LISC National


Tapping policies and public programs that can help bolster success—and minimize risks—for communities

As we said at the outset, the mission of this playbook is to offer tools that help ensure OZ investments catalyze economic development and prosperity for people who live and work in historically underinvested census tracts.

But the wide geographic and socioeconomic variation of Opportunity Zones around the country means that some OZs will be especially appealing to investors driven mainly by financial return on investment, while others may not be. If Community A and Community B both have OZs, but Community A’s zone is in a gentrifying area which could more easily yield investment returns, while Community B’s zone is in a rural area with an aging population, some fund managers will opt first to invest in Community A.

Local and state government can help incentivize equitable and inclusive development in OZs. They can enhance existing development policies to account for the varying appeal of Opportunity Zones for investors, and work to direct them to projects benefitting communities.

In Step Three we will discuss the many financing tools that policymakers and other stakeholders already have at their disposal to improve the attractiveness of their OZs to potential impact investors. These include tax increment financing, bonds, tax abatements, and much more.



Before creating new tools specifically geared to OZ projects, policymakers should update their economic development strategic plans to highlight the compatibility of existing debt finance tools with Opportunity Fund equity investments. Similarly, any long-term strategic plan should highlight the need for infrastructure upgrades—including roads, water, sewage, and broadband—in and around designated Opportunity Zones.

In many cases, however, adjustments to economic or community development strategies and the investment of public resources into OZs may be both too costly and time intensive. The benefits of the program to OZ investors begins to diminish after 2019 (providing, at that point, a 10% reduction in the capital gains tax to be paid in 2026 vs. 15%). That is still an attractive reduction that will attract investors. The structure of the program, however, provides for a greater loss of benefits for funds established after 2021, after which there is no reduction in capital gains taxes and the deferral is only for 4 years. So to maximize investor incentives, projects need to achieve construction closing prior to December 2021, which gives the public sectors a short time frame in which to implement and approve new strategies.

In that case, state and local policymakers should consider additional incentives to generate investor interest in their OZs, with a special focus on making sure the project is beneficial to the community. Outlined below are a few examples of add-on incentives that state and local governments could consider. The examples are based on actions already being taken by states around the country.

  • Eliminate or defer state capital gains tax when investments are made in Qualified Opportunity Funds for community-benefitting projects. Investors who place realized capital gains into a Qualified Opportunity Fund (QOF) are eligible to defer their federal capital gains tax until the date on which the investment is sold, or December 31, 2026—whichever comes first. In a majority of states, however, investments in QOF remain subject to a state capital gains tax.

    By eliminating their own capital gains tax on investments made in a QOF, states will gain a competitive advantage in attracting Opportunity Fund capital directed to projects that serve community needs over states that retain a capital gains tax.4 Similarly, a given state may choose to eliminate its capital gains tax for all investments made in Opportunity Funds that then invest in certain predetermined Opportunity Zones. Such Zones should be selected on the basis of local need and/or geographic location.


Tapping Public Programs to Spur Financing

Many public entities already have a robust infrastructure for financing community and economic development projects, and this infrastructure can be directed to support Opportunity Zone investments.

It's important to note, however, that many of these would require legislative approvals, which can take time. Lawmakers must be aware of the time sensitivity of Opportunity Zones work so that new initiatives, such as state credits or Tax Increment Finance plans (described below), are considered via an expedited approval process. 

Moreover, it is imperative to avoid diverting resources from non-OZ communities, and to ensure that projects benefit the communities where they are located.

The following are some of the principal financing tools that can be harnessed for launching Opportunity Zone projects:

Tax Increment Finance

Tax Increment Finance (TIF) is a mechanism for capturing the future tax benefits of real estate improvements to cover the present costs of those improvements. This tool is used by 49 states (all but Arizona) to pay for infrastructure, land acquisitions, demolition and planning on sites where development would not otherwise occur. Generally, upfront costs are paid for by bonds, which are then repaid through the taxes collected, as the assessed value of a property rises. It’s important to note that the tax rate does not increase in a TIF deal.

TIF districts, which extend from 10 to 40 years, depending on jurisdiction, could be created in or around Opportunity Zones to support key infrastructure. For example, a TIF district might bolster infrastructure along a corridor that connects an Opportunity Zone to other parts of the community. This could be a particular boon to areas that might not otherwise receive investment, such as in rural areas. Moreover, Opportunity Zones that are approached as part of broader community revitalization plans have an increased likelihood of success.

Private Activity Bonds

Private Activity Bonds are issued by a state or local authority on behalf of a non-governmental project, such as the expansion of a small manufacturer or hospital. When these bonds are “qualified,” by being issued for one of several defined purposes, they are exempt from federal income taxes. The tax exemption enables the project to access capital at a lower interest rate than could otherwise be achieved, thereby facilitating a larger or more secure project. More than $24.86 billion of Private Activity Bonds were issued in 2017.5

Various types of Private Activity Bonds could be utilized in an Opportunity Zone. For example, Industrial Development Bonds (IDBs, aka Industrial Revenue Bonds or IRBs) could incentivize entrepreneurs and small businesses to locate within an Opportunity Zone, supporting the development of new production facilities and the purchase of new machinery and equipment. Total IDB issuance is limited to $10 million per issue, and $20 million over a six-year period for a given jurisdiction.

Access to Capital Tools

Initial Opportunity Zone investments are expected to focus on real estate assets, with a more limited appetite for investments in entrepreneurs, startups and small businesses. However, small businesses make up 99.7% of all firms, employ half of all private-sector workers and represent 45% of total payroll in the U.S.6 They often have a difficult time accessing capital, as they may not have the credit or sufficient business history to qualify for conventional financing. This presents an opportunity for state and local entities to create new financing tools or target existing ones to these types of businesses in Opportunity Zones, including

  • A Revolving Loan Fund (RLF) can be capitalized by local, state or federal sources and make loans to support healthcare, minority business development, and environmental cleanup. Most RLF programs can be designed by local leaders to support the purchase of property or equipment, working capital, and/or property improvements.
  • Micro-Loan Funds operate like an RLF but specifically target small businesses and entrepreneurs, primarily making loans under $35,000. They can provide essential financing tools for supporting the small businesses in Opportunity Zones. 
  • Loan guarantees shift risk from a private lender to a third party, usually a government entity, which covers the costs of loans that go bad. A state or local loan guarantee program could attract private capital to Opportunity Zones and prove their investibility.
  • Certified Development Companies (CDCs) are nonprofit corporations certified by the SBA to offer the SBA 504 loans—below-market-rate financing for small businesses to purchase fixed assets like machinery and real estate. Many CDCs also operate state lending programs or their own loan funds, which can further support an Opportunity Zone strategy.

Property Assessed Clean Energy (PACE)

Property Assessed Clean Energy (PACE) is an innovative tool that allows property owners to access affordable financing for energy efficiency improvements on their homes or businesses—and could encourage investments in older, less efficient buildings that may otherwise sit vacant.

PACE loans are repaid through assessments collected during regular property tax payments. Depending on the project, owners can realize a net savings as utility costs may decrease more than the cost of the property tax assessment. Over 30 states have PACE legislation and could make modifications, where needed, to ensure this tool is available in its Opportunity Zones.

Tax Incentives and Abatements

State and local incentives, primarily in the form of tax abatements, are one of the most popular and efficient forms of direct development assistance. They can offer relief from sales, income or other tax liabilities, typically with strict performance-based award requirements and due diligence measures to ensure the abatement creates the desired effect.

Tax abatement programs could attract investors and developers to Opportunity Zones. For example, an existing property tax abatement program could carve out a percentage of its annual allocation for use in Opportunity Zones. Seattle, for instance, offers a tax exemption program for which developers are eligible provided that 20% to 30% of units are maintained at 80% AMI. New abatement programs specifically for Opportunity Zone projects could also be developed.

Bear in mind that these strategies should be tailored for different types of communities. For example, a tax abatement might be enacted for an OZ that may have a harder time attracting investors, while a higher linkage fee could be imposed on another OZ with greater investor interest, and the fees could then be dedicated to fund workforce development and other community needs.

Federal Financing Tools

There are more than 100 different federal programs that support economic development. Many provide funding to state or local governments, while others directly finance a business, industry or intermediary. Knowing the landscape of federal programs will help state and local practitioners take advantage of opportunities that may apply to Opportunity Zone projects.

  • The Low-Income Housing Tax Credit (LIHTC) program has a nearly $8 billion annual budget to support affordable housing development. It may dovetail with Opportunity Fund investments, as the investment length is generally the same and the tool is suited to supporting the development of new real estate.

At this stage in the OZ process, however, we should note that coupling LIHTC with OZ projects may have a limited investor base. Not all LIHTC investors have capital gains to allow them to utilize OZ benefits. We would encourage states and developers seeking to pursue this arrangement to speak directly to LIHTC syndicators and investors to assess the feasibility of such an approach in their local markets.

    Many Opportunity Zones contain brownfields—properties whose expansion, redevelopment, or reuse may be complicated by pollutants or hazardous substances.7 These sites are often difficult to develop because of cleanup costs. The EPA provides several grant programs that can help fund assessment and cleanup. Such assistance could help prepare often-overlooked sites in Opportunity Zones for development.

    • Make economic development and workforce grants available to projects in Opportunity Zones. Opportunity Zones located in historically disinvested areas with an unskilled workforce face an uphill climb in attracting Opportunity Fund capital. With the exception of Opportunity Funds operated by mission-focused investors, investors will look to put their equity in zones with shovel-ready projects and positive socioeconomic markers.

    To level the playing field, state and local governments should consider offering grant funds to community groups and/or projects located in the Zones that are least likely to receive Opportunity Fund investments. As each designated Opportunity Zone was required to be located in an area with a poverty rate of at least 20 percent, or with median family incomes not exceeding 80 percent of area median income, state and local governments could set grant funds aside for projects in OZs with a poverty rate greater than 25 percent, or with median family incomes not exceeding 75 percent of area median income.8  Grant conditions, however, need to be structured to achieve public policy efforts while but not discouraging investor interest because of restrictions that make it difficult to exit after year 10 and obtain expected returns.

    • Incorporate Opportunity Zones into existing state tax credit programs. Whether authorized by a federal or state statute, tax credit programs are frequently used to incentivize investment in economically distressed regions. States could attract additional investments into OZs by including the incentive into their scoring rubrics for existing tax credit programs. In such a scenario, applications for certain tax credit programs could be weighted more heavily if the project is located in an OZ than a similar project not located in an OZ. States may also consider setting aside a pre-designated amount of tax credits annually for community-benefitting projects taking place in Opportunity Zones.
    • Advocate for new state tax incentives. Some states are proposing tax credit bills that require socially-motivated economic development investments in OZs. In California, for example, a new bill, if passed, would ensure that OZ investments in the state support the growth of green technology and the preservation and creation of affordable housing.



    While offering further incentives to projects located in Opportunity Zones could help attract investments, communities also need to develop clear policies and directives to make sure the right types of developments are occurring. Many low-income communities are fearful that new Opportunity Zone developments will drive displacement through rising prices and housing costs. There are also myriad concerns that investments will only be made in the most profitable projects, many of which may not have a significant community and social impact. Being proactive in the following spaces can help limit these negative effects and direct investments towards impactful projects capable of supporting existing populations.

    • Adhere to existing comprehensive plans. As we emphasized in Step Two on community planning, OZ stakeholders should adhere to existing comprehensive plans and not allow for projects that would inhibit their implementation. The planning process we outlined is one that prioritizes a community’s desires for the future, which are crafted with input from various key stakeholders such as residents, business owners and political leaders
    • Create impact standards required to receive additional state and local incentives. Cities and states should create impact standards that must be met in order to receive additional incentives for OZ projects. This could encourage developers and investors to pursue projects that will maximize community impact and are targeted to supporting existing populations and minimizing displacement. Metrics should be created alongside the development of any new incentives, or the revision of existing incentive programs, to make the rules clear to investors and developers right out of the starting gates.
    • Find private partners dedicated to creating impact. Finding the right private partners will be key to achieving impact. Cities and states should carefully select partners that have a demonstrated commitment to community residents. This includes but is not limited to bankers, attorneys, financial advisors, developers and the Opportunity Zone investors themselves.
    • Review and revise existing zoning ordinances. Zoning officials, permitting offices and community development planners should review ordinances and processes to be certain they will incentivize the desired development and discourage undesired development. This can be accomplished in two ways. First, zoning and other policies may be altered in Opportunity Zones to be more restrictive of the types of development that can occur.

    Second, communities may implement such policies as expedited review or other “zoning bonuses” for projects with high potential to create community impact. Zoning and public approval processes are critical to the timeline and success of a project, and communities should leverage this power to encourage developers and investors to pursue those projects that maximize community and social impact. It's important to note, however, that this can be a lengthy and controversial process, and zoning changes require substantial political support.

    Variance between communities that are more or less attractive to investors may also be addressed through zoning strategies. Zoning in a weak market, for example, might be used to make a tract more appealing for investment, as with an expedited zoning change that would allow, say, the development of light manufacturing to energize the local economy. In a hot market, on the other hand, a higher inclusionary zoning requirement could serve to safeguard affordability in a gentrifying neighborhoood. Or zoning might be used to limit development of enterprises that drive profit but are of little use to the community, such as self-storage facilities and car washes. 

    • Clearly articulate types of projects desired in an Opportunity Zone Investment Prospectus. As we will discuss in Step Five, cities and states across the U.S. are currently developing investment prospectuses to pitch potential Opportunity Zone projects. These documents will likely be one of the first things seen by Opportunity Zone investors and should make clear the types of projects as well as the social and community impact goals that have been set for a community's Opportunity Zones.




    4 New York State has taken this step, as the state’s economic development office has declared that “both the deferral and exclusion of the capital gains from federal income will flow through to New York State.
    6 Practitioner’s Guide to Economic Development 2nd Edition, CDFA
    8 The State of Maryland is making $20 million available for building or renovating affordable housing in Opportunity Zones, as well as $8 million for small business lending, $3.5 million for site acquisition and demolition of derelict buildings, and $3 million for workforce development.