    [Joint House and Senate Hearing, 115 Congress]
    [From the U.S. Government Publishing Office]

                                                            S. Hrg. 115-297

                        THE PROMISE OF OPPORTUNITY ZONES

    =======================================================================

                                    HEARING

                                   before the

                            JOINT ECONOMIC COMMITTEE
                         CONGRESS OF THE UNITED STATES

                         ONE HUNDRED FIFTEENTH CONGRESS

                                 SECOND SESSION

                                   __________

                                  MAY 17, 2018

                                   __________

              Printed for the use of the Joint Economic Committee

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                                       ______

                         U.S. GOVERNMENT PUBLISHING OFFICE

    30-384                    WASHINGTON : 2018

                            JOINT ECONOMIC COMMITTEE

        [Created pursuant to Sec. 5(a) of Public Law 304, 79th Congress]

    HOUSE OF REPRESENTATIVES             SENATE
    Erik Paulsen, Minnesota, Chairman    Mike Lee, Utah, Vice Chairman
    David Schweikert, Arizona            Tom Cotton, Arkansas
    Barbara Comstock, Virginia           Ben Sasse, Nebraska
    Darin LaHood, Illinois               Rob Portman, Ohio
    Francis Rooney, Florida              Ted Cruz, Texas
    Karen Handel, Georgia                Bill Cassidy, M.D., Louisiana
    Carolyn B. Maloney, New York         Martin Heinrich, New Mexico,
    John Delaney, Maryland                   Ranking
    Alma S. Adams, Ph.D., North          Amy Klobuchar, Minnesota
        Carolina                         Gary C. Peters, Michigan
    Donald S. Beyer, Jr., Virginia       Margaret Wood Hassan, New
                                             Hampshire

                       Colin Brainard, Executive Director
                 Kimberly S. Corbin, Democratic Staff Director

                                C O N T E N T S

                                  ----------

                         Opening Statements of Members

    Hon. Erik Paulsen, Chairman, a U.S. Representative from Minnesota     1
    Hon. Martin Heinrich, Ranking Member, a U.S. Senator from New
      Mexico.........................................................     3

                                   Witnesses

    Hon. Tim Scott, a U.S. Senator from South Carolina...............     5
    Mr. John W. Lettieri, Co-Founder and President, Economic
      Innovation Group (EIG), Washington, DC.........................     7
    Ms. Terri Ludwig, Chief Executive Officer, Enterprise Community
      Partners, New York, NY.........................................     9
    Mr. Maurice A. Jones, President & CEO, Local Initiatives Support
      Corporation (LISC), New York, NY...............................    11

                           Submissions for the Record

    Prepared statement of Hon. Erik Paulsen, Chairman, a U.S.
      Representative from Minnesota..................................    32
    Prepared statement of Hon. Cory A. Booker, a U.S. Senator from
      New Jersey.....................................................    35
    Prepared statement of Hon. Martin Heinrich, Ranking Member, a
      U.S. Senator from New Mexico...................................    36
    Prepared statement of Hon. Tim Scott, a U.S. Senator from South
      Carolina.......................................................    37
    Prepared statement of Mr. John W. Lettieri, Co-Founder and
      President, Economic Innovation Group (EIG), Washington, DC.....    39
    Prepared statement of Ms.Terri Ludwig, Chief Executive Officer,
      Enterprise Community Partners, New York, NY....................    47
    Prepared statement of Mr. Maurice A. Jones, President & CEO,
      Local Initiatives Support Corporation (LISC), New York, NY.....    55
    H.R. 828 submitted by Representative Maloney.....................    64
    Response from Mr. Lettieri to Questions for the Record Submitted
      by Senator Klobuchar...........................................    67
    Response from Ms. Ludwig to Questions for the Record Submitted by
      Senator Klobuchar..............................................    68
    Response from Ms. Ludwig to Questions for the Record Submitted by
      Senator Heinrich...............................................    69
    Response from Mr. Jones to Questions for the Record Submitted by
      Representative Maloney.........................................    72
    Response from Mr. Jones to Questions for the Record Submitted by
      Senator Klobuchar..............................................    73
    Response from Mr. Jones to Questions for the Record Submitted by
      Senator Heinrich...............................................    76

                        THE PROMISE OF OPPORTUNITY ZONES

                                  ----------

                             THURSDAY, MAY 17, 2018

                 Congress of the United States,
                              Joint Economic Committee,
                                                        Washington, DC.
        The Committee met, pursuant to call, at 10:00 a.m., in Room
    216, Hart Senate Office Building, the Honorable Erik Paulsen,
    Chairman, presiding.
        Representatives present: Paulsen, Maloney, Handel, Adams,
    LaHood, Delaney, and Comstock.
        Senators present: Heinrich, Peters, Hassan, and Sasse.
        Staff present: Theodore Boll, Colin Brainard, Gerardo
    Bonilla, Daniel Bunn, Kim Corbin, Barry Dexter, Alaina
    Flannigan, Connie Foster, Natalie George, Colleen Healy, Matt
    Kaido, Allie Neill, and Alex Schibuola.

       OPENING STATEMENT OF HON. ERIK PAULSEN, CHAIRMAN, A U.S.
                     REPRESENTATIVE FROM MINNESOTA

        Chairman Paulsen. We will call the hearing to order.
        Good morning, and welcome to today's hearing on The Promise
    of Opportunity Zones. America's new economy is finally taking
    off. The Congressional Budget Office, CBO, now projects 3.3
    percent growth for 2018, the highest annual growth rate since
    2005, up from a meager 1.9 percent it estimated prior to the
    Tax Cuts & Jobs Act and regulatory reforms. And while all
    Americans benefit from faster growth, we can, and should, take
    special care of those communities who are in greater need of
    support. Some communities, both urban and rural, are having a
    particularly difficult time.
        The new tax law contains a provision that deserves more
    public attention, one that is designed to help lower-income
    areas. The law provides a capital gains tax incentive to
    encourage long-term, private investment in communities that
    have had difficulty attracting jobs and new business. Unlike
    past targeted incentives, the areas are selected by governors,
    who know the unique needs of their communities, instead of by
    the Federal Government.
        Opportunity Zones have been a bipartisan, bicameral
    initiative. The House author of the original legislation, The
    Investing in Opportunity Act, is former representative Pat
    Tiberi who chaired this Committee until January of this year.
    We are honored to have the Senate author with us, as well
    today, Senator Tim Scott of South Carolina.
        Opportunity Zones hold the promise of flexible, innovative
    solutions. And flexibility is important, because the reasons
    some areas lag economically vary across communities and
    regions. A factory central to a town's economy may have closed,
    leaving workers and searching for new skills and jobs, that is
    if they haven't given up entirely.
        The area may have underperforming schools. They may lack
    access to capital. Excessive taxes and regulation may have made
    it difficult to start or maintain a business. The community may
    be struggling with rampant drug and alcohol abuse. This is why
    ``one size fits all'' Federal spending programs or incentives
    to invest only in particular activities are not well-suited to
    address each community's unique set of challenges.
        This is why also Opportunity Zones, which allow the private
    sector and local communities to innovative and collaborate on
    the best solutions, have much greater potential for meeting
    those unique needs.
        John Lettieri, one of our distinguished witnesses today,
    put it well in a recent op-ed in The Hill. He noted that
    previous location-targeted programs had an ``overly
    prescriptive top-down approach that left no room for local
    experimentation.''
        Opportunity Zones, on the other hand, will bring ``the best
    possible mix of investments in new and expanding businesses,
    infrastructure and energy projects, commercial real estate,
    affordable housing and more.''
        Opportunity Zones also hold the promise of local knowledge
    and engagement. They are chosen by governors, who know their
    communities well, and not by Federal planners with a formula-
    based spreadsheet.
        Across the country, there are about 8,700 Opportunity
    Zones. My own State of Minnesota is hoping to attract
    additional long-term, private investment into 128 census tracts
    that were recently selected as Opportunity Zones.
        State and local leaders can also help their communities in
    thriving by collaborating and removing unnecessary barriers to
    starting a business such as overly prescriptive occupational
    licensing or local zoning ordinances. Opportunity Zones also
    hold the promise of access to a large amount of untapped
    capital. Investors who reinvest capital gains from another
    investment into these zones temporarily defer taxes.
        And these investments are pooled in Opportunity Funds so
    that no single investor has to have specialized knowledge about
    how and where to invest since those decisions can be made by
    the experts who manage the funds.
        The longer investments are held in Opportunity Zones the
    more the capital gains relief grows, a strong incentive to
    invest in a community for the long-haul. And this also
    encourages fund managers to invest--in enterprises that will
    yield the most success and prosper for a community--prosperity.
        With an estimated $6 trillion in unrealized capital gains
    and no upfront State or Federal costs, the potential
    investments flowing into struggling communities is almost
    limitless. We have a highly knowledgeable panel of witnesses
    here today, who have been engaged in the Opportunity Zone
    initiative and whose observations and insights I very much look
    forward to hearing.
        Before I introduce the witnesses, though, I now recognize
    our Ranking Member Senator Heinrich for his opening statement.
        [The prepared statement of Chairman Paulsen appears in the
    Submissions for the Record on page 32.]

     OPENING STATEMENT OF HON. MARTIN HEINRICH, RANKING MEMBER, A
                      U.S. SENATOR FROM NEW MEXICO

        Senator Heinrich. Good morning, Chairman Paulsen, and thank
    you for holding today's hearing. I want to recognize my
    colleagues Senator Booker and Senator Scott for their important
    work to create a new incentive to invest in communities with
    high poverty and persistent unemployment.
        Mr. Chairman, my good friend Senator Booker, could not be
    here this morning but provided a statement and asked that it be
    entered into the record.
        Chairman Paulsen. Without objection.
        [The prepared statement of Senator Booker appears in the
    Submissions for the Record on page 35.]
        Senator Heinrich. It is good to have my colleague from
    South Carolina here with us today, and we look forward to his
    testimony. And I want to thank you and Senator Booker for your
    leadership on this issue.
        Even today, more than ten years after the recession began,
    the recovery still has not reached many communities, both rural
    and urban. In New Mexico, our statewide unemployment rate is
    almost 50 percent higher than the national average. And in some
    areas, it's much higher.
        Across the country, there are more than 50 million
    Americans living in distressed communities. There's enormous
    talent in these communities, but we have underinvested in it.
        While the Chairman and I disagree on the underlying
    Republican tax bill, a partisan bill that continues to leave
    working Americans behind, we do agree that Opportunity Zones
    hold the promise to direct some much needed financial
    investment to places like New Mexico.
        Opportunity Zones are an important addition to the tool
    kit. They can support investments in affordable housing and
    small businesses while spurring job creation, and they can help
    lift living standards in neighborhoods across the country.
        The new Opportunity Funds have the potential to attract
    high-net-worth investors, who previously have not invested in
    low-income communities.
        Thanks to the long bull market, many investors are sitting
    on substantial unrealized capital gains that we can put to work
    generating housing, jobs, and growth.
        What distinguishes Opportunity Zones from other Federal
    efforts to stimulate growth in distressed communities, such as
    the New Markets Tax Credit, is flexibility. There are few
    investment constraints. Funds can invest as much as they want.
    There's no competition to receive the benefit.
        But with this flexibility, there is risk that the social
    impact will not be as great as we would like it to be. To
    achieve broad public benefits, projects should be part of a
    community strategy to create jobs, boost entrepreneurship,
    increase affordable housing, and promote economic development.
        Investors should also tap the vast expertise that exists in
    private, public, and non-profit sectors about how to make high-
    impact community investments. And we were fortunate enough to
    have some of that expertise here with us today.
        I've seen first-hand the important work Enterprise and
    LISC, together with their partners, has done in New Mexico,
    providing affordable housing projects and creating jobs in
    Gallup and Las Cruces and Santo Domingo Pueblo, for that
    matter. And Opportunity Zones can help us do even more.
        Poverty is stubborn; one in five children grows up in
    poverty in this country, a number that hasn't moved much in a
    generation. In New Mexico, three in ten children grow up in
    poverty. And in some of our counties, close to half of all
    children live in poverty. Growing up poor has lasting impacts
    on a child's development, affecting successes in the classroom
    and educational and employment outcomes later in life.
        In addition to expanding proven credits and programs like
    the Earned Income Tax Credit and Head Start, we need new
    approaches. Two-generation models can increase opportunities
    for families living in poverty by simultaneously targeting
    children and parents with programs and supports to boost
    economic security and improve the health and well-being of the
    whole family.
        Opportunity Zones offer an additional path to spur economic
    development. Before the new zones are implemented, we have time
    to think through some guardrails that can help ensure that the
    intent of the legislation is fully realized; and closely
    monitoring implementing and establishing appropriate
    guardrails, either through rules or additional action by
    Congress, can go a long way towards ensuring that Opportunity
    Zones bring new economic activity to communities that
    desperately need it. This is a big opportunity. I'd like to see
    us seize it.
        Thank you to the witnesses for being here today, and I look
    forward to each of your testimonies.
        [The prepared statement of Senator Heinrich appears in the
    Submissions for the Record on page 36.]
        Chairman Paulsen. Well--and thank you Senator. And as we
    begin with our witnesses today, I want to, first, acknowledge
    the Honorable Tim Scott. Senator Scott is with us, who worked
    with your colleague, Senator Booker, whose testimony has been
    entered into the record also.
        Senator Scott is a South Carolina native and was sworn in
    as a United States Senator from South Carolina in January of
    2013 to complete the term of retiring Senator Jim DeMint.
    Senator Scott was elected to a full term in the U.S. Senate in
    January 2017. And prior to the U.S. Senate, he served in the
    U.S. House of Representatives, the South Carolina State House,
    and the Charleston County Council.
        Before he entered public service, Senator Scott built a
    successful small business of his own, and is a co-author with
    former Ohio Representative, Pat Tiberi, of the original
    Opportunity Zone legislation.
        We welcome your expertise and you being here today. I know
    you have to leave a little early, so we'll listen to you and
    introduce the rest of the witnesses after you conclude.
        With that, Senator Scott, you're recognized for five
    minutes.

      STATEMENT OF HON. TIM SCOTT, U.S. SENATOR FOR SOUTH CAROLINA

        Senator Scott. Thank you, Chairman and to the Ranking
    Member, as well. I appreciate you guys having this hearing.
        In large part, because of the tax cuts in jobs, our economy
    is booming. We're in the middle of the third largest economic
    expansion since 1854; yes, 1854, and by the time we're done, it
    will be the second longest economic expansion.
        Record revenues entered our Treasury in April. Unemployment
    rates are at 3.9 percent; a million folks have come back to the
    workforce; wages are up 2.9 percent over last year. African-
    American unemployment is the lowest record in four decades,
    since they started taking notes in 1972; 800,000 new jobs have
    been created since the passage of this legislation.
        Because of tax reform, millions of Americans have seen
    increases in benefits wages or bonuses. According to a survey
    by the manufacturers, 72 percent of manufacturers plan to
    increase wages or benefits this year; 77 percent plan to hire
    more employees. Additionally, the NFIB says optimism for small
    businesses is at a 45-year high; poor sales at record lows.
        Many components of the Tax Reform Bill have yet to be
    implemented. And this is really good news, because as I speak,
    the Treasury Department is finalizing guidance for Opportunity
    Zones. And here's why that's so important.
        Fifty-two million Americans live in distressed communities.
    I have personally been raised in one of those distressed
    communities, and I will tell you that the potential in those
    Opportunity Zones is incredibly high. But too often, too little
    of these Opportunity Zones find themselves manifesting in these
    distressed communities.
        And the question that, I think, of the Investing in
    Opportunity Act answers is: How do we attract private sector
    capital back into distressed communities?
        The answer is, in part, by deferring the capital gains tax,
    if you will, make a long-term investment in those distressed
    communities. This is incredibly important, because the goal is
    not to make short-term investments where investors have an
    opportunity to have a great return. This goal, the goal of the
    legislation, is to make sure that those residents living in the
    Opportunity Zones, those businesses located in the Opportunity
    Zones, the property that could be rehabilitated in the
    Opportunity Zones, benefits from a long-term view of making a
    community better without the gentrification. And there are a
    number of models from Atlanta to Spartanburg, South Carolina,
    and North Charleston, South Carolina, where we can see that the
    approach become reality.
        It's also a win, win, win. Local mayors had major input in
    making sure that the governors' recommendation came from the
    experts closest to the people. And those of us serving in
    Congress, we all know that's it's amazing that our approval
    ratings are at 13 percent. That includes our family, our
    cousins, our brothers, our best friends from high school.
        But local officials have a much higher approval rating. The
    closer the government is to the people, the more the people
    trust that government. And when it comes to investing in
    opportunity and Opportunity Zones, having the mayors' input,
    with the governors' assistance, makes this a win-win on the
    local level and the State level. But what makes it a win on the
    Federal is that our hands are not there; that the red tape and
    the challenges that come with Federal Governmental oversight
    are not there. We can have great confidence in our cities, in
    our states, to do the right thing for all of our citizens. And
    by having a Federal program that simply encourages, in a sense,
    capital to take a second look at communities that they would
    not normally take a second look, this is really good news for
    residents.
        My hope is a simple one: That as we see the manifestation
    and the creation around the country of Opportunity Zones that
    we will be having another joint meeting in a year, in two
    years, so that we can measure the progress made in reasonable
    time and that we can celebrate in a bipartisan fashion of the
    Opportunity Zone while it was a part of the Republican package
    for tax cuts and jobs, it is not a partisan legislation. It is
    not even a bipartisan legislation. It was American legislation
    for American people stuck, sometimes trapped, in a place where
    it seems like the lights grow dimmer, and the future does too.
    Let's turn those lights on and make the future bright.
        [The prepared statement of Senator Scott appears in the
    Submissions for the Record on page 37.]
        Chairman Paulsen. I want to thank Senator Scott again for
    taking the time to appear before the Committee. And I know you
    may join us for a little bit, and I know you have to also run.
        I also want to, once again, acknowledge Senator Booker's
    testimony that has been entered into the record. And with that,
    we'll begin the introduction--introduce our witnesses.
        First, we have with us, Mr. Maurice--I apologize--we have
    Mr. Lettieri who is with us, John Lettieri, who is the Co-
    Founder and President of the Economic Innovation Group.
        Mr. Lettieri leads EIG's policy development, economic
    research and legislative affairs efforts. He has worked in both
    the public and private sectors with policymakers,
    entrepreneurs, investors and global business leaders. Prior to
    EIG, Mr. Lettieri was the Vice-President of Public Policy and
    Government Affairs for the Organization for International
    Investment.
        Additionally, he served as a foreign policy aide to former
    U.S. Senator Chuck Hagel during his time as a senior member of
    the United States Senate Foreign Relations Committee. Mr.
    Lettieri is a graduate of Wake Forest University, where he
    studied political science and global commerce.
        Also is Ms. Terri Ludwig, who is the Chief Executive
    Officer of Enterprise Community Partners, Incorporated, which
    is a national, non-profit, that creates affordable homes and
    strengthens communities across the United States.
        From 2002 to 2009, Ms. Ludwig served as president and chief
    executive officer of the Merrill Lynch Community Development
    Co. Prior to Merrill Lynch, she was the president and CEO of
    ACCION New York, the largest non-profit, microlender in the
    United States.
        In 2011, Forbes Magazine named Ms. Ludwig to its first ever
    ``Impact 30 List,'' a roster of 30 of the world's leading
    social entrepreneurs. Ms. Ludwig holds a Bachelor's Degree from
    the University of Illinois at Urbana-Champaign and a Master's
    Degree from Harvard University's John F. Kennedy School of
    Government.
        And Mr. Maurice Jones is President and CEO of the Local
    Initiatives Support Corporation, LISC, a non-profit that
    connects public and private resources with struggling
    communities.
        Immediately prior to joining LISC, he served as the
    Secretary of Commerce for the Commonwealth of Virginia. Mr.
    Jones also served as Deputy Secretary for the U.S. Department
    of Housing and Urban Department, HUD. Prior to that, he was
    Commissioner of Virginia's Department of Social Services and
    Deputy Chief of Staff to former Virginia Governor Mark Warner.
        Mr. Jones earned a Bachelor's Degree from Hampden-Sydney
    College, a Master's Degree in International Relations from
    Oxford University, and in 1992, he graduated from the
    University of Virginia Law School.
        We look forward to each of your testimony, each of your
    witnesses' testimony today. And with that, we'll begin with Mr.
    Lettieri. You're recognized for five minutes.

       STATEMENT OF MR. JOHN LETTIERI, CO-FOUNDER AND PRESIDENT,
            ECONOMIC INNOVATION GROUP (EIG), WASHINGTON, DC

        Mr. Lettieri. Well, thank you.
        Chairman Paulsen, Ranking Member Heinrich, Members of the
    Committee, it's a pleasure to be with you today.
        I'm the Co-Founder and President of the Economic Innovation
    Group, a bipartisan research and advocacy organization. EIG
    worked closely with the lead sponsors to help develop and
    champion the bipartisan Investing in Opportunity Act, which
    served as the basis for the Opportunity Zones provision in the
    Tax Cuts and Jobs Act of 2017. Since it became law, we've
    worked closely with a wide array of stakeholders nationwide to
    support the effective implementation of this new policy.
        The Opportunity Zones initiative is the most ambitious
    Federal attempt to boost private investment in low-income areas
    in a generation, one with a potential to drive billions of
    dollars of new investment to these communities over the coming
    decade.
        The fundamental purpose of this incentive is to encourage
    long-term equity investment. And in pursuing this goal,
    Congress established a framework flexible enough to support a
    broad array of investments and encourage creative local
    implementation.
        I want to draw particular attention to two of its most
    important features. First, this is a highly flexible incentive,
    one that can be used to meet a wide range of needs in low-
    income areas. This structural flexibility extends to
    Opportunity Funds, the intermediaries that will raise and
    deploy capital into the zones, which can be structured to
    engage a wide variety of investors.
        Second, this is a nationally scalable incentive. And by
    this--I mean--there is no fixed cap on the amount of investment
    that can be channeled into Opportunity Zones, nor is there a
    limit on the number of zones that can receive investments in
    any given year.
        This scalability derives from the fact that investors
    receive no up-front subsidy or allocation from the Federal
    Government. And these ingredients are essential, because they
    unlock the vast creativity and problem-solving potential of
    communities and the marketplace in ways that simply would not
    be possible under a more prescriptive framework. The unique
    structure of this incentive has the potential to unlock an
    entirely new category of investors and create an important new
    asset class of investments.
        Our analysis of Federal Reserve data found an estimated
    $6.1 trillion of unrealized capital gains held by U.S.
    households and corporations as of the end of 2017. So even a
    small fraction of these gains reinvested into Opportunity Zones
    would constitute the largest economic development initiative in
    the country.
        How were Opportunity Zones selected?
        Well, Congress assigned Governors the critical role of
    selecting Opportunity Zones--empowering states to develop
    selection criteria in ways that reflected their unique local
    characteristics, while working within a broad national
    framework.
        The result has been a vibrant nationwide effort involving
    thousands of State, local, and county officials, foundations
    and philanthropies, economic development groups, investors and
    entrepreneurs, and more.
        The core challenge for Governors was identifying
    communities that struck the right balance between need and
    opportunity, places where this incentive could have the
    greatest impact. And as of this hearing, EIG has been able to
    collect and analyze data from 42 states, representing roughly
    87 percent of the national total of designations, 27 million
    people reside in tracts selected thus far; 57 percent of whom
    are non-white, 23 percent of the tracts lie outside of a
    metropolitan area. And Governors have gone far beyond the
    statue in selecting for need. The designated tracts have an
    average poverty rate of nearly 31 percent, and a median family
    income equal to only 59 percent of the area median.
        While some are concerned that governors would simply target
    already rapidly improving areas, less than 4 percent of the
    selected census tracts have experienced high levels of
    socioeconomic change from 2000 to 2016, according to data from
    they Urban Institute. In contrast, 69 percent of the population
    resides in an area that Treasury's CDFI Fund considers severely
    distressed.
        So what should states do to make Opportunity Zones
    successful? While this is a Federal incentive, it's success in
    any given community will ultimately depend on State and local
    leadership. Every State needs a strategy to ensure strong
    coordination between the public, private, and philanthropic
    sectors.
        Governors and mayors should build on the incentive in a
    variety of ways, including by ensuring their own State tax
    codes conform to the Federal incentive. Wherever possible, they
    should align workforce development programs to support local
    residents, ease restrictive land use regulations, reduce
    onerous occupational licensing burdens, and provide practical
    support to connect investors with communities.
        For its part, Congress should move quickly to address
    technical corrections necessary to making Opportunity Zones
    work as intended, and the Administration should ensure every
    relevant agency is accountable to support the needs of
    Opportunity Zones in concrete and measurable ways.
        Ultimately, the core measure of success is whether
    Opportunity Zones establish a stronger connectivity between
    communities and the equity capital needed to seed new
    industries, revitalize local assets, and improve access to
    opportunity.
        I want to close with a note of cautious optimism.
    Implementation of Opportunity Zones is already bringing new
    energy, ideas, and much needed attention to one of this
    country's most vexing challenges. But while the scale of
    potential is enormous, it's important to underscore that
    Opportunity Zones are not guarantee zones. We must keep sight
    of the fact that reviving struggling communities is a long-
    term, complex undertaking, and the work is just beginning.
        So I thank you for holding this hearing today, and I look
    forward to answering your questions.
        [The prepared statement of Mr. Lettieri appears in the
    Submissions for the Record on page 39.]
        Chairman Paulsen. Thank you, Mr. Lettieri.
        And next we'll hear from Ms. Ludwig, you're recognized for
    five minutes.

        STATEMENT OF TERRI MS. LUDWIG, CHIEF EXECUTIVE OFFICER,
                     ENTERPRISE COMMUNITY PARTNERS

        Ms. Ludwig. Thank you.
        Chairman Paulsen, Ranking Member Heinrich, and Members of
    the Committee, good morning. Thank you for your leadership in
    convening this hearing.
        Thoughtful bipartisan discussion on implementing
    Opportunity Zones is essentially so that this important new tax
    incentive fulfills its founding goal, to revitalize our
    Nation's communities and further economic growth.
        I'm Terri Ludwig. I'm the CEO of Enterprise Community
    Partners, and I've worked in financial services, capital
    markets, real estate, and community reinvestment for 30 years.
        Enterprise's perspective on Opportunity Zones is based on
    our deep expertise as a national leader in affordable housing
    and community development finance and specifically as an
    investor and lender deploying capital in communities.
        For more than 35 years, Enterprise has amplified the impact
    of investment in homes and communities by engaging the right
    partners, directing public and private capital to the right
    places, and offering non-partisan guidance and support to
    government leaders. We've invested $36 billion in equity,
    grants, and loans, in all types of communities, in all 50
    states. We've built or preserved 529,000 homes, helped create
    diverse thriving communities, and touched millions of lives.
        We foster economic mobility and opportunity through a high-
    impact investment portfolio that includes not only affordable
    homes, but also health clinics, schools and access to healthy
    foods, and access to public transportation.
        I'm honored to share Enterprise's views on realizing the
    public policy goal that gave rise to Opportunity Zones:
    bolstering inclusive, stainable economic growth. This new tax
    incentive has immense potential to transform communities, grow
    small businesses, and better residents' lives, provided that
    investments are aligned with local priorities and needs.
        Enterprise has strong expertise in aggregating private
    capital and deploying it through programs like Low-Income
    Housing Tax Credit and New Markets Tax Credit. We're eager to
    realize the potential of Opportunity Zones to complement these
    established public-private partnerships.
        Enterprise is exploring Opportunity Fund models that would
    foster inclusive economic growth and prosperity for residents
    and businesses. Our goal is to demonstrate that the capital can
    be deployed to deliver compelling financial returns and social
    returns.
        Any fund we create would incorporate best practices drawn
    on our work over the past 35 years; these include investments
    that develop and preserve affordable housing, create living-
    wage jobs, support minority- and woman-owned businesses and
    expand transportation and infrastructure.
        We've been working very closely with governors, mayors,
    investors, and community-based organizations on Opportunity
    Zones. We've gathered and shared data, disseminated critical
    information, and provided technical assistance.
        And what we've seen is that while communities are excited
    about this catalyst for economic development, they're also
    concerned that private investment could unintentionally
    displace the very residents and businesses that the tax benefit
    is intended to support.
        Enterprise believes that there is an important role for
    Federal, State, and local government to play in the
    implementation of this tax incentive. This will ensure that
    investments advance local policy priorities and needs and offer
    sustained benefit to all members of the community, not just a
    few. To support this, we offer two main recommendations for the
    effective implementation of Opportunity Zones.
        First is promoting the transparency of the Opportunity Fund
    activities in order to drive accountability and assess impact
    on communities. Specifically, we recommend requiring that
    Opportunity Funds report to Treasury on transaction-level data
    and that this information be made available to the public.
    Doing so will allow Congress to evaluate whether the tax
    benefit is meeting its intended policy goals.
        Second, the Department of Treasury should use its statutory
    authority, from Congress, to issue regulations to prevent
    abuse. Enterprise suggests that the definition of abuse
    includes investments that adversely affect low-income
    residents, for example, by eliminating affordable homes. Such
    guardrails will help ensure that current residents and
    benefits--and businesses benefit from economic growth in their
    communities. I've provided more detail on these recommendations
    in my written testimony and look forward to addressing those in
    Q and A.
        To conclude, we are enthusiastic about the promise that
    Opportunity Zones hold for urban, rural, and all types of
    communities nationwide. If implemented with transparent
    reporting requirements and an explicit commitment to prevent
    abuse, Opportunity Zones could have a transformative impact on
    distressed communities and, most importantly, on the lives of
    the people who live there.
        Thank you for your willingness to openly explore the
    benefits and the risks of this new tax incentive. Enterprise
    would be pleased to work with you further on these issues and
    on our recommendations to realize the great opportunity
    inherent in Opportunity Zones.
        [The prepared statement of Ms. Ludwig appears in the
    Submissions for the Record on page 47.]
        Chairman Paulsen. Thank you, Ms. Ludwig.
        Mr. Jones, you are recognized for five minutes.

      STATEMENT OF MR. MAURICE A. JONES, PRESIDENT AND CEO, LOCAL
          INITIATIVES SUPPORT CORPORATION (LISC), NEW YORK, NY

        Mr. Jones. Thank you.
        Chairman Paulsen, Ranking Member Heinrich, and Members of
    the Committee. I'm pleased to join you this morning to discuss
    Opportunity Zones.
        My organization, Local Initiative Support Corporation, or
    LISC, championed the Investing in Opportunity Act legislation
    that became the foundation for this initiative, and we are
    pleased that it was enacted last December as part of the Tax
    Cuts and Jobs Act.
        Over the course of LISC's nearly 40 years of work, its
    comprehensive approach to community development and its broad
    national reach have made it a valuable leader in the fight to
    improve quality of life in communities across the country.
        LISC's greatest success over these years has been working
    with underresourced communities and their residents to help
    them make progress. Today, the growing inequality, concentrated
    poverty, and racial inequity that our country is experiencing
    make the work that we and our partners do as urgent as ever.
        LISC attempts to catalyze opportunity by working at the
    local level to foster resilient, safe, and healthy communities
    in which individuals have financial security, economic choices,
    and a high quality of life.
        With roots that are local, a national breadth, and a
    comprehensive set of products and services, we fight to close
    the opportunity gap in America, through our strong network of
    over 2,300 community-based partners.
        LISC often relies on public/private partnerships to engage
    in the type of comprehensive community development work that is
    needed in low-wealth communities. It's precisely because we've
    seen, firsthand, the impacts that tax incentives can have on
    spurring revitalization, most notably the Low-Income Housing
    Tax Credit and the New Markets Tax Credit, that we believe
    Opportunity Zones hold a great deal of potential.
        We are planning to focus our Opportunity Zones investments
    in three areas where we see the greatest potential to benefit
    community residents.
        First, we will provide growth capital for companies that
    are creating job opportunities for Opportunity Zone residents.
    We will inject equity capital to catalyze the growth of
    manufacturing, advanced manufacturing, healthcare, and
    companies in other growing sectors that are providing quality
    job opportunities that are accessible to community residents.
        Secondly, we will invest in new real estate developments
    and rehabilitation of existing underutilized buildings within
    targeted communities to attract businesses, bringing quality
    jobs to underinvested communities and their adjacent
    neighborhoods.
        And, finally, we will increase the stock of quality
    affordable and workforce housing in Opportunity Zones. We hope
    to raise capital for these investments from mission-aligned
    investors, including corporations located in Opportunity Zones,
    and from the growing impact investment community, in
    particular, high-net-worth individuals, which would represent
    an entirely new pool of investor capital for community
    development finance.
        Since there's no cap on the amount of investor capital that
    can be invested in Opportunity Funds, we believe that the
    Opportunity Zones incentive can spur billions in private
    investment activity in the country's most distressed census
    tracts and play a major role in closing the existing
    opportunity gap that is leaving these communities behind.
        In particular, a large portion of our work occurs in rural
    communities, which are especially underinvested. So we are very
    pleased that preliminary results show that 22 percent, at
    least, of the Opportunity Zones will be in these very
    communities.
        I would like to conclude my remarks by offering a few
    suggestions of how we can ensure that Opportunity Zones
    maximize prospects for investors, while simultaneously
    maximizing benefits for low-wealth communities and their
    residents.
        First, I believe that Congress should consult closely with
    the Treasury Department during the next phase of rulemaking to
    identify whether there are areas that my require statutory
    fixes, particularly those that will provide clarity to
    investors and improve the flow of investments into Opportunity
    Zones.
        Second, I believe the Treasury and the IRS should play a
    more active role in the implementation and administration of
    Opportunity Zones; specifically, we need regulations and
    guidance that not only provide investors with the clarity and
    certainty necessary to make investments in Opportunity Zones,
    but also protect against program abuse and help ensure the
    integrity of the program. They should also play a role in
    collecting and disseminating information about the activities
    of opportunity funds.
        Finally, individual states and municipalities should work
    with the private sector to ensure that Opportunity Zone
    investments provide the most benefit to low-wealth communities
    and their residents.
        I'd like to thank you for this opportunity, and I look
    forward to answering your questions. Thank you.
        [The prepared statement of Mr. Jones appears in the
    Submissions for the Record on page 55.]
        Chairman Paulsen. Thank you, Mr. Jones.
        As we begin the questioning period, I just remind all
    Members to keep their questions to five minutes. And just let
    me begin. And I'll start with you, Mr. Lettieri, and we can
    just go right down the line.
        But, you know, the inclusion of Opportunity Zones in the
    Tax Cuts and Jobs Act, it deserves more public attention. And a
    lot of our colleagues aren't fully aware of it, as well.
    Because it encourages private investment to flow into low-
    income communities selected by the states.
        Now, I believe that Opportunity Zones hold huge and great
    promise to help those that are less fortunate and then achieve
    more self-sustaining economic development. And based on the
    testimony we've heard today, I think that my belief is well-
    grounded.
        Let me just ask all of you this: What makes Opportunity
    Zones more likely to succeed than the location-targeted
    programs that have been used in the past for this type of goal?
    And also do you believe that there are other market oriented
    reforms at the state and the local level that enhance the
    chances of success?
        Mr. Lettieri, do you want to begin?
        Mr. Lettieri. Yes. Thank you for the question.
        I'll focus on two primary areas. Opportunity Zones were
    designed as a compliment to other tools. It was designed to be
    a new and responsive tool in the broader tool kit for community
    development.
        As I mentioned in my testimony, the fact that it is
    flexible to a wide variety of use cases to be able to support a
    wide variety of types of businesses, itself, is a major plus,
    because what we see in a lot of communities is a variety, a
    variety of needs. We've spent a lot of time analyzing the needs
    of distressed areas around the country. and no two communities
    look alike.
        And so if you have a very narrow prescriptive use case on
    the front end, it means you're limiting the aperture of places
    that can really put that to use in the community.
        And you see this reflected in the selection process, where
    governors have different needs in mind, State by State, as they
    go about the selection process, and they've emphasized
    different needs. For some, it's rural entrepreneurship; for
    some, it's affordable housing; for some, it's access to
    transit; for some, it's just new business formation, where a
    lot of the struggle continues to be for low-income areas. So
    that flexibility is key.
        The scalability that I mentioned, as well. When you don't
    have a scarce resource to allocate, year by year, you're
    talking about something that can be nationally impactful
    simultaneously, without having to pick winners and losers on
    the front end, in terms of who can deploy the capital.
        That's not to say that those models are useless; it's to
    say that they're not sufficient. And so having this alongside
    of those other types of tools is particularly powerful. And as
    I'm sure that others on the panel can speak to, the inner
    activity between Opportunity Zones and other tools could also
    be one of its strongest assets. The fact that it's flexible
    enough not to just meet a wide variety of needs, but to be
    compatible with a wide variety of other tools.
        Chairman Paulsen. Yeah.
        Ms. Ludwig.
        Ms. Ludwig. Sure. I would echo that I support what was just
    said. And I believe that what does distinguish this from other
    programs is that inherent flexibility. And while we all
    appreciate the tools that are out there, I think it's very
    clear that the need is enormous.
        And so I believe this is an additional tool which allows us
    the flexibility to invest in various asset classes, being able
    to also pool resources, not only just with a single investor,
    but being able to pool resources across asset classes and types
    of investors. And that would allow us to both diversify risk
    and opportunities and bring more private capital. And I also
    agree that with further guidelines, we believe a lot of this
    will pair with Low-Income Housing Tax Credits, New Markets, and
    essential tools like this, so.
        Chairman Paulsen. And, Mr. Jones, you also, I think,
    mentioned about we want to prevent abuse and to have Treasury
    step in and offer some additional comments. But in knowing that
    the local flexibility is key, what are some other oriented
    reforms that State and local folks can do to measure----
        Mr. Jones. Sure.
        Chairman Paulsen [continuing]. Or enhancing the opportunity
    here?
        Mr. Jones. Yeah. Let me answer both of your questions and
    just add I agree with what my colleagues have said. Two
    additional things; this is a focus on equity capital, and that
    is key for the places that we're trying to be of service to. We
    need grant capital, we need equity capital, we need debt
    capital. The exclusive focus here on trying to get more equity
    in these communities is a key additional attribute.
        The second piece of it for me on the more likely key to
    success--and, by the way, I think the others are succeeding, as
    well. We just need more tools.
        But the second piece of this is this focus on trying to
    bring in what is now an underperforming asset class in the
    community development space, and that's high-net worth
    individuals, folks who have capital gains to deploy here.
        This--our largest incentive right now is probably the Low-
    Income Housing Tax Credit. That's a $9 billion industry. This
    is potentially 2, 3, 4, or 5 times greater than that.
        At the State and local level, look, I think the biggest
    thing that I could see there that would be most helpful is
    making sure that the states work with municipalities and the
    private sector, to market these places that we're trying to get
    investments into.
        This is not going to be an automatic piece here. We're
    going to have to work hard to market rural America so that
    folks know that there's both demand and investable
    opportunities there.
        Chairman Paulsen. Great, thank you.
        Mrs. Maloney, you're recognized for five minutes.
        Representative Maloney. Thank you very much, Chairman
    Paulsen, for this is an incredibly interesting hearing.
        The US economy is generally doing well and, for that, we
    should all be very, very thankful. But as many of us know, the
    economic recovery is not everywhere. There are parts of the
    country that are experiencing the benefits of the recovery and
    other parts of the country that are being left behind. And in
    these areas, unemployment is still high, and wages are
    stagnant.
        In the area of New York that I represent, the geographical
    difference between the haves and the have-nots can be a couple
    of blocks. It can literally be across the street. So I am very
    drawn to the potential of Opportunity Zones to help close that
    gap between these two very different worlds. And I welcome the
    application of a market mechanism to what has seemed like an
    intractable--problem for cities and states. This is an out-of-
    the-box idea that deserves very careful consideration.
        Language establishing Opportunity Zones was inserted into
    the new tax law, and I wish we had had time to see this
    language and talk about it before it happened, particularly
    because the language that appeared in the final bill differed
    from what was introduced. But that's water under the bridge,
    and our job now is to explore the potential of these
    Opportunity Zones and to do all that we can to help reach their
    full potential.
        My first question is for Ms. Ludwig. The bipartisan
    Investing in Opportunity Act or as Senator Scott said, ``The
    American Act,'' is not anything, it's just for America, there
    is some text that is different from what Senators Scott and
    Cory Booker introduced. The section on a report to Congress,
    I'd like to thank Mr. Jones and Ms. Ludwig for mentioning in
    their testimony, that this language is missing from the final
    bill.
        That section requires the Secretary of Treasury to submit a
    report to Congress on Opportunity Zones five years after
    enactment of the legislation. And I'll provide a bare-bones
    synopsis. I think it's important.
        The original bills required an assessment of investments
    held by qualified Opportunity Zone Funds, the amount of assets
    in those funds. It also requires, and I quote, ``The report
    shall also include an assessment of the impacts and outcomes of
    the investments in those areas on economic indicators,
    including job creation, poverty reduction and new business
    starts and other metrics as determined by the Secretary.''
        And, in short, it seems that the new tax law was missing
    the language requiring these reporting requirements. And I'd
    like to submit, with unanimous consent, that original language,
    into the record----
        [H.R. 828 appears in the Submissions for the Record on page
    64.]
        Chairman Paulsen. Without objection.
        Representative Maloney [continuing]. And ask Ms. Ludwig: As
    an advocate for affordable housing, can you tell me why you
    support strong reporting requirements and, in the best of all
    worlds, would you encourage Congress to pass a law mandating
    reporting requirements?
        I know that it was in the conference report such language
    that does not have the force of law. I know that Treasury is
    very supportive, but we know that administrations change. It'd
    be good, I think, to have that concrete reporting language
    requirement for oversight and to prevent, as Mr. Jones
    mentioned, any type of fraud or abuse.
        Your comments, please.
        Ms. Ludwig. Yes. Thank you.
        I would agree. I believe the conference report signaled
    that there was broad agreement on the need to, first of all,
    have reporting mechanisms, both for transparency, but also for
    the eventual ability to assess impact. And I think this is a
    program where there is tax benefit, and so I believe
    accompanying with that there should be the transparency and
    accountability that comes with this. I think the conference
    report did a great job of outlining it. So I certainly support
    those impact measurements.
        And I think the only way that we'll be able to look back
    and sit, as Senator Scott said, ``a year from now, two years
    from now or five years from now'' and determine the success of
    this program and hopefully the expansion of this and celebrate
    the success is by having the data to look at where we are.
        Representative Maloney. Mr. Lettieri and Mr. Jones, do you
    agree with her statement to have it; yes or no, because I have
    a final question that is very important to me.
        Would you support----
        Mr. Jones. Yes, you need the information.
        Mr. Lettieri. Yes.
        Representative Maloney. Okay. Thank you.
        In New York, the biggest way to impact economic develop has
    been transportation; the ability to move in and out of
    neighborhoods. If you have good transportation, i.e., subway,
    then it just explodes with economic development.
        And would you support, Mr. Jones, given your background in
    this area, broadening this to include transportation?
        I must say, I was very interested in President Trump's
    statements during the campaign on infrastructure support, which
    have not materialized in the budgets that we've had moving
    forward. So expanding this, would, if the mayor and the
    governors supported it as a major economic force, I just know
    from my experience in city government, State government,
    Federal Government, in terms of economic development, that has
    been the major force that has spurred small businesses,
    activity, economic growth----
        Mr. Jones. Yes.
        Representative Maloney [continuing]. Would you support
    expanding it to include infrastructure?
        Mr. Jones. Absolutely. Infrastructure, transportation, and
    broadband in the rural areas.
        Representative Maloney. Okay. That's great. I don't believe
    the current legislation allows that; is that correct?
        Mr. Jones. Actually, I think it could.
        Representative Maloney. It's not really--I think it could
    be----
        Mr. Jones. It's not explicit, but it could. That could be
    an investment activity. Absolutely.
        Representative Maloney. I'm very excited about it. Thank
    you, Senator Scott, for your leadership on it.
        Chairman Paulsen. Thank you, Representative Maloney.
        And Representative Handel, you're recognized for five
    minutes.
        Representative Handel. Thank you, Chairman Paulsen. And
    thank you, Senator Scott, for your good work on this
    legislation.
        I'm a former county commission chairman, so I'm very
    familiar with enterprise zones and the very real, positive
    impact that they can have, and this seems to be a very
    promising enhancement and an addition to that tool kit to help
    them in this front.
        I want to talk, Ms. Ludwig, a little bit about affordable
    housing. As you know, since the mid-1980s, tax credits have
    been available for investments in low-income housing; yet, we
    still have a real gap there.
        Can you talk a little bit about how you would characterize
    Opportunity Zones in relation to the Low-Income Housing Tax
    Credit?
        Ms. Ludwig. Certainly. First, I would say, the need for
    affordable housing is enormous. And we're seeing, not only at
    the State, but also all the mayors we speak to, that's a number
    one concern for them.
        So I would say, first of all, we need more resources. After
    tax reform, as we know, the Low-Income Housing Tax Credit lost
    value within that, given the tax rate. And so we will, by just
    nature, have 235,000 fewer homes being able to be created by
    the tax credit.
        In the budget, there was an increase of 12.5 percent in the
    Low-Income Housing Tax Credit, but we in the would say we would
    like to continue to increase that tax credit to be able to meet
    those demands of affordable housing needs. It's our hope that
    the Opportunity Zone Funds can pair well with the affordable
    housing sector utilizing Low-Income Housing Tax Credits;
    however, I would say that we certainly need more clarity about
    what is an acceptable real estate investment and what is not.
        It's our assumption that rental affordable housing today
    will be acceptable, but there's certainly the need to get more
    clarity to unlock the wallets of the investors we talk to.
    They're eager to get started, but they need more clarity on
    what's an acceptable investment.
        Representative Handel. Thank you. To follow up on that, as
    we seek to deliver that greater clarity, are there any lessons
    learned from your work that we can take from the Low-Income
    Housing Tax Credit programs and do a better job through
    Opportunity Zones?
        Ms. Ludwig. One of the things I think that is one of the
    best features of the Low-Income Housing Tax Credit is that it
    is essentially a pay-for-success model. First of all, private
    money puts their money in first. And then once units are built
    and it's occupied with people that are in need of affordable
    housing and qualify, then the government money flows.
        Similarly, in Opportunity Zones, you're going to have
    private investors come in, and that's great to unleash that
    private capital. The reason that those private investors have
    been willing to do that in the Low-Income Housing Tax Credit is
    because it's predictable, it's clear, the reporting is there,
    and they have a long compliance and infrastructure that helps
    you know that ``I'm investing in something that has a 15-year
    period of compliance, where I know I'm not only getting a very
    healthy financial return, but also my intended investment to
    create housing for social returns is getting done,'' which is
    why I think we need clarity on the reporting, as well as some
    of the guidelines.
        Representative Handel. Okay. Thank you.
        Mr. Jones, would you like to add anything to that?
        Mr. Jones. I think what I would add is, that the Low-Income
    Housing Tax Credit, by itself, is not sufficient to generate
    the supply of affordable housing that we need. That's what
    you're seeing. And so the opportunity here is to bring in a
    whole new group of investors to affordable housing finance,
    through a new mechanism here that brings, hopefully, high net-
    worth individuals into the game.
        Unless we get more investors in affordable housing, we will
    never be able to keep up with the supply needs. That's what
    you're seeing now, and that's why this is a real opportunity
    for us.
        Representative Handel. All right. Great. Thank you.
        And just one comment, I am very encouraged to hear the
    consensus around transparency and accountability so that we can
    really measure impact, because I've seen, first-hand, that some
    projects really work and some projects do not. And this is too
    great of an opportunity for Americans for us to mess it up on
    the early front with bad projects and we need to be really
    laser-focused on having the best possible projects come through
    on this.
        So thank you, Mr. Chairman. I yield back, and thank you.
        Chairman Paulsen. Thank you.
        And Dr. Adams, you're recognized for five minutes.
        Representative Adams. Thank you, Mr. Chairman. And thank
    you to Senator Scott and Senator Booker for your work on this
    issue and to individuals testifying today. Thank you so much
    for being here.
        I believe that Opportunity Zones with the right oversight
    and guardrails have the potential to help underserved
    communities. I submitted eighteen census tracts to our governor
    in North Carolina, Governor Cooper, to be designated as
    Opportunity Zones.
        I specifically targeted census tracts, in the 12th
    District, that had high unemployment rates, sometimes even
    those that tripled the national average; however, it's clear
    that there needs to be more accountability in how Opportunity
    Zones are implemented.
        For example, the IRS recently announced that individual
    investors can become a qualified Opportunity Fund and can self-
    certify; thus, no approval or action by the IRS is required. To
    certify--to self-certify, a taxpayer merely completes a form,
    attaches that form to the taxpayer's Federal income tax return
    for the taxable year.
        Ms. Ludwig, should Congress be concerned that rules like
    these can lead to abuse of Opportunity Zones and will not
    provide a positive impact to underserved communities?
        Ms. Ludwig. I do think it's important for us to understand
    what is the intent behind an investor's interest in an
    Opportunity Zone Fund.
        So I do think it is important, again, to keep the
    flexibility and the market-driven approach on this, which is
    different and distinctive. At the same time, demand a minimum
    level of accountability, particularly of investors to say what
    their intent and their intended investment practice will be.
        Representative Adams. Thank you.
        Franchises are also looking at the prospect of Opportunity
    Zones, and I'm eager to learn more about franchising and how
    franchising can accelerate business growth and local
    opportunity in the zones. I want to understand the prospects
    and the impact of franchises in areas that have high
    unemployment rates.
        Nine of my district census tracts that I've submitted to
    Governor Cooper had unemployment rates higher than 12 percent.
    As a matter of fact, some go as high as 18 percent.
        Can you tell us more about franchise businesses, that role,
    and the prospect of their success in Opportunity Zones,
    especially in Opportunity Zones with high unemployment?
        And this question is for you, Mr. Lettieri.
        Mr. Lettieri. Thank you for the question.
        I see tremendous potential in the franchise sector for
    Opportunity Zones. And I think there's tremendous potential
    benefit for the communities as well. We all are familiar with
    examples of people who got their first step on the ladder of
    opportunity working at a franchise. And we've also seen in the
    franchise industry recently, tremendous growth in minority-
    owned franchise creation.
        And so, I think, when you think about where the map of
    Opportunity Zones and the map of--and the categories of early
    investment models that can work and hit the ground running, I
    think the franchise sector offers a lot of hope there.
        Here again, I think it's an opportunity to get folks who
    are in an industry that doesn't necessarily have anything to do
    with Opportunity Zones thinking about that map in a different
    way and targeting certain investments and new franchise
    openings in a way that coincides with Congressional intent
    here, in terms of the places that have been targeted.
        So I think that's an area of a lot of potential. I hope we
    see more of that activity as the clarity comes through from
    IRS. And I think, in particular, the overlap of the goal for
    minority-wealth creation, targeting communities of color, as
    you mentioned, many of whom have very high unemployment rates.
    You have to have an asset class of both investments and
    businesses that offer an easy point of entry for people who may
    not be starting with the most skills, but this is a way for
    them to build skills, over time.
        Representative Adams. Thank you.
        The Low-Income Housing Tax Credit is a critical tool to
    develop and preserve affordable rental housing. We are in
    serious trouble in our community in Charlotte, so many folks
    who need it. I want to be sure that Opportunity Zones can be
    used in a complementary manner with the Low-Income Housing Tax
    Credit, and I'd like to ensure the maximum growth of affordable
    housing. So this is to Mr. Jones or anyone else who wants to
    answer that.
        Mr. Jones. I think that's one of the big opportunities
    here. We're about to go down to Charlotte next week and we're
    there to announce a fund that will be designed to try to bring
    about the development of more affordable housing in the
    Charlotte area. Opportunity Zones are going to, hopefully, be a
    great tool in bringing investors to that fund.
        Representative Adams. Great. And we look forward to working
    with you.
        Ms. Ludwig.
        Ms. Ludwig. Yes. And we were encouraged several of the
    states that we were working with said, ``Let's be very
    intentional about even the selection of Opportunity Zones to
    make sure that as we do that, that we are setting very specific
    strategies at the local and State level to preserve affordable
    housing,'' which I think is a practice that needs to be
    widespread.
        Representative Adams. Thank you.
        Mr. Chairman, I'm out of time. Thanks very much.
        I yield back.
        Chairman Paulsen. Thank you.
        Representative LaHood, you're recognized for five minutes.
        Representative LaHood. Well, thank you, Mr. Chairman, for
    having this important hearing today. And obviously, these
    Opportunity Zones offer tremendous potential for our country,
    and I'm excited to hear the testimony here today and the
    different ideas. And Senator Scott, thank you for your
    leadership on this also.
        Ms. Ludwig, in your testimony, you mentioned Enterprise is
    exploring Opportunity Fund models that would allow you to
    invest and promote economic growth. Can you explain how these
    specific models are composed and then what characteristics does
    an ideal investment opportunity have?
        Ms. Ludwig. So thank you. We are at the beginning stages of
    creating funds. We're talking to investors and localities
    about, first of all, what the needs are, but certainly it's our
    hope that we will be able to create a fund that is very,
    certainly, first of all, real estate focused and, specifically,
    affordable housing. And also, we're talking to investors, for
    example, about adaptive reuse. So going in and taking old
    warehouse buildings and turning that into workforce housing or
    affordable housing. How do we make sure that we have that piece
    because that is one of the most basic primary needs of the
    folks that we serve, is to have affordable housing.
        Secondly, we're working to consider exactly what is the
    kind of small business capital that's needed; is that early
    more catalyst money or is that growth capital?
        And secondly, we also think it's important, we've heard
    from a lot of folks in smaller towns and in rural communities,
    that they also want to think about how they could couple that
    with an accelerator kind of function, because they want to be
    able to demonstrate to private investors that they cannot only
    catalyze new businesses but also support existing businesses,
    but have an accelerator kind of function attached to that.
        So those are two areas that we're certainly looking at
    right now. But we hope that there will be other ways we can
    also support communities. So we're looking for further guidance
    regarding things like infrastructure in rural communities,
    water, sewer, infrastructure. We think about housing as
    infrastructure often, but we want to make sure that we can come
    up with acceptable uses, as my colleague said before;
    broadband, are there ways that we can support that through an
    investment vehicle?
        And simply the one item that would help us be able to get
    into action about having capital flow, is certainty. Investors
    like certainty, to know exactly what qualifies and what
    doesn't, so that we can get out of the box with investment
    dollars.
        Representative LaHood. Thank you for that.
        Mr. Lettieri and Ms. Ludwig and Mr. Jones, we've heard a
    little bit about enterprise zones around the country, TIF
    districts. If we look at models or platforms around the country
    that have been examples of where this has worked, can you talk
    a little bit about that, maybe Mr. Lettieri or Ms. Ludwig, on--
    I mean, is there an example or a model that you can point to
    where this has worked very effectively, and particularly as we
    look at, you know, the components of distressed communities, no
    high school diploma, housing vacancy rate, adults not working,
    poverty rate where those statistics have been improved and
    we've done exactly what we want to do here?
        Ms. Ludwig. Sure.
        Mr. Lettieri. I think there are elements that have worked
    in a variety of different programs. What we've missed is, I
    think to Mr. Jones' point earlier, we really haven't had a
    robust equity investment incentive piece in previous attempts,
    and especially one that was coupled with the type of flexible
    use cases that we're talking about here.
        When you talk about a wide variety of needs, if you have a
    narrow prescriptive policy on the front end, it's very hard for
    that to be malleable, especially over time, as communities
    change and develop and as the needs shift, hopefully as a
    result of success.
        And so where you see in the more recent post-recession
    period where you've had dramatic turnaround and you look at
    cities like Detroit, there are a lot of challenges still in
    Detroit, but part of that turnaround, you have to ascribe to
    the catalyst of a major private investment initiative happening
    without even the benefit of a lot of Federal incentive that has
    helped to catalyze a wide variety of other activities, both
    philanthropic and private sector alongside of it.
        And not every city has a motivated philanthropist or a
    motivated set of private investors who are already organized
    around that city. In fact, most places don't. That's the
    challenge.
        And so when you're talking about aggregating the impact of
    thousands of investors from around the country and being able
    to direct that equity capital into prescribed areas where you
    knew the investors can count on the fact that there's
    intentionality, the governor has chosen these places, mayors
    have had input, stakeholders have come together. That's a
    signal to the marketplace that there's some kind of
    intentionality behind this particular place and presents a
    rallying opportunity.
        And it's important here that what this offers is not for
    any individual investor to take on the risk by him or herself.
    This is about collectivizing the assets and the ingenuity of
    the private sector to apply to those challenges.
        So that's really where I think this differentiates from
    past approaches. It's learned some lessons. And I think that's
    incorporated here, in terms of what you see with the structure
    of Opportunity Zones that you don't get as much of in other
    policies. That's the potential, is that you're aggregating,
    you're focusing, you're signaling to the marketplace that this
    is the right type of place to invest and you're going to have
    partners on the ground coming alongside of you because of that
    intentionality that the governors have selected.
        Chairman Paulsen. Thank you.
        Representative Delaney, you're recognized for five minutes.
        Representative Delaney. Thank you, Mr. Chairman.
        And I want to join with my other colleagues in thanking
    Senator Scott for his truly singular leadership on this very
    important piece of legislation. So thank you, Senator. And I
    also want to thank all of our witnesses here for their work in
    making this happen.
        My first question is for Mr. Lettieri. When you think about
    what's happened, it seems like there's been a tremendous amount
    of interest among investors since this was passed into law. And
    so that's the good news, right? There's plenty of investors,
    whether they be very large private investment firms or
    entrepreneurs who are looking at this. How much do you worry
    that there will be just a lack of deal flow coming out of these
    communities because that really seems like the bottleneck,
    whether there's actually enough technical expertise on the
    ground to produce the deal flow that all these investors are
    really looking for?
        Mr. Lettieri. I think that's a great question. So among the
    things that would keep me up at night about this, this would be
    one of them, is that there's a reason that the economy is not
    working well in some places. There's both public and private
    sector neglect, in many cases.
        And so, again, just the designation of Opportunity Zones is
    not enough to guarantee any kind of follow-on activity. That's
    why it's so important that, at the State and local level, you
    have real stakeholdership, on an ongoing basis, from governors
    and mayors to develop a strategy to partner with local
    foundations, philanthropies, business incubators, and others
    who can help to raise the stakes and elevate the potential deal
    flow.
        So there's a lot of facilitation that's required in many
    places. And the harder hit the area, the more of that
    facilitation you're going to need. But what I'm confident in is
    that if you can get that type of local engagement going, that
    these are areas that are underinvested. There's a lot more
    potential than what the marketplace reflects.
        Representative Delaney. So any ideas you have for us,
    obviously we'd love to hear them specifically.
        Ms. Ludwig, when I think about turning around these areas,
    I've always thought about, kind of, a four-point strategy, this
    being one of them; the second being social impact bonds, pay
    for success, which I know you all are big champions of; the
    third being more infrastructure; and kind of the fourth is
    creating incentive for more demand in these markets.
        And one idea I've worked on is dramatically expanding
    HUBZones, which basically creates an incentive for government
    contractors to locate in these Opportunity Zones, and I think
    the overlap will be very similar.
        How do you think about that, in terms of these other
    programs, if we were to do more in those other three areas,
    recognize we got this done, how much of that would kind of
    accelerate the development of these Opportunity Zones?
        Ms. Ludwig. Absolutely. I think it's going to take all of
    those things in some of the places that have been circled where
    they have very high poverty rates and need long-term
    investment. And so I feel very strongly that we're going to
    need one of the things that you're talking about, what you've
    seen is, public and private partnerships come together, in
    different formats, to bring that kind of capital and that long-
    term orientation to bear and understand that it's going to take
    different layers. It also takes a different set of assets.
        So we talked a lot today about affordable housing, but it
    also takes schools, and it takes retail, and it takes a
    comprehensive approach. And so I think those different tools
    allow us to bring those together to really drive the impact.
        Representative Delaney. Right. And I'd love to hear the
    different panelists follow up with us about how they think we
    could create more incentives for government contractors to
    actually go in these places.
        Mr. Jones, when I think about infrastructure, you talked a
    lot about the different kinds of portfolio of asset classes, if
    you will, that we could be putting in these markets, and I
    think you were really smart to emphasize how this is equity,
    which is ultimately what you need to expand the community, as
    opposed to just people kind of financing existing assets.
        One of the things I'm focused on is infrastructure in these
    communities. But one of the issues with infrastructure, if I
    was thinking about investing in infrastructure, whether it be
    maybe broadband or even transportation, I'd probably come to
    the view that unless I was doing it in Puerto Rico, where the
    whole place is an Opportunity Zone, I would want to invest in
    an infrastructure kind of asset that would probably touch the
    Opportunity Zones, but touch other areas. Do you see what I
    mean?
        So because just the way an infrastructure asset is rarely--
    again, Puerto Rico, where the whole island is an Opportunity
    Zones, so you could do any infrastructure there, and it would
    work. Do we need to do any correction to these rules, to allow
    someone who wants to come in and build rural broadband, but the
    way they're going to roll it out only touches the Opportunity
    Zones and not the rest, how's that going to work?
        Mr. Jones. I think that's certainly worth looking at.
    Although, when I think about the need for, let's say, rural
    broadband, most of the census tracts that we're talking about
    are contiguous and would qualify.
        Representative Delaney. Got it.
        Mr. Jones. And so I think----
        Representative Delaney. If you invest in that--if you
    invest in a company that's got its assets in an Opportunity
    Zone and not in an Opportunity Zone, but it has to roll out
    that way----
        Mr. Jones. Right.
        Representative Delaney [continuing]. Like, let's say a
    transportation asset or something like that, how is that going
    to work? Does anyone have a view as to--do you allocate part of
    the investment to the Opportunity Zone, or how does that the
    work?
        Does anyone know?
        Mr. Lettieri. Yeah. I mean, the statute requires the
    business to have substantially all of its properties in the
    zone or zones.
        Representative Delaney. Like 90 percent of them.
        Mr. Jones. It could be in multiple tracts that are all
    qualified, but the challenge of something that straddles----
        Representative Delaney. That's what I'm getting at.
        Mr. Jones. That really you're talking about--from a
    business standpoint, you're talking about either a spinning off
    of a subsidiary or a separate standalone entity. There may be a
    variety of models. But you're right, it's trickier when it
    comes to infrastructure, because of the cross-jurisdictional
    nature.
        Representative Delaney. Yeah, because clearly, if you want
    to invest in infrastructure asset, it's probably going to have
    a very big footprint, and it's likely to be in and out of an
    Opportunity Zone. So any ideas you all have as to how to--
    because I think this is a critical investment area we want to
    attract, how to fix that up, that would be great.
        Chairman Paulsen. Well--and it's probably another example
    of an area whether you don't want to have the investment
    happening and then think that that's fraud or abuse or----
        Representative Delaney. Right. no.
        Chairman Paulsen. You have to have that tie-in, so the
    rules allow that. Thank you.
        Representative Comstock, you're recognized for five
    minutes.
        Representative Comstock. Thank you. Good morning and sorry
    I was running late. We had a women's veterans event this
    morning that our women's caucus was participating in.
        I welcome our former Virginia commerce secretary, Mr.
    Jones. Thank you for being here today.
        And I guess this is, I'm sure you're aware of our regional
    area in Virginia and Mr. Delaney's area in Maryland are under
    consideration for Amazon. And the Wall Street Journal recently
    reported that some large cities were denied by Amazon as a
    location for their second HUD quarters. And now some of them
    are planning improvements in response to better track firms in
    the future.
        So things like local transit, workforce training in
    particular, was a big thing. So as we tried to look
    particularly in the technology area in making sure what my
    constituent Steve Case calls ``The rise of the rest.'' He's
    going round the country and really talking about we know we
    have talent out there in the technology area.
        So is there a lesson? What are some of the best policies
    you're seeing in place, and how can this be used to get the
    21st Century technology jobs into these distressed areas?
    Because often, whether it's cyber security or some of these
    other skills, you do not need to be going to college for four
    years, not that that's disqualifying in any means.
        But Capital One has done some cyber security training
    programs with disadvantaged populations that have huge success
    in others. So how can we use the Opportunity Zones to
    capitalize in the area of technology for these populations?
        Mr. Jones. So let me just start, and then my colleagues can
    chime in.
        One of the things that Amazon has been asking about in all
    the places that it has been looking is: What's your plan to
    ensure that we have enough supply of housing, affordable
    housing?
        And so, what you're finding is that these technology
    companies know that if they're going to attract and keep
    talent, and, frankly, if they're also going to keep goodwill in
    the places where they go, they've got to be concerned about
    things like housing and workforce training and transportation
    and their impact on them.
        And so Opportunity Zones do provide a tool for places like
    Northern Virginia and Maryland and D.C. to actually collaborate
    on an affordable housing plan for an Amazon investment.
        So, yeah, I think Opportunity Zones can definitely be one
    of these things that you use to make sure that you address
    those issues that now all these technology companies are having
    to wrestle with, particularly their impact on the cost of
    living in those places.
        Representative Comstock. Right.
        Ms. Ludwig. Thank you. Building on that, I completely agree
    that is of primary importance. And I would also say that it's
    our hope that Opportunity Zone Funds will be created to
    specifically help entrepreneurs that are bringing cutting-edge
    technologies to bear to change whether it's the effectiveness,
    the efficiency, the cost structure of the work that we do, the
    new ideas and the innovation that we think needs to be brought
    to bear, to help catalyze change in communities.
        In order to do that, I think it's very important that we
    consider how we could use Opportunity Zones funding for
    minority-owned, for women-owned businesses, which as we know,
    have received just such a limited supply of equity capital.
    This is----
        Representative Comstock. Particularly in the technology
    area.
        Ms. Ludwig. Particularly in the technology area----
        Representative Comstock [continuing]. Was 90, 95 percent
    white male.
        Ms. Ludwig. Exactly. So how do we do that and use this in a
    way that catalyzes that kind of business and that innovation
    and creativity that is there that needs to be unleashed?
        I also feel that it's an opportunity for folks who
    understand our communities deeply, to have them be part of
    those solutions and to give them capital to respond, which I
    think is the intent of this.
        Mr. Lettieri. I want to build on that, because as you look
    at the map of Opportunity Zones, many of these places have
    anchor institutions, knowledge centers, universities that spin
    off commercializable technology and IP. It's just that it
    doesn't stay in the Opportunity Zones. It goes to the Bay area,
    to Boston, New York.
        And part of that, a big part of that is proximity to
    funders. So now you have an asset class of investors who
    actually have an incentive to keep you in close proximity to
    the community and help you scale there.
        One of the best things we can do for Opportunity Zones
    communities is to help infuse them with the technologies and
    industries of the future. We know that's where the economy's
    going. And if they're devoid of those types of industries,
    they're going to constantly be playing catch-up with the rest
    of the country.
        Capital is a really important facilitator for that. And
    with that comes the stakeholdership of expertise and mentorship
    by investors, who then care not just about the business, but
    the community itself, because the two are so closely related.
        So I think about a place like Johns Hopkins in Baltimore
    and the potential there, in the life sciences and technology
    arena, you have tremendous anchor institutions in places that
    have high need. I think making sure we get that connectivity
    right is one of the right potentials of Opportunity Zones.
        Representative Comstock. Thank you. I see time is up here.
    So thank you.
        Chairman Paulsen. Thank you Representative Comstock.
        I know Senator Sasse just came in. Did you get yourself
    situated there?
        Senator Sasse. It will take a little bit of time to get
    oriented.
        Chairman Paulsen. And maybe as you just get oriented real
    quick, because you may be our final questioner here.
        But real quick, I was going to follow up on some of what
    Representative Comstock was asking about. Are there other large
    investment--someone had mentioned--Ms. Ludwig, you had
    mentioned the funds. When will we know if the funds are
    emerging--or I can't remember who mentioned it--but when will
    we know if these funds are sort of beginning to--when they're
    out there?
        You know, how long will it be before we sort of have a
    track record of, sort of, following when the funds are going to
    be materialized?
        Ms. Ludwig. Sure. I'll ask my colleague to maybe talk on
    the technicalities of the timing. But I do think that given
    people are going to be self-certifying, we can't see that
    necessarily exactly.
        What I would say is that we do see investors or folks that
    want investment, people that are starting to say--well, the
    investors, they want to be coming into funds. We're seeing that
    kind of activity today. And they're asking us, How can you help
    us to create a fund that would meet our needs, whether it's at
    the local level, national level, or State level?
        Secondly, we're seeing people that are asking, ``Does this
    investment meet those needs?'' And they're trying to start to
    create their pipelines. Particularly in the rural areas,
    they're saying that in order to really compete, we know we're
    going to have to start developing pipeline very quickly to
    compete. And so that's what we're seeing already today. And it
    is our hope to be very soon starting to acquire assets that
    could go into a fund.
        Chairman Paulsen. Mr. Lettieri, do you just want to add
    real quick?
        Mr. Lettieri. I do. We're very early in the implementation
    process. So the fund creation is going to happen in waves, in
    my view. You're going to have some folks who, today, they know
    that their model works within the statute. They don't need a
    lot of additional clarity. They have knowledge of the deal flow
    in these communities. They can hit the ground running. I think
    the folks we have on this panel are great examples of tons of
    expertise in these communities. They know what types of needs
    are not being fully met, and they know the types of funders to
    target.
        Then there's a second wave who are going to need a lot more
    clarity. We could have it in a couple months, but we don't have
    it today, from Treasury and the IRS. And as that comes in, a
    whole other wave, I think, a broader aperture of folks that may
    not traditionally be in community development may find their
    way into it as more clarity from the IRS comes through.
        And then as the market matures over time and the
    infrastructure of Opportunity Zones that's created to
    facilitate that investment to elevate additional deal flow,
    then you'll see a third wave of investors emerge, as well.
        So I think this is a long-term process. I think this year
    is going to be a critical period, as it always is for
    implementation. But the, if it goes well, I think you're going
    to see fund creation really into the outer years as more and
    more knowledge of things develops. In the investor community,
    only a small fraction of investors are even aware that this
    exists. So we won't really know the full answer to that until
    that awareness increases.
        Mr. Jones. I would just add to what my colleague said. I
    think the other factor that will influence how quickly funds
    get up and running is how aggressive at the local level, again,
    states and other folks are out there promoting the zones,
    marketing these places as places where there's both demand and
    investable opportunities.
        So what you may see in terms of speed of the development of
    funds may depend as much on how aggressive we are in states, as
    anything else. Because that said, at the end of the day, where
    the feet on the street will exist will be the dispositive issue
    on this.
        Chairman Paulsen. Okay. Thank you.
        Senator Sasse, you're recognized for five minutes.
        Senator Sasse. Thank you, Mr. Chairman. Thank you to the
    three of you for being here.
        Mr. Lettieri, I'd like to look at some of the issues
    behind--the broader need for these economic empowerment zones.
    In 2018, organization highlighted three particularly disturbing
    trends. First, the new start-up rate is at record lows, having
    dropped by 50 percent since the late 1970s.
        Second, our committee is becoming more consolidated in
    larger firms. For example, the total number of firms in the
    U.S. from 2007 to 2014, despite population and economic growth,
    overall dropped by more than 180,000 firms.
        And third, economic growth is largely clustered in the most
    populous metro regions in the country and incredibly unevenly
    distributed across the great Plains in the Midwest.
        First, could you explain sort of the background story
    behind that third issue? Why is this consolidation happening?
        Mr. Lettieri. Thanks for the question.
        The consolidation is more a function of those major hubs
    being resilient than it is of them pulling away in real terms
    from everybody else on the creation side.
        And by that I mean, the overall number of new business
    starts in the country has dropped dramatically, particularly
    with the onset of the Great Recession, and it has not
    rebounded. So the latest data that we have now shows almost no
    recovery in new business formation rates. So we're in uncharted
    territory on that front.
        The places that have been the most resilient amidst that
    national decline have been the largest differentiation with the
    rest of the country. But it's not because they're doing better
    than ever, it's because everyone else is doing worse than ever,
    in terms of the creation side of the economy.
        So that presents a real challenge for low-income areas.
    Obviously, they're among the hardest hit on the creation side
    of the economy. The new business formation rates there are
    particularly low. You see this as a regional story. The Midwest
    being one of those regions, whether it's cities or rural, you
    have particularly low formation rates.
        And that's something that--it's obviously a bigger
    challenge than what this alone can solve. But a big part of the
    connective tissue is access to capital. And so we don't fully
    understand why it's happening, but it's unmistakable in the
    data. We're living in a very different environment, in terms of
    economic dynamism.
        Senator Sasse. Would either of the other two of you like to
    add to that?
        Ms. Ludwig. No.
        Mr. Jones. I think the other piece to add to that is a lot
    of this clustering also reflects where the talent is right
    now--or let me put it another way: where the prepared talent is
    for the economic opportunities. And I know where we're working.
    We're working in places where 70 percent or so of our residents
    have high school diplomats or GEDs. But we are testing them
    when we're doing our workforce work, and what we're finding is
    70 percent of them are, despite having those credentials, are
    probably--they have competences in literacy and math at the
    sixth to eighth grade levels.
        So this goes back to a point we made early. For this to
    really work, it's not an isolated tool. Workforce development,
    economic development, these incentives have to come together to
    create a strategy for a particular place. And the most
    important strategy is get the talent prepared for the
    opportunities. You do that, and the opportunities will come to
    you.
        Senator Sasse. And, Mr. Jones, if you were ``King for a
    day,'' and you could a put a bunch of chips on one of three
    bets, K-12, educational preparedness, workforce training and
    redevelopment for people post age 18 or sort of mobility
    incentives to try to think about the inequality across
    geography, where would you spend most of your chips?
        Mr. Jones. Now you're going to get me trouble, sir.
        [Laugher.]
        Senator Sasse. That is not my intent, Mr. Jones.
        [Laugher.]
        Mr. Jones. But I like the notion of being ``King for a
    day.''
        [Laugher.]
        I would put my----
        Senator Sasse. It's way better than legislature.
        [Laughter.]
        Mr. Jones. Honestly, I would put my bet on preparing people
    for the 16 million middle-skilled jobs that this country has to
    fill between now and 2025 that require solid secondary
    education and post-secondary licenses and certifications and
    apprenticeships. That's where I would put my bet, because if
    you ask employers where they're having the hardest time filling
    jobs, and these are good-paying jobs, it's welders, it's
    coders, it's medical technicians, it's electricians it's
    plumbers, it's construction. That's where I would put my bet,
    because it's also quicker. And our need for a prepared
    workforce is today. And that is what's most needed for the
    competitiveness of the country.
        So if I were king, that's where I'd put my bet.
        Senator Sasse. Ms. Ludwig.
        Ms. Ludwig. Yes, the king, the kingship. I would say that
    the----
        Representative Comstock. Or the queenship will.
        Ms. Ludwig. I was thinking queenship, but it felt strong.
        You know, earlier in this testimony, we talked about one in
    five children in our country living in poverty, on average. And
    in many of the communities that were circled by the Opportunity
    Zones, it was three of ten or even half the children in
    poverty.
        So I sit here today thinking that we need to pay it
    forward. We need to invest in education and workforce. And so,
    yes, we have to make our choices, but I think when I'm talking
    today to educators, they can't get their kids educated, because
    there's not enough housing. Doctors can't keep their patients
    healthy, because there's not enough housing and education.
        These things all play together, so I do think that it's
    really important that we work with private sector, with the
    government to establish the public-private partnerships that
    recognize that these problems are connected, and we need to
    work together to drive outcomes in a really clear,
    comprehensive way.
        And I think you've hit on some of the most important
    priority areas that we can invest in, and I think our future
    truly depends on it.
        Senator Sasse. I won't try to get any of you in trouble on
    this by having to agree with me, but I think implicitly you're
    arguing, given that our entitlement programs are overwhelmingly
    focused on senior citizens and we have, compared to life
    expectancy, the earliest retirement of any in civilization
    ever.
        There's some pretty serious misalignment between where
    we're investing and what we need. The Senate has just called a
    vote, and the Chairman is going to gavel me out, so thank you
    three for your work.
        Ms. Ludwig. Thank you.
        Chairman Paulsen. Thank you, Senator.
        I'd like to thank all of you for taking the time to be here
    and appear before the Committee today. This testimony has been
    wonderful. And I just want to remind you that should Members
    wish to submit questions for the record, the hearing record
    will remain open for five business days. And with that, our
    Committee is adjourned.
        Ms. Ludwig. Thank you.
        Mr. Jones. Thank you.
        [Whereupon, at 11:27 p.m., Thursday, May 17 2018, the
    hearing was adjourned.]

                           SUBMISSIONS FOR THE RECORD

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        I call this hearing to order.
        Good morning and welcome to today's hearing on ``The Promise of
    Opportunity Zones.''
        America's new economy is finally taking off. The Congressional
    Budget Office (CBO) now projects 3.3% growth for 2018, the highest
    annual growth rate since 2005, up from the meager 1.9% it estimated
    prior to the Tax Cuts and Jobs Act and regulatory reforms.
        While all Americans benefit from faster growth, we can and should
    take special care of those communities who are in greater need of
    support.
        Some communities, both urban and rural, are having a particularly
    difficult time.
        The new tax law contains a provision that deserves more public
    attention, one that is designed to help lower-income areas.
        The law provides a capital gains tax incentive to encourage long-
    term private investments in communities that have had difficulty
    attracting jobs and new businesses.
        Unlike past targeted incentives, the areas are selected by
    governors, who know the unique needs of their communities, instead of
    by the Federal Government.
        Opportunity Zones have been a bipartisan, bicameral initiative. The
    House author of the original legislation, the Investing in Opportunity
    Act, is former Representative Pat Tiberi, who chaired this Committee
    until January of this year. We are honored to have the Senate author
    with us today, Senator Tim Scott of South Carolina.
        Opportunity Zones hold the promise of flexible, innovative
    solutions.
        Flexibility is important because the reasons some areas lag
    economically vary across communities and regions.
        A factory central to a town's economy may have closed, leaving
    workers searching for new skills and jobs, that is, if they haven't
    giving up entirely.
        The area may have underperforming schools.
        They may lack access to capital.
        Excessive taxes and regulation may have made it difficult to start
    or maintain a business.
        The community may be struggling with rampant drug and alcohol
    abuse.
        This is why one-size-fits-all Federal spending programs or
    incentives to invest only in particular activities are not well suited
    to address each community's unique set of challenges.
        This is also why Opportunity Zones, which allow the private sector
    and local communities to innovate and collaborate on the best
    solutions, have much greater potential for meeting those unique needs.
        John Lettieri, one of our distinguished witnesses today, put it
    well in a recent op-ed in The Hill. He noted that previous location-
    targeted programs had an `` . . . overly prescriptive, top-down
    approach that left no room for local experimentation.''
        Opportunity Zones, on the other hand, will bring, `` . . . the best
    possible mix of investments in new and expanding businesses,
    infrastructure and energy projects, commercial real estate, affordable
    housing, and more.''
        Opportunity Zones also hold the promise of local knowledge and
    engagement. They are chosen by governors who know their communities
    well and not by Federal planners with a formula-based spreadsheet.
        Across the country, there are about 8,700 Opportunity Zones.
        My own State of Minnesota is hoping to attract additional long-term
    private investment into 128 census tracts recently selected as
    Opportunity Zones.
        State and local leaders can also help their communities in thriving
    by collaborating and removing unnecessary barriers to starting a
    business, such as overly prescriptive occupational licensing or local
    zoning ordinances.
        Opportunity Zones also hold the promise of access to a large amount
    of untapped capital. Investors who reinvest capital gains from another
    investment into these zones can temporarily defer taxes.
        Investments are pooled in Opportunity Funds so that no single
    investor has to have specialized knowledge about how and where to
    invest since those decisions can be made by experts who manage the
    funds.
        The longer investments are held in Opportunity Zones, the more the
    capital gains relief grows--a strong incentive to invest in a community
    for the long haul.
        This also encourages fund managers to invest in enterprises that
    will yield the most success and prosperity for a community.
        With an estimated $6 trillion in unrealized capital gains and no
    up-front State or Federal cost, the potential for investment flowing
    into struggling communities is almost limitless.
        We have a highly knowledgeable panel of witnesses today who have
    been engaged in the Opportunity Zone initiative and whose observations
    and insights I very much look forward to hearing.
        Before I introduce the witnesses, I now recognize our Ranking
    Member, Senator Heinrich, for his opening statement.

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      Prepared statement of Hon. Cory A. Booker, a U.S. Senator from New
                                     Jersey
        Thank you very much, Mr. Chairman.
        The Opportunity Zones program, based on the Investing in
    Opportunity Act that I introduced with Senator Tim Scott in 2015,
    creates a powerful new tool for promoting lasting economic development
    in the places that need it most. The purpose of the legislation was
    ambitious: incentivize private investors to invest their inactive
    capital in high-impact projects in economically distressed
    communities--in places like Camden and Newark in my home State of New
    Jersey. In doing so, we can unleash a wave of transformative investment
    and revitalize hard-hit rural and urban communities across the country.
        I'm grateful to the witnesses at today's hearing for participating
    in this initial review. Only with careful oversight can we ensure that
    this new tool is used to fulfill the important goals that Congress
    intended--to bring investment and opportunity to the hardworking
    Americans who live in economically distressed communities.
        While some parts of the country have seen great economic gains in
    recent years, many communities have struggled, and the gains have been
    uneven. By many measures, the decade since the Great Recession has been
    the most geographically unequal economic recovery of the modern era\1\:
    from 2010 to 2016, metropolitan areas with more than a million
    residents accounted for two-thirds of the growth in the country's
    economic output, and almost three-quarters of net job creation
    nationwide.\2\ Many smaller metropolitan areas and rural areas have
    seen much slower growth, or declines, in output and employment.\3\ The
    economic pain has been especially acute in many smaller cities that
    were once powered by a strong manufacturing base, as well as in
    communities of color.\4\ All told, today, one in six, or 50 million
    people, live in economically distressed communities.\5\ These
    communities struggle with a lack of investment, business growth, and
    job growth, leaving millions of Americans unable to share in our
    national economic growth.
    ---------------------------------------------------------------------------
        \1\ Economic Innovation Group, The New Map of Economic Growth and
    Recovery (May 2016), http://eig.org/recoverymap.
        \2\ Mark Muro & Jacob Whiton, Geographic Gaps Are Widening While
    U.S. Economic Growth Increases, Brookings Institution (Jan. 23, 2018),
    https://www.brookings.edu/blog/the-avenue/2018/01/22/uneven-growth.
        \3\ Id.
        \4\ Alan Berube & Cecile Murray, Renewing America's Economic
    Promise Through Older Industrial Cities, Brookings Institution (Apr.
    2018), https://www.brookings.edu/research/older-industrial-cities.
        \5\ Economic Innovation Group, The 2017 Distressed Communities
    Index 9 (2017), http://eig.org/wp-content/uploads/2017/09/2017-
    Distressed-Communities-Index.pdf.
    ---------------------------------------------------------------------------
        The Opportunity Zones program advances the fundamental ideal that
    every community should be able to realize its full entrepreneurial
    potential, and that as our economy grows, all Americans should
    benefit--not just those at the top. Today, American investors have
    trillions of dollars sitting on balance sheets in the form of
    unrealized capital gains that can be reinvested to stimulate growth in
    high-need communities. Through a set of targeted incentives, the
    program encourages re-investment of this inactive capital in high-
    impact projects in State-selected ``Opportunity Zones,'' supporting new
    businesses, local infrastructure projects, construction or
    rehabilitation of facilities, and redevelopment of blighted properties
    in economically distressed communities.
        Now, as we implement the Opportunity Zones program, we must take
    appropriate steps to ensure that its incentives support projects that
    benefit the residents of economically distressed communities, in line
    with the legislative intent. In particular, the Treasury Department
    should use its regulatory authority to ensure that Opportunity Funds
    realize their potential to transform communities and benefit local
    residents. With appropriate guardrails, the Treasury Department can
    ensure that Opportunity Fund investments are targeted to truly high-
    need communities and in projects that support inclusive economic
    development.
        The investment incentives created by this program represent a
    remarkable opportunity to catalyze entrepreneurship and promote long-
    term investment in economically distressed communities. I look forward
    to working with the Treasury Department, private investors, community
    leaders, and other stakeholders to ensure the Opportunity Zones program
    serves these crucial goals.
        Thank you very much, Mr. Chairman.
                                   __________
       Prepared Statement of Hon. Martin Heinrich, Ranking Member, Joint
                               Economic Committee
        I'd like to thank Chairman Paulsen for holding today's hearing. I
    also want to recognize my colleagues Senator Booker and Senator Scott
    for their important work to create a new incentive to invest in
    communities with high poverty and persistent unemployment.
        Mr. Chairman, my good friend Senator Booker couldn't be here this
    morning, but provided a statement and asked that it be entered into the
    record. It is good to have my colleague from South Carolina here with
    us today--Tim, I look forward to your testimony, and I want to thank
    you and Cory for your leadership on this issue.
        Even today, more than 10 years after the recession began, the
    recovery still hasn't reached many communities--both rural and urban.
    In New Mexico, our statewide unemployment rate is almost 50 percent
    higher than the national average, and, in some areas, it's much higher.
        Across the country, there are more than 50 million Americans living
    in distressed communities. There's enormous talent in these
    communities, but we've underinvested in it.
        While the Chairman and I disagree on the underlying Republican tax
    bill, a partisan bill that continues to leave working Americans behind,
    we do agree that Opportunity Zones hold the promise to direct some
    much-needed financial investment to places like New Mexico.
        Opportunity Zones are an important addition to the toolkit. They
    can support investments in affordable housing and small businesses
    while spurring job creation. And they can help lift living standards in
    neighborhoods across the country.
        The new Opportunity Funds have the potential to attract high-net-
    worth investors who previously have not invested in low-income
    communities.
        Thanks to the long bull market, many investors are sitting on
    substantial unrealized capital gains that we can put to work generating
    housing, jobs, and growth.
        What distinguishes Opportunity Zones from other Federal efforts to
    stimulate growth in distressed communities, such as the New Markets Tax
    Credit, is flexibility.
        There are few investment constraints. Funds can invest as much as
    they want. There is no competition to receive the benefit.
        But with this flexibility, there is risk that the social impact
    will be not as great as we would like.
        To achieve broad public benefits, projects should be part of a
    community strategy to create jobs, boost entrepreneurship, increase
    affordable housing, and promote economic development.
        Investors should also tap the vast expertise that exists in the
    private, public, and non-profit sectors about how to make high-impact
    community investments. And we are fortunate to have some of that
    expertise here with us today.
        I've seen firsthand the important work Enterprise and LISC,
    together with their partners, have done in New Mexico providing
    affordable housing and creating jobs in Catron, Gallup, Las Cruces, and
    in Santo Domingo Pueblo.
        And, Opportunity Zones can help us do more.
        Poverty is stubborn. One in five children grows up in poverty in
    this country, a number that hasn't moved much in a generation.
        In New Mexico, three in ten children grow up in poverty, and in
    some of our counties, close to half of all children live in poverty.
        Growing up poor has lasting impacts on a child's development,
    affecting success in the classroom and educational and employment
    outcomes later in life.
        In addition to expanding proven credits and programs like the
    Earned Income Tax Credit and Head Start, we need new approaches.
        Two-generation models can increase opportunities for families
    living in poverty by simultaneously targeting children and parents with
    programs and supports to boost economic security and improve the health
    and well-being of the whole family.
        Opportunity Zones offer an additional path to spur economic
    development.
        Before the new zones are implemented, we have time to think through
    some guardrails that can help ensure the intent of the legislation is
    realized.
        We should monitor how much money is flowing where, who is making
    the investments, and what kinds of projects are being funded.
        We need the engaged involvement of community development experts.
    The folks who do this important work every day see this as a tool that
    can be harnessed for social good, and their sustained engagement is
    critical.
        We need to make sure that rural and tribal communities are getting
    a fair share of the funds. The designation of zones so far splits about
    75/25 urban to rural.
        That's a good start. But the key questions will be: are investments
    getting made in rural zones and on tribal lands, and what more can we
    do to assist these communities in building a pipeline of projects that
    get funded.
        Ideally, I would like to see data collected on job creation,
    poverty reduction, and new business formation across zones. These
    numbers would tell us a great deal about the impacts of the newly
    created zones.
        Ultimately, transparency wins the day. Knowing more allows us to do
    more.
        Closely monitoring implementation and establishing appropriate
    guardrails either through rules or additional action by Congress can go
    a long way toward ensuring that Opportunity Zones bring new economic
    activity to communities who desperately need it.
        This is big opportunity, let's seize it. Thank you to the witnesses
    for being here today. I look forward to your testimony.
                                   __________
        Statement of Hon. Tim Scott, a U.S. Senator from South Carolina
        I want to first thank the Joint Economic Committee, Chairman
    Paulsen, and Ranking Member Heinrich for holding this important
    hearing.
        Every day, we are seeing more and more great news about the current
    economic expansion in America, a trend that is breaking records and
    exciting economists and citizens alike.
        This is currently the third-longest economic expansion since 1854,
    and on track to be the second-longest on record.
        After a strong jobs report was released for the month of April, we
    should not only celebrate all of the exciting components of our booming
    economy, but also look forward to the continuation of this growth and
    success.
        The Tax Cuts and Jobs Act, historic tax reform passed last
    December, gets much of the credit for the most recent economic upswing,
    and for good reason!
        Unemployment continues to fall, and at 3.9 percent it is currently
    the lowest national unemployment rate we've seen in 17 years.
        African-American unemployment is also at its lowest since 1972--
    more than four decades.
        Similarly, job expansion continues, with more than 800,000 new jobs
    added since the passage of tax reform and more than one million
    Americans of working age re-entering the work force in the past two
    years.
        In response, wages are on the rise as well.
        Because of tax reform, millions of Americans have seen increased
    benefits, higher wages, and bonuses.
        We also got the news that of manufacturers surveyed by the National
    Association of Manufacturers, 72 percect say they plan to increase
    employee wages or benefits, and 77 percent plan to hire more workers.
        This is in addition to the Small Business Optimism Index reaching
    record highs, and the number of small businesses reporting poor sales
    falling to a near record low.
        And the best part--this is before many components of the tax reform
    package have truly kicked in.
        This past Tax Day marked the last Tax Day under the old system--
    which means great news for American families next year.
        And even as we speak today, the Treasury Department is working on
    the rules for a critical component of tax reform--the creation of
    Opportunity Zones.
        Today, 52 million Americans live in distressed communities . . .
    and it is clear that, despite the economic gains we have made, too many
    families are still being left behind.
        I grew up in one of those neighborhoods--places where hope has been
    lost, and too many think the lights have been turned off on a brighter
    future.
        If we aren't finding ways to give these smart, hardworking folks a
    hand up, we simply aren't doing our job.
        That's why I first introduced my Investing In Opportunity Act, or
    IIOA, and why I worked hard to ensure it was included in the Tax Cuts
    and Jobs Act.
        The IIOA creates thousands of Opportunity Zones across the country.
        What does that mean exactly?
        Well, we have trillions of dollars in unrealized capital gains in
    this country--trillions of dollars sitting dormant.
        By changing the way capital gains are treated, encouraging long-
    term investments in distressed communities in exchange for a break on
    capital gains taxes, we believe we will see hundreds of billions of
    private dollars invested in low-income communities.
        Governors from across the country have now submitted their states
    choices for Opportunity Zones, and the Treasury Department is working
    its way through the submissions for approval.
        This highlights a key component of these zones--they are led from
    the ground up. Communities, mayors and governors worked hard to
    identify where these dollars could do the most good--not someone here
    in Washington.
        And, unlike other related attempts in the past to help these
    communities, Opportunity Zones don't create a new government
    bureaucracy, and we won't be tying more hands with red tape
        The promise of these zones is immense, without question.
        Small business owners and entrepreneurs will have more access to
    capital to make their dreams come true. Charter schools could find more
    funding at their fingertips to ensure every child has access to a
    quality education. Construction and infrastructure projects that have
    been waiting for years could finally be started and completed.
        With the promise of long-term investment, those dollars will be
    staying in these communities, helping dreams come true
        That's what we should be thinking about every day here in Congress
    . . . what can we do to restore hope in communities where it's been
    lost, and ensure the American Dream is accessible for every family
    across the Nation?
        Opportunity Zones have so much potential, and I look forward to
    Treasury finishing the rules over the course of the next few months and
    getting this ball truly rolling.

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      Response from Mr. Lettieri to Questions for the Record Submitted by
                               Senator Klobuchar
                            rural economic recovery
        In Minnesota, a large number of the communities eligible for
    designation as Opportunity Zones are rural. While the rural economy is
    doing well in many parts of Minnesota, I am still seeing challenges,
    and I know that other states are seeing these challenges too. You have
    noted that rural areas may require greater engagement from the public
    and philanthropic sectors to benefit from the Opportunity Zone
    designation.

          How can we best foster this engagement between the public
    sector, the philanthropic sector, and private investors and
    entrepreneurs in rural areas?

        Fostering engagement between sectors begins with strong State and
    local leadership. State and local leaders were heavily engaged in the
    designation process for Opportunity Zones; now the task is to ensure
    the momentum carries forward into the next phase as communities seek to
    recruit new investment. In particular, mayors and governors in rural
    areas must lead by engaging a broad set of stakeholders and
    institutions to develop the strategies necessary for long-term success
    in their Opportunity Zones. In the end, Opportunity Zones are only a
    tool, and they will be most effective in communities that root them
    into broader economic development strategies.
        There are also insights and complementary resources to glean from
    other Federal programs that can help inform and expand the impact of
    Opportunity Zone strategies in rural America, including:

          State Small Business Credit Initiative (SSBCI) venture
    capital program;
          Department of Commerce's Office of Innovation and
    Entrepreneurship, Regional Innovation Strategies program;
          USDA Rural Business Investment and Rural Business
    Development programs; and
          Small Business Administration Small Business Innovation
    Research (SBIR), Small Business Technology Transfer (STTR), and Small
    Business Investment Company (SBIC) programs.

        See also the new MOU between the U.S. Department of Agriculture and
    the Small Business Administration on collaboration for investment in
    rural areas: www.usda.gov/media/press-releases/2018/04/04/usda-and-sba-
    join-forces-help-businesses-rural-america.

          What else can be done to foster economic development in
    rural areas?

        Rural America needs greater support for entrepreneurs in order to
    reverse the sharp decline in new business formation seen in rural
    communities since the Great Recession. As a background resource, I
    would like to refer you to testimony I gave before the Senate Committee
    on Small Business and Entrepreneurship on April 26, 2017, on the
    subject of rural entrepreneurship, which touched on a number of issues
    that are relevant in the context of Opportunity Zones (available here:
    http://eig.org/news/u-s-senate-committee-small-business-
    entrepreneurship-hearing-challenges-opportunities-running-small-
    business-rural-america-2.
        More generally, I would put forward three categories to help
    organize how we think about fostering rural economic development:
    capacity, connectivity, and capital.
        Capacity: Improving a local economy requires growing the capacity
    of the local labor force, and that means investing in education and
    training services to make sure businesses have access to sufficient
    talent pools that can drive productivity and innovation. The
    educational attainment gap between metropolitan and non-metropolitan
    areas is growing. It will be very hard to establish new and lasting
    foundations of rural prosperity in a human capital-driven economy if
    this trend continues.
        Connectivity: Any local economy's success depends greatly on
    connectivity and integration into the broader regional and national
    economies. Rural areas often face additional challenges due to their
    physical isolation as well as a lack of basic ingredients, such as
    high-speed internet connectivity, that many places take for granted.
    Thus, Federal policies that promote connectivity to markets, capital,
    and expertise can play an important role in boosting the viability of
    businesses in rural areas.
        Capital: Opportunity Zones focus specifically on unlocking equity
    investment, which is needed to drive development of high-growth
    potential companies that can help bring the innovation,
    diversification, and expansions needed to strengthen rural communities.
    However, a strong, diversified economy requires more than one type of
    financing, and rural areas in particular may struggle to access the
    full capital continuum amid declines in community banking and other
    financial sector developments. Programs that help fund and support
    expansion of financing by community banks and credit unions, such as
    the Community Development Financial Institutions (CDFIs) program, can
    help to fill that gap and ensure more local businesses have access to
    the capital that they need, helping to fortify local economies.
                        support services and clustering
        Entrepreneurs and economists frequently talk about the
    ``clustering'' effect that leads start-up ventures to concentrate in
    particular geographic areas such as Silicon Valley. These favored
    locations then develop the social capital and support services
    necessary to sustain an entrepreneurial economy.

          How might the Opportunity Zone program catalyze the
    development of an entrepreneurial economy in rural areas that currently
    lack such support services?

        While we should be very careful not to define success in rural
    economies--particularly low-income rural communities--against the
    performance of innovation clusters like Silicon Valley, some common
    lessons do apply. One lesson is that there is no substitute for the
    benefits of a diverse and entrepreneurial local economy. Opportunity
    Zones can help support rural entrepreneurs in a variety of ways,
    including by attracting equity investors directly into new and growing
    businesses, as well as by financing rural business incubators and
    accelerators that help provide essential support infrastructure in a
    local startup ecosystem. Here again, mayors and governors can play a
    key role in providing complementary resources and incentives to help
    bolster the impact of the Federal incentive in achieving entrepreneur-
    friendly local outcomes.

          Since the Opportunity Zone program allows prospective
    investors to invest in any zone across the Nation without regard to the
    investor's physical location, are you concerned that the zones may
    compete against each other in such a way that the rural zones are left
    behind?

        Places are already in competition for capital and talent, and such
    competition need not be a race to the bottom. Instead, Opportunity
    Zones can provide a healthy catalyst to improve local economic
    development policies and practices, and spur innovative approaches that
    put local assets to better use. In spite of national headwinds, many of
    the most dynamic and prosperous places in the country are, in fact,
    rural communities, and they provide important lessons for rural
    Opportunity Zones.
        Opportunity Zones are a powerful tool that can mobilize a new array
    of investors and a much larger scale of investment in low-income
    communities nationwide, but the incentive alone is not a substitute for
    a sound local economic development strategy.
                                   __________
       Response from Ms. Ludwig to Questions for the Record Submitted by
                               Senator Klobuchar
                         low-income housing tax credit
        The Low-Income Housing Tax Credit (LIHTC, pronounced Lie-Tech) is
    our Nation's primary method of subsidizing the creation of low-income
    housing and new accounts for the approximately 90% of all affordable
    rental housing created in the United States today. This past March, I
    was pleased to join my colleagues in leading a successful 12.5 percent
    expansion of the credit for the next four years. Since the Opportunity
    Zones program targets capital gains taxes, it seems likely that real
    estate will be a natural investment target for program investors. In
    Minnesota, we've seen recent investment concentrated on luxury units
    rather than middle-class or affordable housing.

          How do you expect the new Opportunity Zones program to
    interact with the LIHTC program? Do you believe that the two programs
    will help support and reinforce each other? Is there a possibility of
    interference between the two programs?

        Senator Klobuchar, thank you for this question. Enterprise
    Community Partners has strong expertise in aggregating private capital
    and deploying it through programs like the Low-Income Housing Tax
    Credit, and we applaud the 12.5% expansion of the Housing Credit
    through 2021. We are eager to realize the potential of Opportunity
    Zones to complement proven public-private partnerships like LIHTC.
        While we are still waiting for additional Opportunity Zones
    guidance from Treasury and the IRS with clarification about the types
    of investments that are eligible, it appears that all rental real
    estate, including residential real estate, located in Opportunity Zones
    will constitute an eligible investment.
        Given that the lower corporate tax rate from the Tax Cuts and Jobs
    Act of 2017 has reduced investor demand for the Housing Credit and
    therefore equity in the LIHTC market, Opportunity Zone investments
    offer the potential to fill a gap in critical equity investments in
    LIHTC projects.
        We believe that Opportunity Zones should be able to pair with the
    Housing Credit. The 15-year Housing Credit compliance period lines up
    well with the long-term incentives of Opportunity Zones.
        In particular, Opportunity Zones present potential to fill in the
    ``missing middle'' of the financing stack for middle-income housing
    (60-120% of Area Mean Income). This offers critical opportunity for
    those who do not qualify for low-income housing but still struggle to
    find housing they can afford, such as our Nation's teachers,
    firefighters, and nurses.

          What can be done to ensure that investment income in
    Opportunity Zones helps address rather than exacerbate the affordable
    housing crisis?

        Thank you for this question. Through our work on Opportunity Zones
    with governors, mayors, investors, and community-based organizations,
    Enterprise Community Partners has seen that, while communities are
    excited about this potential catalyst for economic development, they
    are also concerned that private investment could unintentionally
    displace the very residents and businesses that the new tax incentive
    is intended to support. This is why we recommend that Treasury have
    guidelines to ensure that investments in designated Opportunity Zones
    offer sustained benefit to all members of the community.
        Specifically, we recommend requiring that Opportunity Funds report
    to Treasury on transaction-level data and that this information be made
    available to the public. These steps will promote the transparency of
    Opportunity Fund activities, drive accountability, and allow for
    assessment of whether the tax benefit is meeting its intended policy
    goal of bolstering inclusive, sustainable economic growth.
        Secondly, we believe that Treasury should use its statutory
    authority from Congress to issue regulations to prevent abuse. We
    suggest that the definition of abuse include investments that adversely
    impact low-income residents, including investments that result in net
    loss of affordable homes.
        These guardrails for the implementation of Opportunity Zones will
    help ensure that current residents and businesses benefit from
    resulting economic growth.
        For our part, Enterprise is committed to working with State and
    local governments to implement policies and programs suited to local
    needs. Drawing on our 35 years of expertise in affordable housing and
    community development finance, we are exploring Opportunity Fund models
    that would foster inclusive, sustainable economic growth and prosperity
    for residents and businesses. Any fund we create would incorporate best
    practices drawn from our work--including investments that create
    opportunity by developing and preserving affordable housing, creating
    living-wage jobs, supporting minority- and women-owned businesses, and
    expanding transportation and infrastructure.
                                   __________
       Response from Ms. Ludwig to Questions for the Record Submitted by
                                Senator Heinrich
        1) What do the designations tell us so far? Which indicators tell
    us whether governors chose areas that would most benefit from
    Opportunity Zones? For New Mexico, how do the economic conditions of
    designated Opportunity Zones compare to conditions in eligible, non-
    designated tracts?
        Senator Heinrich, thank you for these questions.
                What do the designations tell us so far?
        There has been tremendous variety in the places that have been
    designated as Opportunity Zones. Some Opportunity Zones are
    characterized by large populations of impoverished residents, while
    others have a broader mix of income levels. There are Opportunity Zones
    that continue to struggle with long-term economic challenges, and
    others that are already on an upward economic trajectory. Some have
    sizable anchor institutions--hospitals, universities, etc.--while
    others do not. There are Opportunity Zones in cities of every shape and
    size, in suburbs, rural areas and tribal communities. They exist in
    communities with all levels of local government capacity, leadership
    and formal business community organization.
        Some of this variation is undoubtedly due to the differences in
    strategies that states chose to employ in nominating zones. But one
    common tendency we observed among many states was the need to make
    nominations reflect a variety of place types. In some cases, this meant
    ensuring that each county had at least one Opportunity Zone in it. In
    others, this meant ensuring that rural or tribal communities were
    represented in the process. Whatever the strategy, the design of the
    Opportunity Zones nomination process led many (if not most) states to
    adopt an approach favoring variety rather than focusing on a single
    metric or dimension (e.g., choosing the tracts with the largest number
    of Opportunity Fund-eligible investments in them).
        We do not yet know how this variety may affect Opportunity Fund
    portfolios. Certainly, it means there will be a wide variety of
    possibilities for investments, including investment strategies favoring
    real estate improvements and those that focus on business investments.
    But the variety of places that have been designated as Opportunity
    Zones and the uncertainty surrounding Opportunity Fund investment
    profiles will pose a significant challenge for states and larger
    municipalities who hope to align Opportunity Fund investments with
    local business and community development needs. It will also be
    difficult to identify coherent strategies that apply across Opportunity
    Zones in larger jurisdictions--strategies such as coordinated public
    investments or State/local tax incentives that work well in one
    Opportunity Zone may not work well in another with different
    conditions. Instead, the needs and investment opportunities in each
    Opportunity Zone will need to be considered and understood. Given the
    nearly 8,800 Opportunity Zones that have been designated, this will
    take time and resources that states and municipalities may not be
    prepared or able to invest on the timescale needed to coordinate well
    with Opportunity Fund investments.
        We continue to analyze these census tracts to better inform an
    investment strategy, but it is clear that there will not be a one-size-
    fits-all approach to Opportunity Zones.
                Which indicators tell us whether governors chose areas that
                        would most benefit from Opportunity Zones?
        The answer to this question will be highly dependent on the types
    of investments Opportunity Funds end up pursuing and in which
    Opportunity Zones these investments are made. In general, we believe
    that access to affordable housing, access to jobs that pay a living
    wage, sufficient transportation options, and good health and education
    outcomes are critical metrics that indicate the overall well-being of a
    community. The potential benefits of Opportunity Fund investments will
    depend on the alignment of the investments with the needs in the
    Opportunity Zone. There is no single set of metrics that will tell us
    which Opportunity Zones stand to benefit the most from general
    investments.
        For example, Opportunity Funds emphasizing affordable housing
    creation and preservation may provide the greatest benefit in areas
    where real estate values are already high or expected to grow.
    Opportunity Funds focusing on real estate investments may provide
    greater benefits to local residents through returns to increased land
    and home values in Opportunity Zones with greater homeownership rates.
    Investment portfolios focusing on businesses expected to create
    additional jobs may provide greater benefits where there are more
    residents with relevant skills or where robust workforce development
    programs exist.
        However, we expect much of the activity in Opportunity Zones will
    be influenced by:
            1) the ability of individual businesses and landowners to
            create attractive investment options; and
            2) the leadership and institutional capacities at the
            neighborhood and local government levels to ensure that
            Opportunity Fund investments are aligning with other
            neighborhood and community development strategies.
        This means in part that the degree of benefit to Opportunity Zone
    communities will be driven by factors that are not reflected in the
    demographic and economic indicators we typically use to assess
    communities.
                For New Mexico, how do the economic conditions of
                        designated Opportunity Zones compare to conditions
                        in eligible, non-designated tracts?
        Overall, eligible Low-Income Communities in New Mexico that were
    not designated as Opportunity Zones have similar characteristics to the
    Low-Income Communities that were designated as Opportunity Zones. They
    have similar racial profiles, similar home values, and similar levels
    of renter cost burden. That said, there are a few key differences
    between designated tracts and ``eligible but not designated'' tracts in
    New Mexico:
            1. New Mexico Opportunity zones have higher poverty rates than
            eligible but not designated Low-Income Communities (23% and
            16%, respectively).
            2. New Mexico Opportunity Zones have lower median family
            incomes than eligible but not designated Low-Income Communities
            ($56,000 and $62,000, respectively).
            3. The designation strategy in New Mexico favored tracts with
            more jobs--the average New Mexico Opportunity Zone has more
            than 2.5 times the number of jobs of the average eligible but
            not designated Low-Income Community.
            4. New Mexico Opportunity Zones have a greater presence of
            affordable housing--51% of New Mexico Opportunity Zones contain
            Federally supported affordable housing units compared to 42% of
            eligible but not designated tracts.
            5. A greater-than-proportional share of tracts that intersect
            with tribal areas were designated (29% of designated tracts
            intersect compared to 21% of eligible but not designated Low-
            Income Communities).
        2) What Federal, State, or local policies would ensure there is a
    pipeline of startups and small businesses ready to take advantage of
    equity capital investments incentivized under this provision?
        State, regional and local governments can play a pivotal role in
    steering investments towards the Opportunity Zones and projects that
    best serve the community's identified needs. For example, governments
    may consider:
            1. Establishing a government-run Opportunity Fund. Many
            governments have existing ties with the financial sector and
            are ready to engage investors and fund managers. Moreover, some
            cabinet level agencies are well-adept at managing large funds
            and financing the types of projects that may qualify for
            Opportunity Fund investments. This demonstrated experience and
            track record of responsible financing and underwriting could
            attract additional investors.
            2. Developing and implementing a process for collecting and
            preparing a project pipeline for potential investors. Having a
            portfolio of projects to share with investors demonstrates an
            ability to deploy capital quickly--a key component of the tax
            incentive. For example, the State's Housing Finance Agency or
            Labor Department would be well-positioned to develop a pipeline
            of affordable housing developments or new business start-ups,
            respectively, that are ripe for investment and meet investment
            requirements.
            3. Engaging philanthropy, the health care sector, and other key
            stakeholders who can provide additional financial incentives to
            de-risk Opportunity Fund investments. Governments can also play
            a key role in mitigating risk to investors by contributing or
            matching their own dollars, for example, through existing
            programs that provide small business loans or gap financing for
            affordable housing.
            4. Evaluating the tax code, including any State-level capital
            gains tax, to determine whether any additional tax relief can
            be provided to attract investors while also steering
            Opportunity Fund investments toward identified projects. For
            example, a State could provide additional tax relief to
            investors who invest in a government-run Opportunity Fund or
            whose dollars are used to finance affordable housing.
        Because Opportunity Zones are a market-driven tax incentive it will
    be critical for State and local governments to incent investment in
    Opportunity Zones that may struggle to attract private capital.
        At this point, however, the biggest barrier for this capital is the
    uncertainty around eligible investments. Treasury should provide
    clarifying guidance and examples around investing in rental real
    estate, health care facilities, schools, infrastructure, and other
    critical resources. This will provide the needed certainty for State
    and local governments to recruit specific investments best-suited for
    their population and economy.
                                   __________
       Response from Mr. Jones to Questions for the Record Submitted by
                             Representative Maloney
        1) Managers of Opportunity Zone funds presumably would want to
    maximize profits. What financial incentives do they have to invest in
    affordable housing vs. other real estate investments? What would be
    needed to steer Opportunity Zone funds to affordable housing?
        The Opportunity Zone program provides an incentive for private
    investors to invest funds in businesses and real estate projects in
    low-income communities, without distinction as to the type of business
    or project funded. As with any investment, we anticipate that investors
    in Opportunity Funds will evaluate businesses, housing, and economic
    development projects based on return and product type, with a typical
    investor looking for a higher rate of return and a standard level of
    risk.
        We think that the Opportunity Zone incentive can be an effective
    tool for financing affordable housing, particularly housing targeting
    families between 60-100% of median income in high-cost markets. Many of
    these families are considered ``severely rent burdened''--paying more
    than 50% of their income in rent each month. We think the program can
    attract investors for this needed middle income housing.
        It may also be possible to use Opportunity Zone incentives to
    target housing serving families lower down on the income ladder, but
    this will likely involve twinning the Opportunity Zone incentives with
    other Federal, State or local resources, or further tax abatement.
    Investing in affordable housing for families making less than 60% of
    area median income is most frequently done through the Low Income
    Housing Tax Credit, which has been a highly successful program. Current
    LIHTC investments are generally held by investors (frequently regulated
    financial institutions that are seeking Community Reinvestment Act
    considerations) who may or may not be able to utilize Opportunity Zone
    tax benefits. However, with the added benefits of the deferral and
    reduction in capital gains taxes, it is expected that a LIHTC project
    twinned with Opportunity Zone benefits may provide higher yields and
    bring some new investors to the table.
        To attract investors in Opportunity Zone projects that are targeted
    to affordable housing, particularly for those on the lower end of the
    income spectrum, there will need to be additional sources of subsidized
    capital. We believe that it will be incumbent upon states and
    localities to incentivize these investments. For example, states and
    localities could design companion incentives (tax or otherwise) to
    enhance the returns on affordable housing located in Opportunity Zones,
    thereby attracting more Opportunity Funds to invest in affordable
    housing. States and localities can also steer resources such as HOME
    funds and CDBG funds to projects in Opportunity Zones that meet certain
    affordability requirements, or provide tax abatement in return for
    targeting units for 80% and below AMI families.
        2) Are you concerned that the Opportunity Zone program could lead
    to increased gentrification? What kind of oversight is needed to make
    sure that Opportunity Zone spending benefits residents of the targeted
    census tracts?
        The way the Opportunity Zone incentive is structured, investors
    will get a modest return through deferral of initial capital gains
    taxes, but a potentially huge return with the forgiveness of any
    additional capital gains that result upon exit from the Opportunity
    Fund investment. This means investors may be incentivized to seek out
    the deals with the highest long-term yields, which may not be the
    projects that bring about the most impact for the community or its
    residents. And without any Federal or State agencies overseeing the
    selection of projects and investment plans, there is no direction to
    necessarily pursue higher-impact community development investments. One
    could therefore see this program leading to displacement of lower-
    income community residents, either because the neighborhoods themselves
    get ``overheated'' with investment capital, thereby lowering the supply
    of ``naturally occurring affordable housing'' or because the structure
    of the incentive rewards investors seeking the higher yields offered by
    market rate or even luxury housing.
        We believe that the Treasury/IRS could play a more significant role
    in oversight of the program, in order to mitigate against these kinds
    of outcomes. We believe it was the intent of Congress to at a minimum
    create a safeguard against potentially bad actors abusing the program,
    but also to potentially offer Treasury a mechanism for screening
    Opportunity Funds in an even more substantive manner; as evidenced by
    the fact that the TCJA's accompanying Conference Report stated that
    ``the certification process for a qualified opportunity fund will be
    done in a manner similar to the process for allocating the new markets
    tax credit.''
        New Markets Tax Credits are allocated through an annual competitive
    application process, one which helps ensure that the most qualified
    entities are provided with credit allocations, and that the scarce
    credits are directed to the highest and best uses. While it is not
    feasible to hold competitions among Opportunity Funds in the manner
    that entities apply for NMTCs, Treasury could certainly consider
    employing some of the best practices from its NMTC review process into
    its Opportunity Fund certification review. For example, through the
    NMTC allocation process, entities are encouraged to commit to more
    rigorous outcomes as a condition of receiving an allocation, and then
    are held to these commitments as part of their allocation agreement.
    These include, among others:

          targeting investments in areas of severe economic
    distress;
          offering below-market rates and terms to their borrowers;
          investing more than the minimally required 85% of the
    NMTC investment proceeds into their low-income communities;
          financing (if applicable) affordable housing; and
          making ``innovative'' investments, including investments
    in small businesses.

        In addition to these provisions, which become a compliance
    requirement of the NMTC allocation agreements, applicants also receive
    higher scores for being able to demonstrate a likelihood of achieving
    significant community impacts, such as: creating high-quality jobs;
    providing goods and services to low-income community residents;
    financing minority-owned businesses; and ensuring environmentally
    sustainable outcomes.
        As noted previously, LISC does not suggest imposing a competitive
    scoring and selection process on the certification of Opportunity
    Funds. This would be an unwise use of resources (both Federal and
    private sector) and would cause considerable delays in program
    implementation at a time when Treasury needs to move quickly to publish
    regulations and guidance to provide investors with certainty that their
    investments in Opportunity Funds will qualify for the tax incentive.
        However, as provided for in the Conference Report, we do think it
    would be appropriate for the Treasury Department to require Opportunity
    Funds to identify, at the time of certification, at least one outcome
    from a list of desirable outcomes that they will commit to achieving
    with their investments. The desirable outcomes could be drawn from the
    NMTC selection items above, or could be broadened to include additional
    items that may be more relevant to the intentions of the Opportunity
    Zone program, for example, providing working capital and equipment
    capital to start-up businesses. Applicants would indicate their chosen
    outcomes through self-certifications at the time of the certification
    application, which could then be reviewed during a compliance audit
    after the investments have been made.
                                   __________
       Response from Mr. Jones to Questions for the Record Submitted by
                               Senator Klobuchar
                              broadband deployment
        The promise of the Opportunity Zone program is to bring private
    investment capital to areas of our country that have been left behind.
    For this laudable goal to be achieved, these distressed areas need to
    have the basic infrastructure in place to support private economic
    activity. I believe broadband deployment is the infrastructure
    challenge of our generation. As co-chair of the Senate Broadband Caucus
    [with Senators Capito, King, Heinrich, and Boozman], I believe we must
    also provide direct Federal investments in rural communities to close
    the digital divide.

          How will improving access to rural broadband foster
    economic opportunity in Opportunity Zones?

        LISC believes that access to broadband is critical to the economic
    health of rural communities, particularly those that have struggled
    with disinvestment and have been, or are likely to be, designated as
    Opportunity Zones. Businesses everywhere today need access to the
    internet to reach customers and sell their products. It is increasingly
    difficult, if not impossible, to attract businesses, retain businesses,
    or grow businesses in areas that lack access to fast and reliable
    internet services.
        There is clearly a digital divide when it comes to rural versus
    urban communities. According to the Federal Communications Commission,
    approximately 98% of the U.S. population living in urban areas has
    access to both high-speed terrestrial and mobile services, as compared
    to just under 69% of the U.S. population in rural communities, and just
    under 64% of the population living on tribal lands. This translates
    into about 14.5 million families in rural and tribal communities that
    do not have access to both broadband services.
        Communities that do not have broadband services are certainly going
    to have trouble competing for investments from the private sector, both
    in isolation and with incentives such as Opportunity Zones. Having
    access to broadband is critical for the long-term success of businesses
    operating in rural communities. In a recent webinar hosted by the
    National Telecommunications and Information Administration (NTIA) of
    the Department of Commerce, Lionel ``Bo'' Beaulieu, Director of Purdue
    University's Center for Regional Development, cited research studies
    that have shown a positive relationship between rural broadband
    adoption and:

          economic growth (Steinberg, 2009);
          attraction of new firms (Kim and Orazem, 2017);
          retention and growth of existing small businesses
    (Shideler and Badasyan, 2012);
          increase in annual value-added sales (Canzian, Poy, and
    Schuller, 2015);
          higher individual incomes (Whitacre, Gellardo, and
    Stover, 2014); and
          higher number of entrepreneurs (Conley and Whitacre,
    2016).

        The broader health of communities can also be improved with access
    to broadband. The NTIA reports that ``going digital'' can save schools
    as much as $600 per year per student on textbooks, that ``telehealth''
    reduces hospital admissions by 25% and decreases length of stays by
    59%, and that access to broadband increases home values by 3.1%.
        In short, it is very hard for communities to succeed in attracting
    private sector investments, and in reaching their full economic and
    quality of life potential, without access to reliable broadband
    internet.

          What role does Federal support play in promoting
    broadband deployment in rural areas?

        As is often the case with major infrastructure investments, the
    Federal Government plays a critical role in promoting broadband
    deployment in rural areas. There are many Federal programs that
    directly finance the development of broadband infrastructure, including
    multi-billion dollar programs administered by the United States
    Department of Agriculture (e.g., Telecommunications Infrastructure
    Loans and Loan Guarantees; Rural Broadband Access Loans and Loan
    Guarantees) and the Federal Communications Commission (e.g., Connect
    America Fund). Equally as important, there are numerous other programs
    at these and other agencies that focus not only on infrastructure, but
    also on adoption, digital literacy, public access, research and
    planning, as well as some targeting specific sectors (health,
    libraries, schools, etc.). It is important that the Federal Government
    continue to strongly support and robustly fund all of these initiatives
    to ensure that rural communities can compete for investments and
    attract high-quality jobs.
                             workforce development
        Even if investment capital were to flow into distressed
    communities, businesses and new ventures would not be able to expand or
    start without the ability to find workers. I hear from companies
    throughout Minnesota that report they can't fill job openings,
    especially for more technically demanding trades and professions. We've
    got to address this skills gap by strengthening our technical education
    and by helping young women and men decide early to pursue training that
    will equip them for jobs in the manufacturing sector.

          How should we do that? What role should the Federal
    Government play?

        LISC believes that, first and foremost, the Federal Government can
    join the private sector in encouraging students (and their parents), as
    well as members of the workforce, to pursue jobs and careers in the
    manufacturing and advanced manufacturing sectors. We need to increase
    demand for these jobs. The Federal Government definitely has a role to
    play here.
        LISC is acutely aware of the difficulties that businesses and
    certain industries have in recruiting talent to fill positions.
    Research indicates that 53% of all jobs in today's labor market are
    middle skilled, and only 43% of U.S. workers have the appropriate
    training to fill the available positions--according to the National
    Skills Coalition; in Minnesota those numbers are 50% and 45%,
    respectively. This is a formidable challenge, but it is not
    insurmountable. As outlined below, we believe that there are several
    things that the Federal Government can do to help address this issue.
    Fully Fund Workforce Innovation and Opportunity Act (WIOA) Programs
        Congress should adequately fund our nation's workforce system by
    robustly funding the WIOA Title I programs, including increasing the
    funding for WIOA adult education grants and the WIOA career and
    technical education State grants. These essential programs and funding
    streams form an infrastructure that provides people with fundamental
    career services, education and training, and supports necessary to get
    good jobs and stay employed. WIOA programs are inextricably linked to
    the skills conversation because they are often the systemic points of
    entry for the talent we are interested in routing to middle-skill,
    living-wage careers.
    Support Policies That Incorporate Proven Innovations in Contextualized
            Skills Training
        The Federal Government should find ways to incentivize states and
    localities to adopt innovative approaches to contextualized skills
    training for the hard-to-serve/hard-to-employ population. Skills gaps
    often prevent unemployed or underemployed residents from accessing
    training and credentialing programs that can lead to living-wage jobs.
        At LISC, we believe that a solution lies in bundled/integrated
    career service delivery and matching employers in need of workers with
    a specific skill set to job seekers who have been trained in those
    skills. A little more than a decade ago, LISC began supporting
    Financial Opportunity Centers (FOCs)--which provide employment and
    career counseling alongside one-on-one financial coaching and education
    and low-cost financial products that help build credit, savings, and
    assets. They also connect clients with income supports like food and
    utility assistance. The cornerstone of the FOC model is providing these
    services in an integrated way, rather than as stand-alone services, and
    with a long-term commitment to helping clients reach their goals.
        Our Bridges to Career Opportunities (BCO) model builds upon the FOC
    model and helps individuals ramp up foundational literacy and math
    skills, get technical training, and pursue certifications for a
    particular industry while receiving supports like financial coaching to
    set long-term goals and help manage expenses during training. These
    programs connect clients to ``middle skills'' jobs with a career
    pathway, and help local employers staff up with employees who can get
    the job done. By blending this training with financial coaching,
    clients take the reins of their economic and professional lives.
        Our FOC and our BCO work was scaled and replicated thanks to a
    Social Innovation Fund (SIF) award from the Corporation for National
    and Community Service (CNCS). Although SIF funding has been eliminated
    in the past two fiscal years, we encourage Congress to find ways to
    fund pilots that support data-driven innovation in the ever-evolving
    workforce sector. Additionally, we encourage Congress to adopt policies
    that create a workforce system that supports vulnerable populations as
    they attempt to upskill. Robustly funding the SNAP Employment and
    Training Program in the Farm Bill--with an emphasis on innovation as
    opposed to dated work requirements--and updating the Temporary
    Assistance for Needy Families Program (TANF) support contextualized
    skills training is highly encouraged.
    Align Career Pathways and Postsecondary Educational Systems
        We need to more thoughtfully align our workers and community
    college students to the business sector. There are a few legislative
    proposals that support this alignment. The Perkins Career and Technical
    Education Act should be reauthorized and updated so that secondary and
    postsecondary Career and Technical Education (CTE) programs support
    local workforce development strategies. If adopted, the JOBS Act (S.
    206) would allow Federal workers to use Federal Pell grants to pursue
    industry-specific credentials. Legislative action in these two areas
    are just the beginning of potential opportunities to support new
    approaches in postsecondary education. Additionally, we encourage you
    to look at the proposals outlined in the National Skills Coalitions
    2018 Skills for Good Jobs Agenda. There is significant overlap with
    LISC's emerging policy agenda in the workforce space, and the National
    Skills Coalition is a trusted partner and ally in this work.
    Support Policies That Fund and Incentivize Apprenticeships
        Contextualized skills training should also be supported via
    apprenticeships. LISC is a participant in the Campaign to Invest in
    America's Workforce (CIAW) coalition and would like to echo CIAW's
    recommendation to increase the $95 million investment in apprenticeship
    programs at the Department of Labor. Additionally, there are several
    pending authorization bills that provide a framework and resources for
    incentivizing apprenticeship opportunities:

          The bipartisan PARTNERS Act (H.R. 4115) supports
    partnerships between businesses and other local workforce stakeholders
    to help small- and medium-sized businesses develop and run work-based
    learning programs;
          The BUILDS Act (S. 1599) leverages new funding for
    construction-related projects and requires the Secretary of Labor to
    award grands for promoting industry or sector partnerships to encourage
    industry growth and competitiveness and improve worker training,
    retention, and advancement; and
          The Investing in American Workers Act (S. 2048) would
    incentivize employers to dedicate more resources to worker training.
    This legislation creates a tax credit to benefit employers who
    demonstrate a commitment to upskilling their workers. Employers who
    invest more capital in training in one year than they have in the
    previous three years would be eligible for a tax credit that equals 20%
    of their increased spending.

        These are just a few examples of opportunities to incentivize
    apprenticeships.

          Is there a way to encourage investors in Opportunity
    Zones to invest in workforce training programs that will help the local
    workers?

        While it may be challenging for the Opportunity Zones investments
    themselves to be focused on workforce training programs, given the
    structure of the tax incentive, we do believe that opportunity funds
    may look to invest in businesses that provide training and upskilling
    products and services at competitive rates to enterprises already
    present in, or willing to locate to, an Opportunity Zone. Furthermore,
    we believe that there can be opportunities to align workforce programs
    and incentives with Opportunity Zone investments.
        For example, one such area that may be worth exploring, on the
    Federal level, is aligning Opportunity Zones with the Work Opportunity
    Tax Credit (WOTC). As you know, WOTC is a Federal tax credit available
    to employers for hiring individuals from certain target groups who have
    consistently faced significant barriers to employment. Currently,
    residents living in Empowerment Zones and rural Renewal Communities are
    included in the criteria for WOTC target groups. We should explore
    whether adding residents from Opportunity Zones to the designated
    target groups provides any benefit, and consider revising WOTC to
    incentivize employers to invest in contextualized skills training.
    Similarly, on the local level, we may also want to encourage Workforce
    Investment Boards (WIBs) to align their activities with businesses
    located in, or seeking to locate in, Opportunity Zones.
        In the meantime, LISC is looking for other ways to bring our
    workforce training initiatives into Opportunity Zones. For example, due
    in part to the FOC/BCO funding and capacity-building support that LISC
    has provided to Community Action Duluth, the City of Duluth, and its
    partners, Community Action Duluth and SOAR Career Solutions, were
    recently awarded a $326,216 State of Minnesota Department of Energy and
    Economic Development Pathways to Prosperity grant to fund healthcare
    and construction training to serve low-income people, people of color,
    those with criminal records, and those with disabilities. This work is
    being done with a strong focus on bringing private sector employers to
    the table to help build skills and career opportunities. We are hoping
    to align these kinds of efforts with businesses located in Opportunity
    Zones.
        In Saint Paul, the Port Authority is currently working with the
    East Side Employment Exchange (which includes several of LISC's FOC/BCO
    partners), Metro State University, Saint Paul College, and others on
    workforce development efforts. The Port owns a number of the East Side
    Opportunity Zone properties that are ready for larger employers with
    workforce needs. The Port could potentially play a financing role in
    the development of these opportunities within Opportunity Zones, and
    the philanthropic/corporate funders are seeking to accelerate the
    alignment with workforce investments.
                                   __________
       Response from Mr. Jones to Questions for the Record Submitted by
                                Senator Heinrich
        1.) What can be done to boost capacity in rural communities and on
    tribal lands to help these areas attract investment and realize the
    benefits of Opportunity Zones? Are there strategies for State and local
    governments or community organizations to generate greater deal flow to
    rural and tribal areas?
        A key to boosting capacity in rural communities and on tribal land
    in order to help these areas attract investment and realize the
    benefits of Opportunity Zones is to invest in and support the
    community-based organizations (CBOs) that work in and near Opportunity
    Zones. These CBOs are familiar with the demands of their communities
    and regions and understand where opportunities lie to meet those
    demands. Focused capacity building tools ensure a CBO can drive
    activity and maximize the benefits of an OZ designation.
        At LISC, through its national program Rural LISC, we provide a
    trifecta of capacity building tools to rural CBOs: technical
    assistance, low-cost and patient capital, and targeted grant
    investments to help build capacity within rural communities. LISC's
    approach is to:

          Develop the leadership capacity of rural CBOs to advance
    the work on the ground;
          Work with and through rural CBOs in underinvested
    communities to provide residents with the skills and credentials to
    compete successfully for quality income and wealth opportunities;
          Invest in businesses, housing and other community
    infrastructure to catalyze economic, health, safety and educational
    mobility for individuals and communities;
          Strengthen existing alliances while building new
    collaborations to increase the impact and progress of people and
    places; and
          Drive local, regional and national policy and system
    changes that foster broadly shared prosperity and well-being through
    advocacy, in partnership with rural CBOs.

        A prime example of the power of building rural capacity is evident
    in rural New Mexico. Rural LISC has provided partner organization
    Tierra del Sol Housing Corporation with $383,129 in capacity building
    grants, $220,000 in zero predevelopment financing, and $400,000 in low-
    cost loans in recent years. This investment has resulted in 436
    affordable homes built. Tierra del Sol has been able to leverage that
    investment from LISC at a rate of 23:1, securing $23 million in
    additional funds to further their work in New Mexico. Rural CBOs are
    masters at leveraging funding, when provided with opportunity and
    predevelopment financing.
        The role of the Federal Government in supporting capacity building
    programs for CBOs cannot be overstated. Two of the most critical
    programs for this purpose are HUD's Section 4 Capacity Building for
    Community Development and Affordable Housing Program (``Section 4''),
    which includes a rural set aside; and the USDA's Rural Community
    Development Initiative (RCDI). These programs provide funding to
    support the growth and sustainability of non-profit housing and
    community development organizations, and can be used to help rural non-
    profits secure the staffing or technical assistance needed to be
    competitive in attracting investments into Opportunity Zones.
        However, as effective as they are, these programs can only satisfy
    a very small portion of the needs of rural non-profit CBOs. State and
    local governments should consider funding capacity building efforts to
    help bridge the gaps of Federal funding. State and local governments
    can also encourage and support greater project generation by directing
    their resources such as CDBG and State housing funds to proposed
    Opportunity Zone projects. Finally, local governments must recognize
    the need and value of investing time and streamlining entitlements for
    opportunity zone deals, to ensure proposed developments are not bogged
    down or lost due to lengthy entitlement processes and extensive
    regulations.

                                      [all]