Opportunity Zones: Maximizing Return On Public Investment

The Tax Cuts and Jobs Act included a new federal incentive-Opportunity Zones-to spur investment in undercapitalized neighborhoods. Local areas (described by census tracts) meet the criteria for selection as Opportunity Zones if they’re Low Income Communities (LICs) under the high poverty or low median income explanations established for the New Markets Tax Credit program. Also eligible for selection are census tracts contiguous to LICs if median family income does not exceed 125 percent of the qualifying tract. Roughly 56 percent of tracts in the US meet the criteria for selection as Opportunity Zones. Apart from the exclusion of the few “sin” businesses, the actions and tasks Opportunity Funds can financing is broad.

Funds can finance commercial and industrial real estate, housing, infrastructure, and existing or start-up businesses. Given the breadth of eligible investment types, Opportunity Zones must be carefully chosen to ensure the return on the public investment is maximized and will lead to gains for low- and moderate-income residents. To guide the selection, we prepared a dataset, for all qualified tracts, rank them in conditions of the investment moves they are already getting and the sociable and financial change they have experienced.

We developed a score of investment flows to tracts based on four components: commercial financing, multifamily lending, single-family lending, and small business lending. Opportunity Zones will spur collateral investments into tracts, but information about existing collateral flows is not available at small areas of geography across the dimensions of interest.

As such, we present debts flows as you means towards understanding local capital access, but note the important distinction. Further, we have not incorporated other types of capital flows that matter to tracts-notably local, state, federal, and philanthropic funding. While the investment rating provides information about capital gain access to for LICs and contiguous tracts, local knowledge will help contextualize, clarify, and even write the understanding conveyed via this score.

100 million or more. We summed the total investment within the five-year period at the census system level and created an annual average. We divided that average investment amount by the number of workers employed in the tract to make an investment-per-employee percentage. We obtained work data from the Longitudinal Employer-Household Dynamics Origin-Destination Employment Statistics Workplace Area Characteristics at the census stop level and then aggregated them to the census system level. We calculated this measure limited to census tracts with 200 or even more employees.

Multifamily financing. We developed a way of measuring multifamily financing using 2011-15 CoreLogic data of loans to multifamily properties (five or even more systems) coded to 2010 census tracts. 100 million or more. We summed the total investment within the five-year period at the census tract level and created an annual average. We divided that average investment amount by the number of multifamily products in the system to make an investment-per-multifamily-unit proportion. We obtained the system multifamily unit data from the 2011-15 American Community Survey.

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This measure was computed limited to census tracts with 200 or even more multifamily devices. Single-family lending. We put together a single-family lending measure for 2011 through 2015 using tract-level Home Mortgage Disclosure Act records. We considered only home-purchase loans. We got the common amount and total number of home purchase loans per system to arrive at estimated average total loans within the five-year period.

We divided the common annual amount by the total number of single-family products in each tract to arrive at an average annual level of Home Mortgage Disclosure Act single-family financing per single-family device. This measure was calculated limited to census tracts with 200 or even more units of single-family housing, as obtained from the 2011-15 American Community Survey.