There have been many iterations of blueprints for linking private capital to public needs over the years. Decision makers have lured private resources into choice jurisdictions by improving business prospects through tax credits, workforce development assistance, and advantaged financing, with varying degrees of success. Most of these incentives are meant to persuade companies to conduct some of their business in specific areas, cultivating economic output that brings cascading productivity to the community.
The Tax Cuts and Jobs Act (TCJA) of 2017 creates another version of incentivized economic development by creating qualified opportunity zones (QOZs). Unlike previous attempts at channeling private business activity, QOZs employ the U.S. financial markets in their search for capital. Other incentivizing policies rely on businesses' using local resources or drawing from the area workforce, but QOZs focus on the origins of all economic activity by ushering capital in the right direction first, and letting the details sort themselves out afterward.
The concept of QOZs was developed by the Economic Innovation Group, an economic policy think tank that played a big role in authoring the Investing in Opportunity Act, which created QOZs as part of the TCJA. Multiple entities were involved in constructing the framework used to determine the location of QOZs and design the incentives used to attract capital.
WHERE ARE THE OPPORTUNITY ZONES?
American Community Survey data from 2011 to 2015 was used to locate areas that are defined by Section 45D of the Internal Revenue Code as low-income communities. The identified low-income communities are Census tracts, the smallest denomination of measurement used by the Census, with a single tract encompassing a population of 2,500 to 8,000. The data defining all the tracts statewide are used by each state's governor in selecting the final QOZs, with final approval coming from the Treasury Department. To ensure that capital is not spread too thinly statewide, governors were allowed to designate 25 percent of the identified low-income communities in their state as QOZs. All told, there are over 8,700 census tracts designated as QOZs nationwide.
Section 45 defines "low-income community" as:
* Census tracts with poverty rates of at least 20 percent, or
* In the case of a tract that isn't located within a metropolitan area, the median family income doesn't exceed 80 percent of state median family income, or