing that the best results come from within communities, where solutions are tailored and targeted for people’s needs. This battle will be won soul-to-soul and eye-to-eye.”

In keeping with its mission to advance data-driven solutions that expand economic opportunities, the American Idea Foundation has pushed for the proper development of opportunity zones, which were created as part of the 2017 Tax Cuts and Jobs Act.

As articulated by the Department of Housing and Urban Development, opportunity zones, which can be found in all 50 states and the District of Columbia, are economically distressed census tracts that are eligible for preferential tax treatment. As tax experts, Cesar Conda and Ryan Ellis wrote: There are “42,000 such communities in the United States today…. They are both urban and rural, home to Americans of all races. Poor whites in Appalachia will be beneficiaries of the same Opportunity Zone law as poor blacks in Chicago or poor Indians in South Dakota.”

Opportunity Zones, as designed by the author of the provision, Senator Tim Scott of South Carolina, “incentivize long-term investment in low-income and distressed communities by offering a deferral of capital gains taxes for investors.”

In 2018, Speaker Ryan described the incentives of Opportunity Zones succinctly, saying: “With these opportunity zones, we are essentially offering private investors a set of incentives. The longer you maintain your investment in these areas, the more tax benefits you receive. Right now, we have $6 trillion of unrealized capital that can be deployed to help alleviate poverty in distressed communities and improve people’s lives.”

As Conda and Ellis noted:

“Investors get three big tax benefits by rolling their gains into Opportunity Funds. First, they get tax deferral on the gains they roll in. Currently, that deferral is available through 2026, but if Opportunity Zones are successful there is every reason to believe Congress will extend this. Second, investors can “step up” their basis in their deferred capital gain by up to 15 percent provided they keep the money in an Opportunity Fund for at least seven years. Finally, an investor in an Opportunity Fund asset who holds the investment for at least 10 years pays a 0 percent capital gains tax upon sale, to the extent the gains are derived from the Opportunity Zone asset.

The promise of opportunity zones is that they will draw investment to areas around the country that need it most, and that investment will lead to rejuvenation and revitalization. At their best, opportunity zones will be locally-driven and serve as tools of reclamation rather than gentrification.

As the Economic Innovation Group noted: “Capital alone is not a strategy…. Going forward, state and local leaders are responsible for devising the strategies that will take these few new lines of the tax code and turn them into something that unlocks opportunity for local residents and entrepreneurs.”

The roll-out of opportunity zones has been deliberate, as these projects require relationships with local, state, and federal actors, but all across America, there is reason for hope that these zones will help communities rise up in unique ways. Forbes, in conjunction with the Sorensen Impact Center, highlighted a collection of the most promising projects underway across the United States.

Some other examples of how Opportunity Zones are improving communities around the country and allowing people to recognize their version of the American Dream include:

–          Paterson, New Jersey: As columnist Chris Slevin said, “New Jersey has 169 Opportunity Zones, which carry an average poverty rate of 25 percent and a median family income of $48,000, on average. About 738,000 New Jerseyans live in these zones. In many of these communities, the ongoing challenge of redeveloping brownfield sites has made it harder to attract capital in recent decades.”

But the incentives provided by Opportunity Zones are attracting investors who are able to clean up the brownfields and environmentally-damaged land, allowing for further community development to take hold. As Democrat Senator Cory Booker said: “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. 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.”

New Jersey’s business and government leaders have made sure to take a step-by-step approach to developing opportunity zones, remembering that they are designed to thoughtfully rejuvenate communities with sustained investment and care.

–          Provo, Utah: In announcing the state’s initial Opportunity Zones, Governor Gary Herbert described the program’s goals as “economic prosperity for all Utahns. Opportunity Zones will go a long way in helping to support growth in economically-distressed areas throughout the state. By working with these communities, the zones will attract more businesses and new investment.”

HUD Secretary Ben Carson said recently that Utah’s Opportunity Zones, “look like the 22nd century.”  A local business owner in Provo noted, “the opportunity zone designation did serve as a sort of accelerant when it came to finding outside investors for the companies, most of which simply move to different buildings on the same large campus that Hall Labs exists on, so they continue to benefit Provo’s economy.” 

As the Provo Daily Herald said: “If you are a small business owner, you are someone who … could take advantage of this … we’re trying to build this platform to not only provide temporal assistance to those who need it, but really match them with potential investors should they have a project that they feel warrants it.”

–          Baltimore, Maryland: In the Charm City, the opportunity zones were selected based on need and around anchor projects that could serve as hubs for revitalization. One project, features a concert hall amid “a stretch of industrial buildings and vacant lots on Russell Street that the city wants to transform into an entertainment district.” As former Baltimore Mayor Catherine Pugh detailed at a Kemp Forum on Opportunity Zones, the city is more ready than any other to begin developing these promising parts of the city.

–          Erie, Pennsylvania: As the Wall Street Journal noted, “Erie was one of the first cities to jump on the federal-opportunity zone program, creating a 58-page prospectus and identifying a dozen “shovel ready” projects, including the renovation of a 133-unit downtown hotel. Redevelopment would have happened with or without the opportunity-zone program, city leaders say, but the tax breaks will speed the process.” Erie’s promise is receiving further recognition, as it received one of the Forbes’ Opportunity Zone awards.

–          Brooklyn Center, Minnesota: The Brooklyns Building is owned by the city’s Economic Development Authority and the incubator is going to focus on helping minority- and immigrant-owned startup companies. The project is designed to grow with the community’s involvement, and it was recently recognized by the Minnesota Opportunity Collective for its potential.

The rollout of Opportunity Zones has been accompanied by passionate debate, which is a good thing. It ensures that policymakers at the local, state, and federal level will work to design projects as the law intended. Because evidence and data should help drive decisions, it was encouraging to see a bipartisan group of Senators introduce legislation strengthening the reporting requirements for opportunity zones. As Senator Todd Young of Indiana said upon its introduction, “Our bill will help strengthen Opportunity Zones by increasing transparency within the program and creating metrics to measure and improve on its success.”

The promise of Opportunity Zones is directly connected to local entrepreneurs working within their communities and developing synergistic relationships with elected officials. As communities build themselves up one project at a time, lives can be improved and dreams can be realized in a sustainable and bottom-up way. As opportunity zones continue to germinate, the American Idea Foundation will ensure they comport with the original spirit and intent of the law. 

Catching up on “Comeback” Stories from across America

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By: AIF Staff

Following the 2012 Presidential Election, American Idea Foundation President and former Speaker of the House Paul Ryan set out to listen and learn from individuals who are fighting for change in communities around the country. Rather than relying on experts in Washington for answers, Speaker Ryan thought it was better to go straight to the source and he spent years meeting with local leaders and groups who are making a positive difference one person at a time. 

The premise was simple: Speaker Ryan believed that there were bright spots in communities throughout the country: Organizations flying under the radar achieving success and taking on the tough issues, individuals embodying the best of America and helping their fellow neighbors, and communities improving themselves from the ground-up. His hope was to hear how these individuals were making positive contributions, see their work in action, and then touch more people’s lives by advancing public policies that incorporated these models of success. After listening and learning, Ryan collaborated with his fellow policy-makers to develop legislative solutions to enhance these organizations’ efforts to accomplish their mission and scale their models of success. It is a blueprint that the American Idea Foundation has continued to build on since Speaker Ryan left Congress. 

One month after the 2012 election, Ryan laid out his reasons for this approach at the Jack Kemp Leadership Award Dinner: 

“We must carry on and keep fighting for the American Idea – the belief that everyone should have the opportunity to rise … to escape from poverty…. and to achieve whatever your God-given talents and hard work enable you to achieve. That is the promise of American life. And for too many Americans, it isn’t being kept….

“We need a vision for bringing opportunity into every life – one that promotes strong families, secure livelihoods, and an equal chance for every American to fulfill their highest aspirations for themselves and their children.

“This vision leaves behind the failures of the past. It seeks instead to build on those reforms that have worked. It calls on government to encourage, not displace, the efforts of free people to help one another. It calls for a stronger safety net – one that protects the most vulnerable and promotes self-reliance. It calls for an end to the chronic inequalities in our education system.

“And finally, it promotes economic growth through free enterprise – because nothing has done more to lift people everywhere out of poverty.”

Working with his mentor and noted community organizer Bob Woodson, Ryan set about identifying those entities and organizations that were helping individuals achieve their version of the American dream and that were tackling the key challenges facing our communities. 

Subsequently, some of the organizations that Speaker Ryan visited and developed relationships with were featured prominently in a video series entitled: “Comeback,” which told powerful stories of transformation, redemption, and rejuvenation occurring across the country. 

The American Idea Foundation wanted to check-in on some of the groups that Ryan met, many of whom were featured in the “Comeback,” to see how they are still laboring to improve the lives of their fellow citizens. Here is a quick update: 

Beyond the Walls: Operating in Elyria, Ohio, Beyond the Walls Church was founded by Pastors Paul and Cindy Grodell after they turned their lives around through faith and hard-work. The Grodells then felt called to help others do the same and their outreach-based approach to ministry has since helped countless individuals overcome addiction and rise out of poverty. Beyond the Walls Church meets people where they are. They showing people compassion and respect, offering a helping hand when it is needed most. Speaker Ryan got to know the Grodells after learning about their ministry in 2012 and returned in 2016 to see how their efforts were progressing. 

Beyond the Walls captured the visit in a moving video entitled: The Gift of Redemption, which provided details on how the organization is making a tangible difference in the lives of Ohioans. John Hart described the visit, saying:

“The sanctuary was simple and inviting, but more industrial than corporate. There was no air conditioning, just fans blowing in the back to contain the thin film of sweat forming on a handful of staff and over-dressed convention-goers.

Ryan arrived without fanfare and made no grand entrance. He took his seat at two folded tables set up as an inverted “v” panel and prepared to listen to extraordinary personal stories of victory and grief.”

Urban Specialists: Bishop Omar Jawhar and Antong Lucky, two of the leaders of Urban Specialists in Dallas, Texas, continue to transform lives by working to end generational poverty and reduce violence among younger Americans. Their approach of “change lives, save lives,” was recently featured in the Dallas Morning News as they keep making progress to end senseless acts of violence throughout Texas. Ryan talked with Bishop Jawhar, Antong Lucky, and other front-line organizations in 2016 about how federal policymakers can better address systemic issues of poverty and income inequality. Their unique relationship was highlighted in Forbes Magazine which noted that while progress was being made, more work still needed to be done.

Outcry in the Barrio: Led by senior pastor Jubal Garcia, the ministries of Outcry in the Barrio have saved thousands of lives in San Antonio, Texas. Garcia and his team continue to help those struggling with drug addiction and substance abuse in a way that preserves their dignity and provides them with avenues to get their lives back on track. The San Antonio Express News profiled Outcry in the Barrio and touched on the expansive reach of their ministry in recent years: 

“Those who come into Outcry in the Barrio as drug addicts and successfully complete the 90-day rehab program are eligible to enter the program’s leadership academy, which takes three and a half years. During that time, participants may be sent to minister in any of the other nearby Outcry in the Barrio locations across the state of Texas or elsewhere. Since 1970, locations have spread throughout Texas and Mexico, and into South America; in Peru alone, there are more 54 locations.” Garcia said.

Praising their faith-based approach in 2016, Speaker Ryan wrote in an op-ed: “There is a better way to fight poverty. I have seen it firsthand in San Antonio, at Outcry in the Barrio, a faith-based rehab program. There, they take drug addicts off the streets and get them on the right path. This isn’t a big government program. It is people helping people. It’s the approach we need to take around the country: see the person, not the problem.”

Local resident Steve Parkhurst visited Outcry a number of times and summed up their work succinctly:

“It was about a ministry, with a success rate better than any government recovery program can aspire to, doing what seems like impossible work. It was about neighborhood healers, first Freddie Garcia, then current leaders Roman and Alma Herrera, and every leader at Outcry who has ever stood or sat in front of a person who could be down to his or her last breath, his or her last moment, and simply said a prayer and led that lost soul first to acceptance and then to a safe place where healing begins. This is the stuff that leads to a renaissance.”

Rev. Dr. Deforest “Buster” Soaries: As part of his listening and learning, Speaker Ryan developed a relationship with Rev. Dr. Buster Soaries, who for decades was the head of the First Baptist Church of Lincoln Gardens in New Jersey. With the help of Soaries, Franklin Township painstakingly worked to repair relations with the community and the local Police Department with the goal of increasing safety, protecting individual’s civil rights, and decreasing violence. 

In a 2016 interview, Ryan praised the effort as a template for other communities to potentially follow, saying in part: “Buster and other black leaders in Somerset, a low-income community, worked with local law enforcement to set up a group that has instantaneous communications whenever something wrong occurs. And they’ve got – they’ve basically fused and merged the minority community with the police department in a very effective way and they have a community policing system that works really, really well.” 

Soaries has continued to lead by example and following the killing of George Floyd, offered observations on how communities around the country could deal with issues of race, equal justice, and law enforcement. His comments are available here. 

These are just a few amazing stories of inspiration that are taking place in pockets of America each and every day.  At a time when cynicism and gridlock are pervasive parts of our political system, the American Idea Foundation will continue to hold up examples that show progress is possible. By looking to success stories in our communities, legislators can craft better and more effective public policies. 

As Ryan said in a speech at the American Enterprise Institute: “We have an obligation to expand opportunity in America—to deliver real change, real solutions, and real results. And to do that, we need to stop listening to the loudest voices in the room—and start listening to the smartest voices in the room.” 

The American Idea Foundation is going to do precisely that. 

At National League of Cities Conference, Ryan emphasizes the importance of alleviating poverty and building up Opportunity Zones

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By: AIF Staff

This week, American Idea Foundation President Paul Ryan spoke at the National League of Cities’ 55th annual Congressional City Conference in Washington, DC.

In front of more than 2,000 local officials, city leaders, and community partners, former Speaker of the House Paul Ryan talked with League of Cities CEO and Executive Director Clarence Anthony about the steps that elected leaders can take to expand opportunity in urban and rural areas.

Ryan discussed the work being undertaken by the American Idea Foundation and how it can help city leaders and their citizens tackle the pressing policy challenges of the day. Excerpts of Speaker Ryan and Clarence Anthony’s wide-ranging conversation follows.

Q. Since you retired, you’ve had a job with the American idea Foundation which is focused on fighting poverty and increasing economic opportunity. Can you tell us a little bit about the Foundation and the work that you’re doing?

A. Yeah, I founded this Foundation after I retired and I was inspired by my mentor, who was a guy named Jack Kemp. Jack was my boss and he’s the one who got me involved in politics. I was this young economics guy, running around America with him going to places like Cabrini Green and Robert Taylor homes down in Chicago. I spent a lot of time working on housing policy and long story short, the issues that I worked on and that were my passion in Congress were budgets and the rest, but also poverty alleviation.

And so, I spent a good chunk of time with friends of Jack’s, like Bob Woodson, running around America, working on poverty policies. And so, I decided to start a Foundation, the American idea Foundation, which is based on the idea that the condition of birth doesn’t determine the outcome of your life. It focuses on center-right poverty solutions.

There are a few laws that I’ve pushed into law in 2017 and 2018. I want to make sure that these laws are well executed: Opportunity Zones, Social Impact Bonds, the Evidence Act. I want to make sure that those laws are well executed. And so, there are some new poverty solutions that I really believe can move the needle on fighting poverty far more effectively, using the new tools that we have in law today than we ever did before.

I spent a great deal of time on these issues. There are some proven models of success that need to be built up and scaled up so they can be replicated, and then we can really put a dent on deep poverty, on deep intergenerational poverty. That is where I think the focus ought to be, because if we can get deep poverty, we can fix a lot of the other types of poverty situations.

Q. One of the initiatives that a lot of the local leaders are implementing and dealing with are Opportunity Zones and I think the challenge is looking at the growth and development in some communities and gentrification and displacement. So, what do you think about that balance between implementation and the idea of Opportunity Zones?

A. So, I have worked on this idea for over twenty years. Jack Kemp used to call these Enterprise Zones and we tried to push this into law in the early 1990’s.

It got to a point where when I was Speaker and we were doing tax reform in 2017, Tim Scott had this great bill. It was Tim Scott and a guy named Pat Tiberi who had a bill that was basically the concept that we’ve always believed in. From our perspective, reducing rates on capital to go into the poorest communities is a really smart way of getting capital into communities. When the score came back — score meaning the cost estimate of this bill, while we were putting the tax reform package together and we had a lot of decisions we had to make fairly quickly, we said this goes in there….

We were thinking to ourselves and I remember this conversation. We have to make sure that this is not just a tool for regentrification, where it’s just real estate comes in and pushes poor people out of the areas, but instead this is a tool for revitalization.

So, what my Foundation works on is to make sure that the Opportunity Funds that are being erected out there understand the mission of Opportunity Zones. The mission, and the reason people like me put this in law in the first place, was to get all this private capital that’s out there and put it into the poorest communities in the country and use it to revitalize those areas. And so, that means you have to partner with local, on the ground, poverty-fighters and groups that will help these funds to revitalize the people within them. It’s job training and jobs and we want it to go from just real estate, which we knew real estate would be the first wave of investment, but we want to go to retail, light-manufacturing, and other employment-density industries to come into these areas.

And sure, there will be allegations of “tax shelters,” I guess I would say, but the point of this is we want the tax shelter in the poorest communities so people put their money in these areas. So, we really believe that this idea has great potential to bring a lot of capital to the poorest communities in rural and urban America, and to revitalize. What we need to do is make sure that on the ground it is executed well, and that the investors themselves understand and mind their mission, which is to revitalize these communities.

Q. There’s another issue facing American cities which is substance abuse, whether it is opioids, heroin, or all kinds of abuse. Under your leadership, you shepherded a lot of legislation around these issues, what advice would you give to local leaders as money is coming to the cities to deal with substance abuse?

A. It was amazing how fast this problem sprung up. If you asked somebody in 2006, what an opioid was in Congress, they probably wouldn’t know what you’re talking about. This problem came so fast.

We put the biggest, single response to a drug epidemic in place ever. It really started with President Obama’s Administration and we finished this last session. The quick answer [for cities] is to come up with evidence-based solutions so when you’re deploying this capital and these dollars in your communities, it is going to programs that have rigorous statistical oversight. That, and track your evidence so that you can show what works and demonstrate that you can have good success rates.

So again, at my Foundation, we want to focus on evidence. One of the laws I passed with Senator Patty Murray was the Evidence Act, which promotes evidence-based policy on poverty programs to figure out how to measure what works and to be able to release all the data on the poverty programs in a way that respects privacy. This way, you can track the outcome of poverty programs and the same goes for combatting opioid abuse. We want to get real metrics and real data and real evidence on what works and what doesn’t work. That’s the key.

Because when we find programs that have been proven to be successful, then you can replicate and disseminated across the country. Federal legislators don’t want to hear: “Just send more money to this program that anecdotally does this and that.” They are going to want to hear this program has been proven, over these other programs, to be the one that is statistically proven to have the most bang for the buck and that will be more successful.

We now have brand new analytical tools that are being deployed to actually do that kind of tracking and that’s why I say, I think we can really move the needle on some of our biggest persistent problems because of data science we have. We have a newer ability through evidence and data to be able to actually fix a lot of these problems, and that’s the key for fighting opioid abuse. Let’s build models that can work and be replicated using statistics to prove our point.