California is a microcosm of the vast economic divide within American communities. It may be a center of venture capital, but that money is highly concentrated in just a handful of places. The divide between coastal and inland, urban and rural, represents a stark comparison of regional inequality. Even within cities that are booming, residents are now facing an unprecedented affordable housing shortage.
Following the worst economic crisis since the Great Depression, we have seen a divergence among communities that are doing well and those that are falling further behind. According to recent research, the average distressed community lost six percent of their jobs and businesses from 2011 to 2015, while more prosperous communities gained jobs and businesses by double digit percentages. At the same time, federal and state budgets are stretched thin and communities are increasingly dependent on private investment.
California has already designated its Opportunity Zones, but that doesn’t mean private money will automatically flow in. Local leaders should immediately begin identifying investable assets, determine how they’ll manage the inflow of capital, and develop strategies to attract interested investors.
Thankfully, we are a nation that can afford to make the right investments. The historic growth of the stock market over the past decade has resulted in a stockpile of capital gains — roughly $6.1 trillion dollars according to the latest estimates from the Economic Innovation Group.
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Sacramento has been one of the beneficiaries of these private investments, seeing over $1 billion dollars in investment downtown. As a result, economic growth in Sacramento is now twice the national average, the region’s job growth is strong, and wages are expected to grow faster than the state average in the coming decades. But other zip codes have struggled. And we need a solution to correct the problem.
Fortunately, there is a new tool that communities can use to boost their economic outlook: Opportunity Zones. Opportunity Zones are arguably the most promising national economic development program in a generation and will help Sacramento capture some of that capital sitting on the sidelines for new equity investments in low income communities.
The Investing in Opportunity Act, one of the most important bipartisan policies passed in Congress last year, has empowered governors to establish thousands of Opportunity Zones in each state. California has already selected 879 zones, 43 of which are in Sacramento County in places like Rancho Cordova, Meadowview, and the Florin Road corridor. These places are home to nearly 200,000 residents and have an average poverty rate of 37 percent.
These new tax incentives will create scalable, long-term investments that could truly transform Sacramento. Opportunity Zones are designed to be simple and flexible, removing the previously complicated “zone-based” programs, while allowing an unlimited amount of private funds, all at a low cost to taxpayers. The zones are flexible enough to ensure that all communities can pursue the best mix of investments — whether it’s expanding businesses, affordable housing, infrastructure, energy, commercial developments, or just about anything that creates productive economic activity.
The question of how to support stagnating or declining communities has vexed policymakers for years, and neither government nor the private market has managed to solve this problem on its own. What’s most exciting about Opportunity Zones is that their success won’t be determined in Washington. Instead, Congress has cleared the way for state and local leaders to tailor investments to the unique needs of their communities.
California has already designated its Opportunity Zones, but that doesn’t mean private money will automatically flow in. This past month at the 48th Cap-to-Cap convention in Washington, we spoke to Sacramento’s business, community, and elected leaders about the incredible potential this program has to reinvigorate struggling communities. Local leaders should immediately begin identifying investable assets, determine how they’ll manage the inflow of capital, and develop strategies to attract interested investors.
Opportunity Zones could be the most important policy response to our country’s growing divide in years – it could truly be a breakthrough. But in order to do that, Sacramento needs a plan. Let’s get started.
Congressman Ami Bera represents California’s 7th District and was a cosponsor of the “Investing in Opportunity Act.” Steve Glickman is the co-founder and CEO of the Economic Innovation Group, a research and policy organization that was the architect of the Opportunity Zones program. Reach them at firstname.lastname@example.org and email@example.com.