As a place-based community foundation charged with mobilizing resources to be directed where they are most needed, EBCF supports efforts that shift new capital to disinvested communities to build political, economic, and cultural power in these communities. We believe both capital and community power are needed in order to achieve equitable outcomes.
Earlier this year, over 8,700 low income Census tracts across the country were designated as Opportunity Zones (OZs), “economically-distressed communities where new investments, under certain conditions, may be eligible for preferential tax treatment.” Created by the Tax Cuts and Jobs Act (TCJA) in 2017, OZs are meant to incentivize long-term investment in low-income and underserved communities by providing tax benefits to investors. Here in the East Bay, there are approximately 60 OZs; half of which are located in East and West Oakland.
Here’s how it works, as explained by Morgan Simon at Forbes:
“To make a profit, essentially a taxpayer must sell an asset and generate a capital gain. The taxpayer then puts the capital gain into a Qualified OZ fund. There is ultimately delay and reduction of taxes owed to the government — if held for 10 years, that taxpayer can pay zero capital gains tax on the new investment in the fund. I think that’s the real prize: if you hold your investment in some of these opportunity zones from funds, you essentially pay no tax on your returns, which could lead to a 30-40% increase in your annualized return. That’s what I want people to really understand; this isn’t a small tax benefit, it’s pretty massive.”
Although the intent of OZs is to spur economic development and job creation in disinvested communities, there are concerns that they will have the opposite effect and lead to greater gentrification and displacement. Already there are signs that point to this, as according to Zillow, real estate sale prices have surged in Opportunity Zones since the designations were made.
EBCF is exploring 3 key questions regarding Opportunity Zones:
- How can the foundation connect mission-driven developments and projects with investors looking for social impact?
- How can OZ financing build, rather than extract, wealth in our East Bay communities?
- How should we work with other funders to ensure equitable implementation?
If you are interested in working through the above questions with us, opening or investing in a Qualifying Opportunity Fund, or if you are seeking OZ financing, we would love to hear from you! Please contact Sabrina Wu, Senior Fellow, Inclusive Economy, at firstname.lastname@example.org.