Yesterday Accelerator for America and the Nowak Metro Finance Lab at Drexel University released a policy brief entitled “From Transactions to Transformation: How Cities Can Maximize Opportunity Zones.” The paper, co-authored by Evan Weiss and myself, can be found here.

To recount, the Tax Cuts and Jobs Act of 2017 provides a new incentive — centered around the deferral of capital gains taxes — to spur private investments in low-income areas designated as Opportunity Zones. As of April 2018, Governors in all 50 states, the District of Columbia and Puerto Rico had designated more than 8,700 Opportunity Zones across the nation. Given the significant interest among investors, it is possible that this new tax incentive could attract tens of billions of dollars in private capital, making this one of the largest economic development initiatives in U.S. history.

It is our firm contention that the broad objective of this incentive — expanding economic opportunities for places and people left behind — cannot be achieved by the market and outside investors alone. Cities in the broadest sense – local governments, anchor institutions, civic leaders — will need to act decisively if Opportunity Zones are to engender inclusive, sustainable growth that is truly transformative for each city’s economy, rather than just a large volume of disconnected, individual transactions.

Our policy brief lays out ten steps that cities can take to amplify local advantages, knowledge and experience:

Step One: Design and market an Investment Prospectus to showcase the distinctive assets of — and investable projects — in a city’s Opportunity Zones;

Step Two: Maximize the commercial impact of anchor institutions, particularly public institutions of higher learning;

Step Three: Maximize the commercial impact of public assets;

Step Four: Accelerate employment density, business demand and smart place-making;

Step Five: Ensure that Zone related infrastructure is high quality and meets performance and sustainability standards;

Step Six: Align city investments and decisions with the distinctive competitive assets of each Opportunity Zones;

Step Seven: Help local entrepreneurs and developers (particularly female- and minority-owned businesses) gain access to capital, technical assistance, mentoring, legal services and other resources;

Step Eight: Help local residents obtain the skills or competencies necessary to meet existing or future labor demand;

Step Nine: Support the production and preservation of affordable/workforce housing; and

Step Ten: Repurpose existing institutions and build new institutions to carry out core missions.

Here are a few framing thoughts as you read the policy brief:

The federal law does not provide any guidance on the role of cities or localities. Yet city governments and other local entities have a complex set of powers, resources, assets and relationships which, if smartly deployed, could help leverage the Opportunity Zone incentive to shape markets and maximize economic and social outcomes. Cities, unlike the federal government and state governments, are networks of institutions and individuals that can “think like a system and act like an entrepreneur.” In this way, cities are primed to aggregate public, private and civic capital for aligned investments in economic development, schools and skills, infrastructure and affordable housing, the critical ingredients for long-term inclusive growth. Federal tax advantaged capital, in other words, is not the only capital in play; the leveraging effect could be unprecedented.

Cities are also learning networks. While the federal government provided specific guidance last week, the evolution of the Opportunity Zones tax incentive will also take place via market norms and policy and practice innovations that are invented in one city and then replicated or adapted in rapid fashion across multiple communities. Already, many city-focused organizations and intermediaries like Enterprise Community Partners, LISC, and the Economic Innovation Group are identifying and codifying innovations that are emerging in vanguard cities, speeding the pace of scaling. At the same time, city-focused philanthropies like the Rockefeller and Kresge Foundations are seeking to catalyze innovative financial responses. Opportunity Zones are one of the first federal tax incentives to evolve Wikipedia-like from the bottom-up rather than the top-down. This is New Localism in action and might be a harbinger of future federal incentives to come.

Finally, while city actions will be developed by individual communities and have strong local impact, the designation of common areas across cities (e.g., central business districts, hospital districts, university districts, industrial areas, residential communities, etc.) enables the creation of geographic typologies. These typologies, as I have written before, might catalyze the creation of multi-city Opportunity Funds with the flexibility to finance multiple activities (e.g., housing, small business, mixed-use development) in similar Opportunity Zones, thereby reinforcing the synergistic effect of related investments. This would be a major departure from the status quo where large commercial banks and governmental agencies have focused on separate products rather than holistic places.

In the end, the promise of Opportunity Zones is not just to match private capital to investable projects but to inspire cities to reexamine and rediscover the fundamentals of economic development for all by channeling the resources of their own communities. That is a tall order but one which we are confident cities — the vanguard of problem solving in our country — can meet.