After bipartisan standalone legislation introduced the concept of OZs, they were codified for the first time as a short and nearly obscure provision of the Tax Cuts and Jobs Act of 2017. Focused on attracting private investment to economically distressed communities, the incentive allows people or corporations to defer taxes on capital gains by investing those gains in Qualified Opportunity Funds (“QOFs”) that target their investments to state-designated OZs. If investors stay in a Fund for ten years, any additional gains from Fund investments are also exempt from taxes on capital appreciation.

The new tax incentive differs from other federal tax incentives in several ways. First, it is more market driven, relying on individual investor and QOF manager decisions rather than a federal or state agency to distribute the incentives. Second, it can be used for a wide variety of projects (e.g., residential, commercial, industrial, infrastructure) rather than narrow purposes like lowincome housing or historic preservation. Third, there are no requirements for investors to ensure certain outcomes such as job creation or local financial matches. Finally, there is no cap on the amount of the benefit if the regulations are followed.

OZs differ markedly from traditional federal community redevelopment efforts by relying on equity investments rather than traditional debt, tax credit, and subsidy instruments. OZs, if purposefully implemented, can integrate disparate public, private and civic institutions, investments, and initiatives rather than dispensing compartmentalized resources via traditional government programs. By catalyzing patient capital through tying the most substantial incentives to a longer time horizon, OZs provide enormous incentives for investors, intermediaries, states and localities to work together to make sure there’s a significant benefit for all involved.

Unlike programs such as Low-Income Housing Tax Credits or New Market Tax Credits, which allocate tax credits through highly competitive, government-controlled processes, OZs enable local leaders to organize capital voluntarily, without caps, quotas, or predetermined outcomes. This flexibility creates significant potential but also requires a much stronger local ecosystem to be effective.

The authorizing federal law provided one explicit role for sub-national actors: it directed governors to select OZs from an eligible group of economically distressed census tracts. As of April 2018, Governors in all 50 states, the District of Columbia and Puerto Rico had designated more than 8,700 OZs nationwide.

Seven years on, the real-world impact of OZs is beginning to be understood. Since their inception in 2017, OZs have attracted nearly $100 billion in private capital, according to the Economic Innovation Group (EIG). These investments have catalyzed the creation of more than 500,000 jobs, demonstrating their efficacy as a tool for economic development. Notably, multifamily housing developments account for substantial portions of OZ funded projects, addressing the nation’s 7-million-unit housing shortage. As the Economic Innovation Group (EIG) reported earlier this year, “Opportunity Zones are home to about 10 percent of the country’s population but now account for 20 percent of all new market-rate multifamily apartment units being developed in the country, up from 8 percent prior to legislation passing.” By bridging financing gaps, OZs have enabled construction of thousands of units that might not have been built otherwise.

OZs are getting renewed attention for other reasons. The Tax Cuts and Jobs Act of 2017 was a signature achievement of the first Trump Administration, and tax reform is an early focus of the new Administration since key provisions of the 2017 Act are set to expire on December 31, 2025. Senator Tim Scott (R-S.C.), now the Chair of the Senate Banking Committee and a senior member of the Senate Finance Committee, was an original co-sponsor of the OZs legislation (with Senator Cory Booker (D-N.J.)). And Scott Turner, the new Secretary of Housing and Urban Development, ran the White House Opportunity and Revitalization Council during Trump’s first term (which sought to coordinate federal investments in OZs).