Momentum is building for a refresh of the opportunity zone program in upcoming federal tax legislation, offering a unique chance to review the program to date and consider how the next evolution could more successfully harness local power and community expertise for greater economic development.
We see three key leverage points to enhance the program — OZ 2.0 — in its next iteration: philanthropy, investors and coalitions. Mayors, governors, and other state and local officials have key roles to play in bringing the pieces of this puzzle into alignment.
Philanthropy’s convening power: The tax advantages of opportunity zones were specifically designed to incentivize investment in areas that might otherwise be overlooked, offering tax benefits to investors and developers. While nonprofits and foundations aren't eligible for tax benefits, since the program’s inception they've demonstrated effective models for influencing community-driven outcomes through collaboration.
Most of the program’s associated "qualified opportunity funds" (QOFs) are project-specific and combine funding eligible for capital gains tax treatment with other investments. Although non-capital gains investments don't qualify for federal OZ tax benefits (something that has bipartisan support for change in OZ 2.0), nonprofit organizations have taken stakes in QOFs, either to reduce investor risk or to seed funds that prioritize opportunities identified through their local market experience.
The Kresge Foundation, for example, committed $22 million to support two funds, providing first-loss protection in exchange for transparency, reporting, community involvement and impact. This came after careful consideration of more than 100 proposals, each requiring an explicit plan for community-identified needs.
Philanthropic organizations can also leverage their convening power to bring stakeholders together, aligning investment goals with community needs and providing technical assistance. As intermediaries between investors and communities, they help prevent displacement and ensure equitable development. The Rockefeller Foundation, which partnered with Kresge in early support for the OZ program, mobilized over $4.5 billion in investments by funding community-oriented projects and providing technical assistance for cities including Atlanta and Oakland, Calif.
Investing beyond big-city real estate: Real estate investors, predictably, were the first to seize the opportunity of opportunity zones. By 2020, 95 percent of OZ investments were concentrated in metropolitan zones, where strong market fundamentals made projects more attractive. Less than half of eligible opportunity zones received any investment, with funding heavily concentrated — 84 percent of all investment dollars flowed to just 10 percent of the zones. The poorest 10 percent of OZ communities, despite being the program's intended beneficiaries, received only their proportional share of total investment — $1.8 billion, or 10 percent.
Real estate dominated this investment landscape: 68 percent of all OZ investments went to real estate deals, while the finance and construction sectors received a mere 5 percent and 4 percent, respectively. Though the program allows investments in operating businesses within opportunity zones (provided they generate at least 50 percent of their income within the zone), local expertise remains crucial for identifying and reducing risk in these investments.
The Erie Downtown Development Corporation, for example, secured $100 million in private funding and completed seven of 12 planned projects, including a job-generating culinary arts district. Its success stemmed from a strategic "Opportunity Zone Investment Prospectus" that presented investors with shovel-ready projects. Erie also forged strong partnerships with local institutions — including the region's top employer, universities, hospitals and philanthropic organizations.
Coalitions and the data accountability gap: Improving data collection is the biggest challenge in enhancing incentive targeting for OZ 2.0. Unlike other federal development programs, opportunity zones launched without mandatory reporting requirements for investments. Currently, information comes primarily from tax filings and occasional surveys, with much of it remaining proprietary or delayed.
This data gap leaves policymakers working with incomplete information when designing improvements, investors operating with limited perspective on leveraging incentives, and — most concerning — community members lacking visibility into local investments. Early studies relied on partial data samples, yielding conflicting findings that researchers are still reconciling.
The true measure of success should focus on improved outcomes for local residents, not merely capital flows or rising property values. Closing the data gap should be the focus of all stakeholders working in coalition with each other.
Better data collection would allow researchers to isolate opportunity zones' unique effects by controlling for selection and measurement variables. Governors typically nominated zones using imprecise growth metrics, such as vacant land and demographics, which often directed resources to census tracts that were already showing positive trends in income and employment. This selection bias makes it difficult to distinguish whether subsequent growth stems from the OZ incentives or pre-existing momentum.
Furthermore, increased economic activity doesn't necessarily benefit original low-income residents; it may simply indicate demographic displacement. These data limitations have united both supporters and critics of OZs in calling for stricter reporting and accountability measures to ensure that public tax subsidies deliver genuine public benefits.
Beyond advocacy, local stakeholders — including not only public agencies but also community banks and intermediaries — must track key indicators in OZ neighborhoods, such as employment, income and demographic changes, over time. Regular outcome measurement enables investors to adjust their strategies promptly, redirecting funds when investments show minimal resident benefits. A reimagined opportunity zones program should serve as a practical, dynamic testing ground for developing more effective community investment models.
Ahmed Whitt is the director of the Center for Wealth Equity at Living Cities, a collaborative of philanthropic foundations and financial institutions committed to closing income and wealth gaps in the United States.
Governing’s opinion columns reflect the views of their authors and not necessarily those of Governing’s editors or management.
