The Kresge Foundation Equitable Guidelines for Opportunity Zone Investment

The Opportunity Zones (OZ) program, created by the federal Opportunity Act as a part of the 2017 U.S. Internal Revenue Code - Tax Act, delegates to the U.S. Treasury the authority to set requirements for investment under the act’s tax credit system. An Opportunity Zone as defined by the Opportunity Act is a population census tract that is a low-income community, that is then designated as a qualified opportunity zone. The Kresge Foundation, seeing that Treasury requirements were first delayed and ultimately bare, set out to create its own set of guidelines. Kresge provides capitalization to projects in OZs to attract investment, and through covenants with its partners attempts to ensure that such investments are based in a framework of equity.  Within a specific OZ, these covenants include stringent reporting requirements, the creation of a community advisory board explicitly containing members of the OZ’s community, and active promotion of OZ programs to OZ residents. Additionally, Kresge set out minimum standards for both real estate and business investments. Covenants for real estate investments include specifics such as: adopting an “anti-displacement” strategy for all housing investments, shifting focus to projects that create jobs for low-income communities, and mandating that at least 50% of all multifamily housing investments serve residents with incomes under 120% of the OZ’s average median income. For business investments, covenants include requirements that at least 50% of investments create living-wage jobs, and prohibitions on investments in industries that could be harmful to disadvantaged communities (e.g. oil, mining, firearms).

In March 2019, Kresge committed $22 million to partner firms looking to generate $800 million in investments in two different OZs. The backbone for the investment covenants came from Kresge’s development and the work of the Opportunity Zones Reporting Framework (OZF). Kresge’s agreements with its partners serve as a sample execution of the framework in real investment scenarios. While there is mention of LEED certification, neither Kresge nor the OZF centered their guidelines on the confluence of equity and adaptation. However, the covenants do require that investors report to city and state governments, in an effort to enhance the utility of the investments by better serving local needs. In an adaptation context, the closer relationship between investors and government could help direct funding to regional environmental concerns, as local officials direct investment partners towards community needs. A green platform can become a part of investor covenants much in the same way as minimum net job creation standards and housing affordability requirements, ultimately leading to a program with adaptive goals while maintaining the focus on equity and community engagement.

Publication Date: March 2019

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