Creating a model that sets the curve for Opportunity Zone investment

It’s been five years since the Ruskin Hills neighborhood of Kansas City, Missouri, had a new business come in. It was a Burger King.

“There’s not even a laundromat, there’s not even a cleaners in that area. So, how do we get all of that in there? Those become very real issues we really have to navigate to create success in all of these areas,” said Pastor Ronald Lindsay of the Concord Fortress of Hope Church in that neighborhood.

The Ruskin Hills neighborhood is in one of the 8,762 Opportunity Zones recently identified by state governors across the United States and Puerto Rico. The federal government created the idea of Opportunity Zones as an economic development tool, which was added to the tax code by the Tax Cuts and Jobs Act in December of 2017, to relieve economically distressed communities.

Lindsay, who’s also the chair of the Prospect Business Association, and has lived in Kansas City his entire life, explained that the decline of the community his church serves started with an act of nature. It was once a military community, housing many Korean combat veterans and service members from the former Richards-Gebaur Air Force base. But then, in the mid-1950s, a massive tornado tore through the area, starting a downward economic spiral.

By 2000, Lindsay said, the entire district had shifted. Concentrated poverty has contributed to 20 years of blight. The dangerous streets, lack of amenities, poor schools, and failing infrastructure have taken their toll on residents.

“When the misery index goes up, people talk, and so that’s what’s happening. Now, it’s clear what’s being needed,” he said.

He said residents of the neighborhoods are gathering and asking each other what needs to happen to create a healthy community. And though the area has been designated as an Opportunity Zone, the work is only just beginning, and the conversations will need to continue once some headway has been achieved.

“There’s enough public cry for transformation…. You have voices that are there who can assist in driving the agenda and assist the politicians and developers and say, ‘Hey this is the area, what do you think about that and what do we need in this area?'” Lindsay said.

The wealth at home

Bruce Katz is the director of the Nowak Metro Finance Lab at Drexel University in Philadelphia, Pennsylvania. Since 2017, he’s worked with 30 municipalities to create prospectuses for their Opportunity Zones.

As each city developed a prospectus, he’d review and offer guidance on sharpening it. He also worked with leaders to make the plan more likely to attract investment, either from tax advantage capital or public incentives, for example. He said he wanted to create a common way for cities to articulate their assets in a way that would appeal to any kind of investor.

In his work with the cities, he’s found that people think that Opportunity Zones will bring wealth into their cities from places like Silicon Valley. However, what he sees as the most important capital is that which a city already has from its own corporations, foundations, and high net-worth individuals.

“Any project worth doing is going to have layers of finance in it. And a lot of those layers are going to come from local capital,” Katz said.

He pointed out that the United States has never seen anything like the Opportunity Zone initiative. In contrast, the mid-1990s’ “Empowerment Zones” program only included six zones. Opportunity Zones cover urban, suburban, and rural regions with the built-in understanding that they’re not all uniform economic propositions; each needs to be considered individually.

Years of disinvestment

Alissia Canady is an attorney, has lived in Kansas City’s urban core her entire life, and has represented the city’s Fifth District as councilwoman. She said years of disinvestment have harmed her neighborhoods – so many years, she can’t remember when the neighborhoods were good.

She said that when policymakers like the chamber of commerce, city council, and the development community have looked for new areas to invest in, they have kept their capital west of Troost Ave. – long seen as a racial and economic divide in Kansas City – because that’s where they think their money is safe and will see returns.

Because of that, her district, which is east of Troost, has not seen capital from investors for many years.

“Years have gone on where there was disinvestment, low property values, which affect the quality of the schools, and then limited access to jobs that pay a living wage, transportation options limited. The layering of effects of disinvestment and redlining and economic injustice… You just layer it on and on,” Canady said.

She explained that investors are likely to make the greatest impacts on the communities they feel least comfortable financing projects in. The key to making an impact is discussing intended investments with community leaders.

Canady said that 57% of the people in Opportunity Zones are African American, who must be represented in discussions. “You’re going to have to have people of color at the table, if you want to have real impact, if you want to address the unsolved variables, if you want to create equity. You have to make sure your deal is inclusive.”

She spoke at a recent Opportunity Zone summit sponsored by the Kauffman Foundation, created by a diverse coalition of community groups at the Greater Kansas City Chamber of Commerce.

“You have someone who’s looking for a deal, so, ‘I like this site, I’ll do something here,’ but it doesn’t always reflect the needs of the community, and it’s not always part of a comprehensive plan,” Canady said. “So, therefore you have these scattered sites of development, where the real impact comes from coordinated areas of focus, then you begin to see the impact more quickly.”

Change that’s working

Community Builders of Kansas City CEO Emmet Pierson has worked with his community long enough that he’s beginning to see what comes of inclusivity in investments. He said his nonprofit began with a $100,000 loan 27 years ago and has grown to have more than $80 million in assets inclusive of institutional development and affordable housing, office buildings, and retail centers east of Troost.

About 30 years ago, residents of two neighborhoods where Pierson grew up, Mt. Cleveland and Sheraton Estates, came together to fight the opening of an in-house drug treatment facility their health clinic had proposed. The opposition won and, furthermore, the unity the fight created brought about what was called the Mt. Cleveland Initiative, a movement that set the tone for positive change in the urban core long before the creation of Opportunity Zones.

Pierson said that once people started talking, they quickly agreed that one of their most pressing needs was grocery stores. The store they lobbied for was completed 13 years ago. Community Builders of KC financed the grocery store with funding from outside of Kansas City in the form of a traditional bank loan, but also used some of Community Builders’ own capital. Currently, only three grocery stores, including that one, are open from 6th Street to 85th Street, and from 71 Highway (or Troost), to Cleveland/Eastwood Trafficway, so the area still isn’t considered food-secure.

Although the neighborhoods’ needs are not yet met, Community Builders of KC has built additional mixed-income housing, filled up offices in newly built buildings, and seen several nonprofits like Legal Aid of Western Missouri, Boys and Girls Club, Junior Achievement, and Catholic Charities plant their headquarters in the vicinity.

Establishing a norm

Katz said that Kansas City is ahead of the curve in developing its plans for change in Opportunity Zones, and the rest of the nation is watching.

“The most successful cities are cities that recognize that they’re networks, and figure out how public, private, civic, university, community, institutions, and leaders collaborate to make markets that are inclusive. That’s really what Kansas City has been doing.”

He said in Kansas City he sees a clarity in the community’s desire to ensure that the different assets of different zones is understood, but also a desire to make sure that the proposed projects actually work for the residents of these communities to gain access to jobs, as they begin to entice local and national capital.

Moreover, Katz said, communities have the desire and are gaining the know-how to establish “one-stop” shops that will begin to grow entrepreneurs. Stakeholders are learning how to offer technical assistance and training to new and existing business owners in order to build their personal wealth, which will spread into the community.

“This is an unusual tax incentive because there are rules, obviously, that the federal government has put forward, but actually this market is going to be created by cities creating norms and models,” Katz said.

Katz added that the system of community development Opportunity Zones is replacing is one the United States has had in place for 50 years that mostly focused on building low-income rental housing in low-income neighborhoods. The new system will help create a network of community wealth building where, he said, “If we’re smart we’ll be able to identify, grow, support, mentor, and capitalize minority and female-owned businesses and then be able to grow wealth for local residents by building skills, creating home ownership opportunities, and creating more jobs in neighborhoods.”

Canady and Lindsay said when the people they serve talk about what they want to see in their communities, the suggestions are not outlandish; in fact what they want is already the norm in other parts of town.

Canady said her constituents tell her they want grocery stores that sell fresh food, jobs that pay a living wage right in their own community, and safe neighborhoods for their children.

“The same thing everyone else wants in their neighborhoods,” Canady said. “But, there’s a dollar sign attached to all of that, and where are those dollars going to come from?”