- November 28, 2018
- Posted by: Jeff Hudson
- Category: Capital Markets, Opportunity Fund, Opportunity Zone
Over at least the last 50 years, the US has done a bad job of allocating our vast resources. We still don't have a level playing field across social and economic groups. Thankfully, legislation has emerged from the swamp (DC) that could level the playing field and create a lot of jobs. It is called Opportunity Zones. You are going to be reading a lot about them over the next few years because Opportunity Zones help investors inject funds into economically depressed areas.
BackgroundThe people to thank are Sean Parker with the Economic Innovation Group, Senators Tim Scott (SC) and Cory Booker (NJ). They spent several years building political consensus for Opportunity Zones and included the legislation in the Dec 2017 Tax Cut & JOBS Act. The goal of the Opportunity Zones is to encourage long-term investments in low-income urban and rural communities nationwide. The Treasury has certified 8,761 Opportunity Zones which covers nearly 35 Million Americans. How it works, an investment in an Opportunity Zone offsets the federal tax on capital gains when these gains are invested in the zone via an Opportunity Fund. As a result, the Treasury estimates that at least $100 billion will flow into Opportunity Zones. This is not the first time the government has attempted such a broad change. In the 1980’s, the late Senator Jack Kemp led an effort for the Urban Jobs and Enterprise Zone legislation. When the rules were written for the legislation, they favored real estate developers and large corporations. As a result, these groups focused their efforts on a few small areas of the country that provided them the most benefit. Thus, the legislation didn’t produce the desired results. If the same groups are allowed to write the rules for Opportunity Zone, history will repeat itself.
We need to try a different recipe for successWe believe the single largest ingredient missing from past stimulus legislation is the focus on Small & Medium Businesses (SMBs). A quick reminder of how important SMBs are to the economy:
- 44% of the US GDP, and
- 6 out of 10 private sector employees work for an SMB.
It is important to call out forward-thinking families and individualsThey foresaw the problem and have been spending significant resources to create opportunity for ALL citizens:
- Sean Parker & Economic Innovation Group
- Jimmy Kemp, Kemp Foundation, Jack Kemp (posthumously),
- Jim Sorenson,
- Steve Case,
- Kevin Plank,
- Dan Gilbert.