[House Hearing, 116 Congress]
[From the U.S. Government Publishing Office]





 
 CAN OPPORTUNITY ZONES ADDRESS CONCERNS IN THE SMALL BUSINESS ECONOMY?

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

                                HEARING

                               before the

        SUBCOMMITTEE ON ECONOMIC GROWTH, TAX, AND CAPITAL ACCESS

                                 OF THE

                      COMMITTEE ON SMALL BUSINESS
                             UNITED STATES
                        HOUSE OF REPRESENTATIVES

                     ONE HUNDRED SIXTEENTH CONGRESS

                             FIRST SESSION

                               __________

                              HEARING HELD
                            OCTOBER 17, 2019

                               __________

   [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]            
   
   
                               

            Small Business Committee Document Number 116-051
             Available via the GPO Website: www.govinfo.gov
             
             
             
             
                           ______

             U.S. GOVERNMENT PUBLISHING OFFICE 
 38-014               WASHINGTON : 2020
            
             
             
             
             
             
                   HOUSE COMMITTEE ON SMALL BUSINESS

                 NYDIA VELAZQUEZ, New York, Chairwoman
                         ABBY FINKENAUER, Iowa
                          JARED GOLDEN, Maine
                          ANDY KIM, New Jersey
                          JASON CROW, Colorado
                         SHARICE DAVIDS, Kansas
                          JUDY CHU, California
                           MARC VEASEY, Texas
                       DWIGHT EVANS, Pennsylvania
                        BRAD SCHNEIDER, Illinois
                      ADRIANO ESPAILLAT, New York
                       ANTONIO DELGADO, New York
                     CHRISSY HOULAHAN, Pennsylvania
                         ANGIE CRAIG, Minnesota
                   STEVE CHABOT, Ohio, Ranking Member
   AUMUA AMATA COLEMAN RADEWAGEN, American Samoa, Vice Ranking Member
                          TROY BALDERSON, Ohio
                          KEVIN HERN, Oklahoma
                        JIM HAGEDORN, Minnesota
                        PETE STAUBER, Minnesota
                        TIM BURCHETT, Tennessee
                          ROSS SPANO, Florida
                        JOHN JOYCE, Pennsylvania
                       DAN BISHOP, North Carolina

                Adam Minehardt, Majority Staff Director
     Melissa Jung, Majority Deputy Staff Director and Chief Counsel
                   Kevin Fitzpatrick, Staff Director
                   
                   
                            C O N T E N T S

                           OPENING STATEMENTS

                                                                   Page
Hon. Andy Kim....................................................     1
Hon. Kevin Hern..................................................     3

                               WITNESSES

Mr. Brett Theodos, Senior Fellow, Urban Institute, Washington, DC     5
Mr. Aaron Seybert, Managing Director of Social Investments, The 
  Kresge Foundation, Troy, MI....................................     7
Ms. Jennifer A. Vasiloff, Chief External Affairs Officer, 
  Opportunity Finance Network, Washington, DC....................     9
Mr. John Lettieri, President and Chief Executive Officer, 
  Economic Innovation Group, Washington, DC......................    10

                                APPENDIX

Prepared Statements:
    Mr. Brett Theodos, Senior Fellow, Urban Institute, 
      Washington, DC.............................................    24
    Mr. Aaron Seybert, Managing Director of Social Investments, 
      The Kresge Foundation, Troy, MI............................    32
    Ms. Jennifer A. Vasiloff, Chief External Affairs Officer, 
      Opportunity Finance Network, Washington, DC................    39
    Mr. John Lettieri, President and Chief Executive Officer, 
      Economic Innovation Group, Washington, DC..................    50
Questions for the Record:
    None.
Answers for the Record:
    None.
Additional Material for the Record:
    SBIA Letter..................................................    60


 CAN OPPORTUNITY ZONES ADDRESS CONCERNS IN THE SMALL BUSINESS ECONOMY?

                              ----------                              


                       THURSDAY, OCTOBER 17, 2019

                  House of Representatives,
               Committee on Small Business,
                   Subcommittee on Economic Growth,
                                   Tax, and Capital Access,
                                                    Washington, DC.
    The Subcommittee met, pursuant to call, at 10:02 a.m., in 
Room 2360, Rayburn House Office Building. Hon. Andy Kim 
[chairman of the Committee] presiding.
    Present: Representatives Kim, Davids, Delgado, Hern, and 
Stauber.
    Also Present: Representatives Chabot, and Houlahan.
    Chairman KIM. Good morning everyone. The Subcommittee will 
come to order.
    I want to thank everyone for joining us this morning. I 
especially want to thank the witnesses for being here today. 
Thank you so much.
    America's small businesses are a catalyst for creating 
business opportunities and driving growth in the U.S. economy. 
The estimate 30 million small firms in the U.S. represent over 
99 percent of all employers, and support nearly 56 million 
jobs.
    Small businesses are vital to the well-being of many large 
and small communities in rural, suburban, and urban areas, and 
that is why we need to be enacting policies that allow small 
firms to thrive. One way for Congress to support small 
businesses is through well-conceived and targeted tax policy. 
In my short time in Congress so far, I have heard that small 
firms need a simple Tax Code, one that levels the playing field 
and creates opportunities to build Main Street, not Wall 
Street.
    The tax policies that are enacted in Washington have a 
direct impact on the people in my district back in New Jersey 
and take, for example, one of the signature pieces of 
legislation of this administration, the new tax law.
    That legislation, the Tax Cuts and Jobs Act passed in 2017, 
was an imperfect one. One example being the cap imposed on 
state and local tax deductions and the lack of parity between 
small businesses and corporations. Because of this change to 
the SALT deduction, millions across my home state have gone 
from receiving refunds to paying more in Federal taxes. And 
while corporations can still take the full deduction for their 
state and local taxes, small businesses that report income on 
their individual returns cannot. These are issues that need to 
be addressed right away.
    But we are not here today to discuss all the aspects of the 
new tax law, but one provision that has a laudable goal, to 
spurn investment, economic activity, and ultimately, job growth 
in undercapitalized communities. Over the last several decades, 
and particularly after the financial crisis, thriving towns 
across the country with vibrant Main Streets have seen their 
local economies decimated. As part of the new tax law, 
Opportunity Zones were created with the intent to give 
preferential tax treatment for investors in economically 
distressed communities with the hope that these investments 
will lead to increased economic activity throughout the area.
    At first glance, these new tax incentives appear to do what 
many other policy proposals and programs have attempted to 
failed to do, bring much needed capital, economic development, 
and jobs to those communities that need it most.
    Unfortunately, like many tax incentives, there are 
opportunities for abuse and few guardrails around the program 
which could result in lost opportunity and thwarted 
congressional intentions. The overall structure of the tax 
incentives centered around Opportunity Zones leave many 
questions unanswered.
    The centerpiece of the tax incentive is continued deferral 
of capital gains on previous investments and complete 
elimination of capital gains tax on gains within opportunity 
zones that are held for more than 10 years. While this sounds 
like a reasonable tradeoff, it begs the question of what sort 
of investments will be made, by whom, and what will be 
prioritized to ensure economic growth, prosperity, and job 
growth in the near and long-term?
    And while investments can be made in virtually any business 
or assets, reports indicate that most of the money is flowing 
towards real estate versus small businesses already operating 
within the Opportunity Zone. When an investor buys a property, 
makes some improvement and sells it to someone else for a 
higher price while deferring capital gains, investors, fund 
managers, and real estate developers benefit but there does not 
seem to be much benefit to the broader community.
    Further, with no minimum or maximum investment requirement, 
few restrictions on who may make investments or set up an 
opportunity fund and no public reporting requirements, we must 
determine how best to measure the success of this new tax 
provision to determine if it is meeting the intended goals.
    And, like any new program or tax benefit, we must ask 
whether our agencies have the proper tools and resources in 
place to combat waste, fraud, and abuse. This last point is of 
particular importance as recent news report highlight the 
growing concern that Opportunity Zones are new tax incentives 
that only benefit those with capital that are looking to 
further defer and delay paying taxes on capital gains.
    That is why today's hearing within our Committee's 
jurisdiction is so important. We need to shed light on how this 
new program works and does not work and what additional 
regulatory clarity is needed to ensure that low and moderate 
income communities where many small businesses operate are 
getting the critical investments that the new tax law promised.
    It is my hope that this hearing will shed light on the 
possible benefits that Opportunity Zones have for small 
business while looking critically at our outstanding challenges 
and real concerns that must be addressed.
    I firmly believe Congress can work together, just like this 
Committee does day in and day out, to find responsible tax 
incentives and policies that truly help small firms and 
strengthen our economy for the long term.
    With that, I want to again thank each and every one of the 
witnesses for joining us, and I look forward to your testimony.
    I would now like to yield to the Ranking Member, Mr. Hern, 
for his opening statement.
    Mr. HERN. Thank you, Mr. Chairman.
    Mr. Chairman, if I may, I would ask for just a moment of 
silence for our colleague, Elijah Cummings and his family.
    If I could please, just a moment of silence, please.
    Thank you so much.
    It is good to be with you today. I look forward to hearing 
your testimonies.
    As a small business owner myself for the past 34 years, 
including 17 years on a bank board and 13 years on the 
McDonald's National Leadership Council serving over 3,500 
McDonald's franchisees, 8 years of that. I was the ombudsman 5 
years as the National Chairman of the Systems Economic Team, 5 
years on the Corporate Tax Policy Team, 8 years on the 
Insurance Policy Team, there is no better advocate for small 
business in the United States House of Representatives than 
myself. And so I want to look at every policy that is coming 
through here to make sure it actually benefits those who are 
asking for help.
    But generating two out of three jobs in business and across 
America, this economy depends very heavily on small business, 
not only small business as we know it but also the incubators 
for the large businesses of the future. From traditional brick-
and-mortar storefronts to highly specialized manufacturers, 
small businesses and entrepreneurs and startups are 
transferring how business is getting done these days. We must 
continue to work in a bipartisan manner to ensure that all 
small businesses operate within an environment that is free of 
overly burdensome regulations and an environment that allows 
them to create jobs and expand. That is why it is important 
that we are going to be discussing another bipartisan idea that 
has been implemented and making progress across the country: 
Opportunity Zones.
    As a way to jumpstart economically distressed areas of the 
Nation, the Tax Cuts and Jobs Act included a provision to 
authorize the Opportunity Zones program. This program provides 
stepped up tax enhancement for individuals that reinvest their 
capital gains in targeted economic areas. Opportunity zones 
represent a unique working relationship between the Federal 
Government, state and local municipalities, and the private 
sector. Although similar to programs of the past, Opportunity 
Zones have been created with flexibility to ensure utilization.
    Within my state of Oklahoma, there have been 117 
Opportunity Zones designated. Moreover, approximately 380,000 
Oklahomans live in these designated boundaries, and in my 
congressional district alone, Oklahoma's 1st Congressional 
District, we have 23 designated zones.
    In order to direct investments properly, qualified 
opportunity funds must be created. Although recent headlines 
have suggested this program will only benefit certain business 
sectors, this hearing will allow members of the Subcommittee to 
explore how small businesses can better interact with these 
designated zones.
    We know that small businesses are the Nation's job 
creators, and thus, when jobs are created in communities, 
neighborhoods are transformed. The two rounds of guidance from 
the Deparmtent of Treasury and the IRS have continued to 
clarify the roles of businesses within this program.
    The first round of regulations was published in October of 
2018 and the second round came out in April of 2019. With the 
program in its infancy, we need more information on how 
investments are being shaped and on how dollars are falling to 
projects. This information will be critical as we assess its 
effectiveness.
    I look forward to hearing from our witnesses on how this 
program has been implemented and the steps that have been take 
to spur economic development. I know this hearing will provide 
even more clarity for small businesses across the Nation.
    And with that, Mr. Chairman, I yield back.
    Chairman KIM. Thank you, Mr. Hern. The gentleman yields 
back.
    And every time we have one of these hearings I am always 
reminded about how grateful we are and lucky to have your 
expertise as a small business owner and someone who can really 
help make sure that we focus in on where the rubber hits the 
road and make sure we can get things done, which is very much 
the intention of this Subcommittee. The Ranking Member and I 
both want to make sure that we can move forward just thinking 
about what is best for the small businesses and we come into 
this hearing with an open mind, just really trying to get at 
the best understandings of what we have seen so far, trying to 
glean best practices, and trying to understand where we might 
be able to go from there to the benefit of small businesses, 
whether in Oklahoma, New Jersey, or elsewhere around this 
country.
    And if Committee members have an opening statements 
prepared, we would ask that they be submitted for the record.
    I would like to just take a quick minute to explain the 
timing rules. So each witness will get 5 minutes to testify and 
the members get 5 minutes for questioning. You have a little 
gizmo in front of you which is our lighting system. The green 
light will tell you when you begin. The yellow light comes on 
when you have 1 minute remaining. And the red light comes on 
when you are out of time, and we ask that you do your best to 
stay within the timeframe to the best of your ability.
    I just want to quickly introduce our witnesses before we 
proceed. I would like to introduce Mr. Brett Theodos. He 
directs the Community Economic Development Hub at the Urban 
Institute where he is a senior fellow in the Metropolitan 
Housing and Communities Policy Center. His work focuses on 
economic and community development, neighborhood change, 
affordable homeownership, consumer finance, and program 
evaluation and learning. Thank you for coming.
    Our second witness is Mr. Aaron Seybert, the managing 
director of the Social Investment Practice at The Kresge 
Foundation. Prior to joining the foundation in 2016, Mr. 
Seybert served as executive director at JPMorgan Chase Bank 
where he was involved with community development banking 
focused on new market tax credits and historic tax credit 
investing. Welcome, Mr. Seybert.
    Our third witness today is Ms. Jennifer Vasiloff. She 
joined the Opportunity Finance Network (OFN) in 2017 as chief 
external affairs officer, a role capitalizing on her 16 years 
of experience in promoting and strengthening the CDFI field. 
Ms. Vasiloff leads the organization's efforts to raise the 
profile of CDFIs, particularly at the national level. Welcome, 
Ms. Vasiloff.
    I would now like to yield to our Ranking Member, Mr. Hern, 
to introduce our final witness.
    Mr. HERN. Thank you, Mr. Chairman.
    Our witness is John Lettieri. Mr. Lettieri is president and 
CEO and cofounder of the Economic Innovation Group, also known 
as EIG. EIG is a leader on economic policy matters and an 
innovator of policy solutions that power America forward. Mr. 
Lettieri has previously served as a staffer in the United 
States Senate and is a vice president of Public Policy and 
Government Affairs for the Organization of International 
Investment with a focus on economic development. Mr. Lettieri 
has also testified in the past on Capitol Hill on the topics of 
Opportunity Zones. Mr. Lettieri, we appreciate you taking time 
away from your company to talk with us today. Thank you.
    Chairman KIM. Great. Thank you so very much. And again, we 
are grateful to have all four of you here today.
    Why do we not just jump right in? Mr. Theodos, you are 
recognized for 5 minutes.

 STATEMENTS OF BRETT THEODOS, SENIOR FELLOW, URBAN INSTITUTE; 
  AARON SEYBERT, MANAGING DIRECTOR OF SOCIAL INVESTMENTS, THE 
KRESGE FOUNDATION; JENNIFER A. VASILOFF, CHIEF EXTERNAL AFFAIRS 
OFFICER, OPPORTUNITY FINANCE NETWORK; JOHN LETTIERI, PRESIDENT 
     AND CHIEF EXECUTIVE OFFICER, ECONOMIC INNOVATION GROUP

                   STATEMENT OF BRETT THEODOS

    Mr. THEODOS. Chairman Kim, Ranking Member Hern, and members 
of the Committee, thank you for inviting me to speak with you 
today.
    I study private and mission and public financing to 
understand who communities are accessing capital, which are 
being left behind, and how to help. These I offer on my own, 
not to be attributed to the Urban Institute, its trustees, or 
funders.
    It is a legitimate work of the Federal Government to help 
communities inadequately connected with capital markets achieve 
economic growth. We have many examples of Federal programs and 
incentives working to achieve those ends. However, we also have 
1031 exchanges and the mortgage interest deduction and EB5 
visas that are poorly targeted to need.
    Community development policy in the United States, 2 or 
more generations ago consistently relied on Federal spending 
and control, but we have gradually and consistently moved 
towards a model where the Federal Government exerts less and 
less control over Federal resources. I submit that Opportunity 
Zones mark the near complete transition to privatized Federal 
community economic development policy.
    A heavy reliance on the private sector to accomplish the 
public agenda introduces a set of pitfalls. While some zones 
should never have been chosen or eligible, many do show real 
need for investment and OZs will undoubtedly attract 
substantial capital into zones in aggregate.
    OZs have four compelling features as I see them. They tap 
into a new investor pool, they can be used as a tool for 
mission-driven projects, they encourage a longer term 
investment horizon, and they incentivize equity capital which 
receives less Federal attention.
    However, as currently structured, OZs have several 
shortcomings. Their place-based targeting is overly broad with 
too many upper income communities included. For example, zones 
in Manhattan and Brooklyn and Berkeley where the median home is 
worth more than a million dollars.
    Real estate will be the largest use case and there are 
already better targeted Federal supports for real estate. There 
are not sufficient project type or use requirements in contrast 
with other Federal tools. So, for example, no requirements that 
new apartments be rented at affordable prices. There is no 
requirement for community input or engagement under this new 
incentive. Many OZ investors report they would have done the 
deal in the exact same form absent the incentive, meaning the 
Federal Government is subsidizing projects that do not actually 
need the help. And finally, there is a lack of reporting 
requirements.
    Congress should consider the following reforms:
    First, tighten the number of eligible zones by removing all 
contiguous tracks, as well as those that as they gain 
investment stop qualifying as low income communities.
    Second, Congress should more narrowly restrict qualifying 
investments. For instance, only real estate transactions where 
the operating business is the owner occupant or where housing 
is sold or rented at below market prices.
    Third, any investment into a CDFI, a community development 
financial institution, any investment into a vehicle that they 
control should be given preferential treatment.
    Fourth, Congress should add a ``but for'' or a substitution 
test to restrict the incentive to projects that could only 
proceed with the additional help.
    Fifth, Congress should consider restructuring the tax 
benefits by extending the temporary deferral, by converting the 
step-up and basis to a sliding scale that depends on the level 
of economic distress in the zone, and by eliminating the 
permanent exclusion.
    Finally, Congress should require transaction level 
reporting for all OZ investments on who, what, where, when, and 
how much. So who the investors and the investees are, what the 
investment was for, when the investment was made, where the 
investment went, and how much was invested.
    It is important to note that Treasury could improve this 
incentive even now, but if Treasury fails to take these steps, 
Congress should act. Treasury could make this more like a 
program, not merely an incentive by giving responsibility to a 
sub-agency with dedicated staffing to oversee data collection 
monitoring. Treasury should conduct a rigorous certification 
process for opportunity funds to be eligible to act as an 
investment vehicle, providing a mission test for opportunity 
funds, not self-certification. And finally, the draft IRS tax 
form is inadequate to track the program but Treasury already 
has the authority it needs through the certification process.
    Thank you for your time. I look forward to questions.
    Chairman KIM. Thank you so much.
    Mr. Seybert, over to you for 5 minutes.

                   STATEMENT OF AARON SEYBERT

    Mr. SEYBERT. Thank you, Chairman Kim, and Ranking Member 
Hern, and members of the Committee.
    The Kresge Foundation is a $3.7 billion privately endowed 
foundation headquartered in Metro Detroit working nationally. 
We are focused on creating opportunities for low-income people 
in America's cities. We raise no outside capital. We provide no 
for-profit services. We have no stake in Opportunity Zones 
whatsoever other than the $22 million of balance sheet 
protection we have provided to two Opportunity Zone funds that 
are mission aligned with our organization. Our sole focus in 
the sector is ensuring that Opportunity Zones benefit low-
income people.
    In addressing the concerns of the Committee, I would like 
to suggest that we focus on maybe a different question than has 
been presented because I think certainly Opportunity Zones can 
address the concerns of the small business economy. The 
question really should be will the new marketplace that has 
been created do that, and what incentives exist for the market 
to address those concerns?
    As Brett mentioned, unlike virtually every other Federal 
incentive designed to address inequality, this is not a 
program. This is a private marketplace that is entirely 
unregulated or virtually unregulated where private investors 
deploy capital gains, grow those gains hopefully in return, 
invest those gains in Opportunity Zones in hopes of growing 
those gains long term and avoiding capital gains in the future. 
How those gains are invested and who benefits from those 
investments remains largely undefined.
    Given that understanding, I think that we should examine 
the existing capital challenges that face small businesses in 
this country every day. Particularly for minority-owned firms, 
many small businesses struggle to access capital because they 
are undercapitalized to begin with. The lack of equity in small 
businesses makes it difficult to access traditional debt 
products needed to grow and expand. Here, Opportunity Zones 
could really provide a great benefit.
    The incentive requires investors to make equity investments 
in underlying businesses. In a traditional venture capital 
model where venture investor returns are really enhanced by 
this incentive, that rationale make a lot of sense in how the 
tool is effective in promoting that sort of investment. What is 
unclear though is whether or not the incentive is there to 
invest in small businesses that do not offer the same growth 
curve like a tech company provides. Many small businesses do 
not appreciate capital in that fashion. They are oftentimes 
illiquid and it is unclear as to how an investor would exit 
their investments in a small business if not for a venture-like 
or private equity-like model.
    That brings me to my second point which is really around 
scale. If you examine the 75, 85-ish so sort of privately 
declared opportunity funds who have decided to identify 
themselves as such, the majority of those require a minimum 
investment of $250,000 of investment, and many are 
significantly more than that. When you compare that to the data 
around small businesses, which again, definitionally, it is 
important how you define small businesses, but in the data that 
we look at, most businesses are seeking growth equity less than 
$250,000, certainly, and many under $100,000. I think that 
mismatch creates a problem for many small businesses where the 
market is trying to deliver a product of scale and many small 
businesses need something that scales down to the business 
needs on the ground.
    Third, we want to understand the risk-return calculus for 
investors. It has been noted, real estate is the predominant 
asset class right now in the opportunity's own sector because 
we believe that real estate generally provides a lower risk, an 
enhanced risk calculus for investors. And so while small 
businesses certainly can absorb capital from opportunities on 
investors, the question is why would an Opportunity Zone 
investor, but for the venture capital model, decide to take the 
risk of a small business when real estate, generally speaking, 
is acknowledged as being a lower risk moderate return 
investment class. And so it is unclear as to why investors 
would choose to take that additional risk.
    Knowing the structural issues that sort of face small 
businesses and the way that Opportunity Zones overlay, it is 
really impossible to know whether not Opportunity Zones today 
are going to address the concerns of the small business 
community. Because of the way the legislation was structured, 
there is no disclosure accountability built into this 
marketplace. The public is likely to never know who raised the 
capital, where it was invested, and who benefitted from that 
investment. It is like the transparency should be concerning to 
all of us because as we learned in 2008-2009, markets without 
transparency are not only inefficient but they can also be 
dangerous.
    So we truly believe that Opportunity Zones offer a huge 
potential to the communities that we are concerned about, but 
until we have that transparency in the marketplace that is 
needed, we are going to be very concerned about the impacts on 
our constituencies and the people that we serve every day.
    Thank you for your time, and I am happy to answer 
questions.
    Chairman KIM. Great. Thank you for your comments there.
    Over to Ms. Vasiloff. You are recognized for 5 minutes.

               STATEMENT OF JENNIFER A. VASILOFF

    Ms. VASILOFF. Opportunity Finance Network (OFN) is a 
national network of community development financial 
institutions (CDFIs). CDFIs are mission-driven community 
development banks, credit unions, loan funds, and venture 
capital funds investing in opportunities that benefit low-
income, low-wealth, and other under-resourced communities 
across America.
    Currently, there are more than 1,000 CDFIs certified by the 
Department of the Treasury's CDFI Fund. Nationwide, the CDFI 
industry manages over $185 billion in assets. With cumulative 
net charge-off rates of less than 1 percent, CDFIs lend 
prudently and productively in markets often overlooked by 
conventional financial institutions.
    CDFIs are the ``boots on the ground'' experts that have 
been operating in Opportunity Zones and other disinvested 
communities for decades. As soon as the Opportunity Zone 
provision became law, CDFIs across the Nation began reaching 
out to investors, community residents, and other partners 
excited about the potential of this new community development 
tool. Many CDFIs devoted significant resources to exploring how 
to attract Opportunity Zone investors to the projects with 
high-mission impact that CDFIs specialize in.
    Regrettably, we have found that the Opportunity Zone tax 
incentive is not a good match for the kind of neighborhood 
revitalization deals of interest to CDFIs, particularly those 
targeting small businesses. Our member CDFIs tell us that 
investors expect double-digit returns, prefer real estate to 
small business investments, and largely shun the more 
challenging areas that need an infusion of capital the most. As 
a result, relatively few CDFIs are moving forward with 
establishing their own Opportunity Funds. Among those that are, 
an even smaller number are planning to concentrate on 
investments into small businesses.
    The structure of the Opportunity Zone incentive is better 
suited to investing in a new business choosing to locate in an 
Opportunity Zone, rather than a business already operating in 
the community.
    As important as launching a startup venture might be, the 
health and growth of existing businesses is also critically 
important, particularly businesses that employ community 
residents.
    Two CDFIs that are trying to use the Opportunity Zone 
incentive for small business investment are Community 
Reinvestment Fund headquartered in Minnesota and targeting the 
Midwest for their opportunity fund, and AltCap, a CDFI serving 
the Kansas City market. These experienced small business CDFIs 
are launching Opportunity Funds with a goal of investing in 
operating businesses. OFN strongly supports their efforts and 
looks forward to highlighting their work. However, both 
organizations have encountered obstacles and face competition 
from Opportunity Funds that are not as mission driven or 
focused on the small business community.
    Separate from the limited role the CDFI industry is likely 
to play, OFN is concerned that community residents, Congress, 
and other stakeholders will have limited information on how the 
Opportunity Zone tax incentive has operated due to the anemic 
data collection currently required by the Internal Revenue 
Service and U.S. Treasury. OFN has advocated for comprehensive 
data collection that will show where an Opportunity Zone 
investment is being made, the results of the investment, and 
the impact on the targeted community. The modest level of data 
collection currently planned by Treasury should be 
significantly expanded to get the full picture of the impact of 
Opportunity Zone investments.
    In the absence of an adequate Federal data collection 
protocol, OFN contributed to and strongly supports the 
Opportunity Zone framework, a voluntary set of guidelines 
created in partnership with the U.S. Impact Investing Alliance, 
the Beck Center at Georgetown University, and the Federal 
Reserve Bank of New York. The framework identifies best 
practices, a reporting framework, and a shared goal of 
measuring outcomes. My colleagues, the Kresge Foundation, Urban 
Institute, and Economic Innovation Group are all contributors 
to the framework.
    OFN also supports the bicameral, bipartisan legislation 
that has been introduced to establish reporting requirements 
for Opportunity Fund investment.
    In summary, the Opportunity Zone incentive is a poor fit 
for CDFIs, a missed opportunity to take advantage of the 
experience, mission commitment, and expertise of this 
nationwide network of community development finance 
professionals. Unfortunately, new investments in small 
businesses incentivized by the Opportunity Zone tax benefit are 
likely to be disappointing also.
    OFN encourages members of this Committee to support 
stronger accountability measures in the Opportunity Zone 
program and to consider other approaches to foster small 
business development in underinvested communities, including 
those leveraging the Nation's network of community development 
financial institutions. Thank you.
    Chairman KIM. Thank you.
    Why do we not go on to our final witness here? Mr. 
Lettieri, you are recognized for 5 minutes.

                   STATEMENT OF JOHN LETTIERI

    Mr. LETTIERI. Thank you, Mr. Chairman and Ranking Member 
for inviting me to testify.
    EIG was the leading proponent of the concept behind 
Opportunity Zones, and I believe it can provide a new lifeline 
to struggling communities if implemented properly.
    While there have been a number of Federal incentive 
programs aimed at boosting economic activity in underserved 
areas, Opportunity Zones is a sharp departure from past 
precedent in its scope, flexibility and its structure. Perhaps 
for this reason it has generated enormous interest from a wide 
variety of stakeholders.
    While the incentive was designed to meet a wide variety of 
needs, its central purposes was to support new businesses and 
existing small and medium-size firms in need of growth capital.
    The topic of this hearing is specifically whether 
Opportunity Zones can help address concerns of the small 
business economy, and here I think it is important to 
distinguish between small businesses and new businesses because 
policymakers generally devote too much attention to the former 
and not nearly enough to the latter. It is specifically new 
businesses that grow and add employees to which most net new 
job creation can be attributed each year. It should therefore 
be of concern that new business formation was abysmal in the 
wake of the Great Recession, both in terms of the start-up rate 
and the number of new firms created, as well as the geographic 
distribution of those firms.
    The latest figures on business startups show no real 
rebound, making entrepreneurship one of the few indicators that 
have failed to meaningfully improve.
    Capital access is especially critical for early-stage 
businesses and it is noticeably weak in Opportunity Zone 
communities. This policy could therefore help fill an important 
equity financing gap and allow entrepreneurs stay in their 
communities to build economic opportunity and wealth for local 
residents.
    However, we should be clear that while vitally important 
for growth-oriented companies, equity capital is not always the 
right source of financing for local businesses. No one policy 
can fit all needs.
    I want to talk about early market activity as we see it 
around the country. And though it is still early in the life of 
this marketplace, the Opportunity Zone's incentive is already 
being used to support a wide range of investments across the 
country as Congress intended. However, most of the early 
investment has indeed gone to various types of real estate 
developments and that is for a few simple reasons. One of the 
main factors is that improving the built environment is often a 
crucial first step in bringing people and businesses back into 
a community. But a more pernicious factor is the fact that the 
regulations governing business investment through Opportunity 
Zones have been slow and unclear.
    Investments in clean energy, broadband infrastructure, 
vertical farming, manufacturing industry, industrial 
facilities, these are all signs of the long-term potential of 
this incentive even if the scale of capital flow into such 
investments so far has been limited. Many early investments are 
going into basic neighborhood amenities, such as grocery 
stores, medical clinics, and new housing of all different 
types. Small cities are using Opportunity Zones to build or 
expand local innovation districts or revitalize blighted 
downtown corridors. Several early investments are using real 
estate development to support a stronger startup ecosystem 
through incubators and co-working spaces.
    Examples like these will likely proliferate as rules and 
best practices for Opportunity Zones become more widely 
understood among communities, investors, and local businesses. 
However, without additional regulatory clarity, and much 
stronger local implementation efforts, this policy will not 
reach its full potential. Indeed, regulatory concerns are 
keeping many investors who would wish to deploy capital into 
operating businesses on the sidelines.
    Unresolved technical issues include how to satisfy the 
requirement that investments in existing business add 
substantial new value. Timing requirements governing the 
investment activities of an opportunity fund. How to unwind an 
opportunity fund and return capital to investors after the 10-
year holding period. The ability to recycle capital from one 
investment to another without interrupting the intended tax 
benefit. These are fundamental issues that still remain 
unresolved nearly 2 years into the law's life. So it is no 
wonder then that the investment scope and scale is limited, 
particularly for businesses which are less predictable and more 
complicated than real estate investment.
    Each of these issues will significantly impact the extent 
to which this policy lives up to its potential to boost 
investment in local businesses and create new economic 
opportunity for residents.
    In conclusion, in spite of those challenges, I believe 
Opportunity Zones is a promising new initiative but it will 
require substantial new work, additional work to achieve its 
intended purpose. Let's be clear-eyed about those challenges. 
Rulemaking is not yet complete. Community stakeholders lack 
resources and are still finding their footing. The 
philanthropic sector, which could be playing a much more 
meaningful role, has been slow to engage. And investors 
generally remain hesitant to invest and make long-term 
commitments in areas where they previously might not have 
considered investing.
    That this is hard work should come as no surprise. As a 
country, we have largely neglected the underlying challenges of 
disinvestment and declined that this policy was intended to 
address. There will be no overnight success stories, but with 
the right tools and a much greater commitment of resources I 
believe Opportunity Zones can be an important first step in a 
new movement of place-based policymaking.
    Thank you. I look forward to taking your questions.
    Chairman KIM. Thank you. And we appreciate everything that 
you shared with us. And we will jump into questions.
    I will start by just recognizing myself for a few minutes 
here and then we will quickly move on to some of my colleagues.
    We are here today as we said to talk through some of the 
imperfections in this system, try to shed light on how we can 
move forward. Certainly, it is something that is of high 
interest in my own district. We have six zones in my district, 
18,000 residents within those zones.
    There is a saying in management that you cannot manage what 
you cannot measure and one concern that I have had about the 
Opportunity Zones is the lack of established reporting 
requirements that do not necessary provide us with a great 
measure of success. And we walk a fine line here because we 
also want to make sure that while ensuring accountability, it 
is not so much that it suffocates the program or the effort 
that we are trying to get in. That is something that Ranking 
Member Hern and I have both really committed to is really just 
trying to make sure that we are not overly burdening especially 
small business and others. But we also are just trying to think 
through this.
    So I think for me, what I would like to ask you is, as we 
are trying to think through, we will get to the point about 
what kind of information you think we would need to know, but I 
would like to just start are the more fundamental level. How 
would you measure success of this new tax incentive? How would 
you go about doing that? Is this something that we should look 
at in terms of job creation of economic growth within these 
communities or is there some other measure? I am kind of first 
interested in seeing what would you look at to be able to then 
come back and tell us down the road that this has been 
successful?
    So if you do not mind, maybe we will just start with you, 
sir, and we will move on down.
    Mr. THEODOS. So I think in terms of intermediate outcomes 
and longer term outcomes. And my key intermediate outcome is 
where is the OZ capital going? And if the OZ capital goes to 
the 10 percent off best off zones, if 90 percent of the capital 
goes to the 10 percent best off zones, then we are in a 
situation where we can already articulate that this incentive 
is not working well. If what we see is a broad diffusion of 
capital across all of the zones and even the most disinvested 
zones are benefitting from this incentive, then we are set up 
in a position to believe that this might be helping in a 
broader and more meaningful way. We do not have the insights at 
all to be able to answer those questions. So those are my 
intermediate.
    Longer term outcomes are also fairly clear and 
straightforward. It is about job growth. It is about firm 
creation. It is about wealth creation for residents in 
communities that have historically lacked access to wealth.
    Chairman KIM. I do not know if everyone wants to comment on 
this but just go down the row if anybody else wants to say 
anything on this.
    Mr. SEYBERT. I mostly agree with Brett, although we come 
from the position of what is in the interest of low-income 
people. And so ultimately for us, when we think about economic 
inequality, it is really about the economic mobility of low-
income people, right, which is really about real wage growth in 
low-income households. As noted, the lack of transparency makes 
efforts nearly impossible, and it is lacking data. It is almost 
entirely a long-term analysis.
    I think what I would urge the Committee to reject is the 
false equivalency between the lack of access to capital 
contributing to the anemic growth in businesses which is 
absolutely true. And therefore, more capital must then cure 
that anemic growth. I do not think that we can say that. If 
that were true, if more capital meant more growth, then folks 
in all of your districts would be screaming for more subprime 
lending in their communities. Right? We moved billions of 
dollars of subprime lending through low-income communities 
across this country and it did not help; it hurt. Right? So it 
is not about the volume of capital that moves through. It is 
about the kind of capital that moves into these communities and 
who it is designed to benefit.
    I do not have a short-term answer about how we measure 
that. I just know what has worked in the past and we have some 
examples of more program-like Federal programs, like the Low-
Income Housing Tax Credit, the New Markets Credit, Federal 
Mortgage Insurance, other things that have been designed to 
help low-income people that over a long period of time have 
shown some success in encouraging economic mobility. This tool 
may become the thing that really drives economic growth from a 
household perspective, from a low-income people perspective, 
but it is far too difficult to tell, and without the data that 
has been urged to be collected by the folks testifying today, I 
do not know that we will ever get that answer.
    Chairman KIM. Okay. Just in the short time we have, if any 
last comments from the two of you and then we can get back to 
this after we talk to some of the other colleagues.
    Ms. VASILOFF. Just very briefly to sort of double down on 
the need for really any data collection. It is hard to define 
success or measure success when so little information is being 
asked of participants in this program. And as Aaron mentioned, 
there are other examples, like the New Markets Tax Credit where 
participants in that program are required to provide a lot of 
information on a transaction level basis. Systems are in place. 
CDFIs abide by them as well as other participants in that 
particular program. I think something comparable could be put 
in place for Opportunity Zones.
    Chairman KIM. Okay.
    Yes?
    Mr. LETTIERI. If I could just briefly, I want to mostly 
agree with what everyone said and strongly disagree with a 
couple things.
    One, I think we all agree on the need for reporting 
requirements. That is something that EIG has led the charge on 
legislatively and in our comment letters to Treasury. So there 
is no disagreement I think on this panel about that.
    However, I think we are better off looking at this as a 
policy experiment in light of the large-scale failure of many 
other programs with a similar intention and somewhat similar 
structures to each other to achieve the intended results of 
stimulating widespread and large-scale economic growth in those 
low income areas. We do not really know at scale what works 
particularly with this new policy. And so you do not just at 
the Federal incentive. You look at what are communities 
actually doing. Let's not ignore the fact that states and 
localities have a vast toolkit if policy and regulatory tools. 
There are local anchor institutions and partners and 
philanthropies that can play a part and we cannot judge a place 
that had none of those assets activated in the same way that we 
judge a place that had all of those assets activated on behalf 
of their Opportunity Zone strategies. So we need to look at 
what places are actually doing to implement locally what is at 
its best a powerful Federal tool, but one that does not have 
any kind of mandatory uptake. A community can choose to use it 
or not. They can choose to have a strategy or not. And if they 
do not, we should naturally then expect weaker results in those 
communities.
    Chairman KIM. Okay, great.
    Hopefully, we will get to do a second round of questions 
but I just want to quickly hand it over to my Ranking Member to 
follow up.
    Mr. HERN. Thank you, Mr. Chairman.
    There is so much to talk about here. I have, as I 
mentioned, 23 in my district. I live within 5 miles of 19 of 
those. And being a long-term investor and developer in real 
estate, small business owner, I am always looking like any 
entrepreneur would be, what is the next opportunity?
    I do agree where the successes are coming, or where at 
least obviously it is a very short window here we are looking 
at, but just anecdotally seeing who are investing in these 
areas. There are large real estate plays. One would have to ask 
why these areas became blotted, which many of you all in this 
area you look at that and you say a lot of this, there have 
been people moving out of these areas where newer neighborhoods 
are developed. Crime is driving a lot of this. Changing in 
traffic patterns, road development or lack of development, loss 
of jobs, many, many things. One would argue that to bring 
these, revitalize these neighborhoods or these particular OZs 
would be to bring business back in which is why we are talking 
about this today. I have always said that most people do not 
move to a city or to an area because small businesses grow. It 
is usually a larger business, and small businesses are those 
who service the employees that work at those larger businesses.
    So there is a lot to digest in all of this. Again, I have 
looked at this, I have shared this with our staff. I have 
looked at this since the moment it was launched, and I have 
talked to many, many colleagues, including tax attorneys and 
fellow developers and it has been very interesting to try to 
figure out how to make these work personally.
    But with that said, I would like to start with you, Mr. 
Lettieri. Can you just give us any examples where people have 
invested in the qualified opportunity funds and how those are 
being invested in small businesses?
    Mr. LETTIERI. Sure. I think there are a couple of examples 
I would point to.
    One is we see some interesting sectors emerging with 
Opportunity Zones in use. One of those is vertical farming. So 
you see there have been a number of vertical farming companies 
and businesses that have started up either to invest in that 
sector or as businesses qualified for opportunity fund 
investment. And so that seems to be a sector that in the early 
stages with the limited regulatory clarity that we have still 
nevertheless works well with the nature of the incentive.
    As I mentioned in my testimony, a lot of the businesses 
that are seeing support from Opportunity Zones thus far are 
local amenities like grocery stores and medical clinics and 
things that we would want to take for granted in any kind of 
stable community. There is broadband businesses that are 
standing up to service the connectivity gap in a lot of the 
low-income areas.
    So there are a lot of creative use cases in the business 
space that can be used. But I want to again underscore, 
Opportunity Zones is an equity incentive many, if not most 
businesses do not need or qualify for equity investment. So we 
have to understand that this is a tool that is going to fit a 
specific and very important market need, one that creates and 
can support growth companies. But then, as you mentioned, can 
support a stronger ecosystem of other small businesses and 
service industries that support those larger employers. What a 
lot of these communities lack is a real anchor kind of growth 
company and what is going to be required to bring them back are 
some stable and growing employers that can add to the tax base 
that can create jobs, et cetera.
    To Arron's point, when we think about what benefits low-
income people, we know from an emerging body of research that 
concentrated poverty and economic segregation is one of the 
very worst things, especially for a child growing up in those 
types of communities when you look at their long-term life 
outcomes. When you think about growing up in a concentrated 
poverty area or a distressed city, services are often lacking, 
schools, ambulances, fire trucks, police. Those are things that 
they cannot take for granted the way we can in more prosperous 
areas. So putting businesses and development in these areas 
that rebuild the tax base is also an important side benefit to 
the communities and to the most vulnerable residents because it 
creates a base of resources that they do not currently have or 
cannot currently rely on.
    Mr. HERN. Mr. Lettieri, if I may, just with the remaining 
time I have here, you did allude to something that none of the 
other three touched on, or maybe I missed it. We try to do this 
a lot. I have only been in Congress less than a year now but I 
have seen it throughout my lifetime. We try to fix a lot of 
national problems or a lot of local problems with national 
Band-Aids, if you will. And I realize it is around the Tax Code 
that we do that. But it seems to me that the people and the 
entities that are most equipped to fix these areas are the 
communities, the cities that most of these areas lie or the 
states that they lie in. And it would seem that as we go 
through and we look at these that it would be important that we 
figure out how to include the state and the local governments 
in these as well in a fashion that is outside the private 
investment as well. Because, again, I look at these, I look at 
the people who are investing in these areas are very, very, 
very wealthy individuals. The money knows no politics. And so 
it is really about return opportunities.
    And I look forward to listening to the rest of the 
questions today and us coming out here with some solutions as 
we go forward. But I do agree the reporting is just so 
critical.
    Thank you, Mr. Chairman.
    Chairman KIM. Great. Thank you.
    Why do we not proceed? I am going to turn it over to 
Congresswoman Davids for her questions.
    Ms. DAVIDS. Thank you, Chairman.
    And I would just like to first thank the Ranking Member for 
acknowledging the loss of our colleague, Mr. Cummings.
    I also, this is unintended but I am going to, it is like we 
planned it, I am going to follow up on the Ranking Member's 
question.
    But first I want to just kind of talk a little bit about 
the district that I represent is the 3rd District in Kansas. 
And Ms. Vasiloff, thank you for in your testimony, written 
testimony and also your testimony in front of us here today 
mentioning the good work that AltCap is doing. They recently 
moved. Well, not moved but they have included Kansas in their 
service area, so I have spent quite a bit of time talking to 
the folks at AltCap, and they are definitely doing a lot of 
really good work in supporting small business growth in our 
community.
    So I know the hope for increased investment in Opportunity 
Zones, it is definitely exciting and it is promising and that 
there are a lot of factors to consider. And oversight, 
especially from what we have heard today, oversight that needs 
to be done to ensure that the progress from this program or 
incentive is equitable and that it is sufficient.
    The State of Kansas has 74 designated opportunity zones and 
those are in a lot of different kinds of areas--rural, 
industrial, urban, suburban. And in the 3rd District alone, we 
have got 11 Opportunity Zones. They are in Olathe, in Lenexa, 
which are both in Johnson County, and then Kansas City, Kansas, 
which is in Wyandotte County. And each zone and each 
neighborhood is dealing with its own unique set of challenges 
which I am sure you all are familiar with. Every community has 
its own unique flavor.
    We want to do everything we can on this Committee to 
support and promote small business growth and making use of 
investments in the way that we can. So I will start with Mr. 
Theodos. You already mentioned community involvement in your 
testimony, and then the Ranking Member also started to bring up 
that concept. I am curious from you, and then everybody else, 
know that I have used half the time, to talk a little bit about 
how we can bring communities into the conversation in a more 
effective way, and what kind of role they need to play and at 
what stage because I think that oftentimes communities will 
find themselves trying to give input and a lot of decisions 
have already been made. So if you could talk a little bit about 
that that would be appreciated.
    Mr. THEODOS. There are some fundamental disconnects that 
make that hard with this incentive. There is not the legal 
structure or mechanism by which cities or states or counties or 
resident association or groups can engage to have a say or even 
to know whether this capital is deployed in their communities. 
These are private investments that can happen. They need not 
involve public sector dollars beyond the OZ financing or 
community residents themselves. So residents may not know this 
is going on. Even if they do know they may not have any access. 
Sometimes cities have the ability to control zoning or other 
elements but not all places have that opportunity. And so it 
will be a challenge to think how OZs allow for any reason 
community engagement process in a mandatory required or even 
encouraged way.
    Ms. VASILOFF. You know, you can use this incentive 
anywhere. And so you sometimes have the dynamic of communities 
almost competing with one another for access to Opportunity 
Investors investors. So in the conversations we have had with 
some of our members, particularly some serving rural 
Opportunity Zones, maybe do not have some of the other folks 
engaged that even a Kansas City community does have in place. 
And so I suspect that some of those areas are going to be 
bypassed by investors; but we do not know yet.
    Mr. SEYBERT. I will quickly add that when I speak to mayors 
and governors across the country, I advise them to play both a 
strong defense and offensive game in regard to Opportunity 
Zones. Just start with the needs of your community. Understand 
the capital that is needed and then form strategies around 
that, not strategies around Opportunity Zones alone.
    Ms. DAVIDS. Thank you. And I yield back.
    Chairman KIM. Great. Thank you.
    I will now turn it over to Congressman Stauber. You are 
recognized for 5 minutes.
    Mr. STAUBER. Thank you, Mr. Chair, and Ranking Member Hern 
for putting on this discussion today. And also to the 
witnesses. I appreciate your expertise in the areas and your 
thoughtful consideration to the questions that we are asking. I 
have got a few myself. I will make a comment first.
    Opportunity Zones are a huge deal for Northern Minnesota. 
With over 30 Opportunity Zones in my district alone, we are 
making sure rural America knows and that rural America matters. 
In fact, I have had the constituents ask how can they have 
their own town designated an Opportunity Zone since I started 
here in Congress 10 short months ago. The economic potential 
from an Opportunity Zone designation is being felt by our 
communities.
    With all good ideas though come some challenges. To that 
end, Mr. Lettieri, what did Congress get right and wrong with 
the Opportunity Zones? And then the second question is what 
information is still needed to give the Opportunity Zones a 
chance to really be successful?
    Mr. LETTIERI. Thanks for the question.
    With some intellectual humility here I will say there are a 
lot of the answers to that question that we will not know for a 
while. And this underscores again the need for both patience 
and data.
    I think one thing it got right that I think is a key 
differentiate between this policy and other previous programs 
is the flexibility and scalability of the incentive. Typical 
tax credit programs cap out at a relatively low dollar amount 
relative to the national scale of need. So if you have a $3 
billion tax credit program and a couple dozen investments in 
low-income communities around the country, those may be great 
investments for those individual communities. It offers no 
promise of scale to be able to meet a wide array of needs in a 
wide array of places.
    So the fact that this is non zero sum, the fact that your 
district and the communities in your district can benefit at 
the same time that other places in your state can benefit 
without it being as zero sum in nature as a scarce tax credit 
is a huge deal and I think one of the key features here. The 
flexibility of use case as well. The fact that you can have 
multiple reinforcing investments in different sectors in the 
same community. So housing at the same time you are investing 
in businesses, at the same time you are investing in 
infrastructure, that is really important because as we know, 
these communities have needs in bunches, not just one specific 
type of need. And if you get that kind of clustering effect, 
that is what we know is going to be the most effective in 
building a durable economy over the long term.
    I think some of the weaknesses have been already noted and 
some of them are also inherent to any specific policy. It is 
not going to solve on its own really any problem except making 
capital access easier. It is a tool. It is not a strategy in 
and of itself.
    To the congresswoman's question about what communities can 
do, one thing that really enhances the market opportunity for 
communities and gives them more control is doing what they 
should be doing anyway, which is assessing what are our needs 
and assets? What is our vision for how we want Opportunity 
Zones used? How do we pitch that to the private sector?
    And about 50 cities have already done that through an 
Opportunity Zone perspective led by an organization called 
Accelerator for America which is a group of mayors around the 
company. That is a great way to assess what are our needs? 
Let's take stock of our assets. Many of these assets are 
publicly owned and doing nothing for the community and not 
presenting any value to investors either. And so activating 
those latent assets is a huge deal and Opportunity Zones gives 
us a chance to do that.
    Mr. STAUBER. I appreciate the answer.
    One of the things that I look at, I, too, and a small 
business owner going on 30 years, and so one of the things I 
look at is the ability to access capital. That is tough for 
many small businesses. But I have to just say from the three 
other witnesses, from this small business owner, I just felt 
like there were more government layers that you would like to 
put in place. And from my standpoint and from what I am hearing 
from constituents is we need rules and regulations. We need to 
look at the return on the investment but the additional, I 
think that is a disincentive. I think that the government is 
not necessarily the answer all the time. This public-private 
partnership I think has that ability. But to put the layers 
upon layers, we are trying to reduce the regulations as much as 
possible keeping in line with the return on the investment and 
also giving us the opportunity to look and see if it is 
successful. But just what I heard was just, you know, from this 
small business mind just over and over, the regulations and 
what you are asking these investors to go through, I just felt 
that maybe we ought to have a little bit more flexibility in 
allowing the investments to be made by the private partners or 
private capital to have an influence to hit our small 
businesses and the communities that need it the most.
    Like I talked about the 30 communities in the district that 
I represent, Minnesota 8th, is extremely important. So I do 
appreciate your comments and your expertise.
    Mr. Chair, I yield back.
    Chairman KIM. Thank you.
    We are going to turn it over to Congresswoman Houlahan. 
Over to you for 5 minutes.
    Ms. HOULAHAN. Thank you, Mr. Chair. And thank you to the 
panelists who have come.
    I represent a community in Pennsylvania just outside of 
Philadelphia. We have at least two Opportunity Zones in our 
community, and just by way of data, the median household in 
Coatesville, which is one of our zones, is $38,000 roughly, but 
people in poverty is 30 percent. Median house value there, 
$115,000. In the city of Reading, which is part of my 
community, the median household is about $29,000. People in 
poverty is 36 percent. Median value of homes are $69,000. And 
that is in comparison to my whole district which is about 
$84,000 in median income, 29 percent in poverty, and the 
poverty value of about $300,000.
    I also come as a businesswoman as well, as an entrepreneur, 
and you all talked a little bit about some really important 
words. Mr. Theodos, you talked about mission-driven projects. 
Ms. Vasiloff, you talked about elevating existing businesses. 
And Mr. Lettieri, you spoke a little bit about philanthropic 
entities in business. And everyone, including our Chair, spoke 
about measuring what matters, the need to be able to measure 
success and to be able to know in the long term whether or not 
this is working.
    Can you all speak to the degree that you can about your 
thoughts about vetting standards for the companies themselves? 
And let me get some specifics about that.
    Recently, the business roundtable CEOs talked about the 
market signals that are talking about the importance of 
companies that are thinking about people and planet as well as 
profit, a shared prosperity, an inclusive economy, the 
importance of finding companies that are not only thinking 
about maximizing their shareholder value but also thinking 
about the triple bottom line. Is it something that you would 
consider as being a viable opportunity if we asked of these 
companies that are coming into these communities or these 
companies existing in these communities already, if they held 
to a certain standard of corporate social responsibility?
    Mr. THEODOS. I would encourage the use of Federal resources 
to be in advancing community benefit and need. This is not 
simply a regulation. This is actually Federal spending. And so 
when we think about what we are getting out of it, we should, 
in fact, desire to get out of it what we should and want to 
benefit. And the nice part about how this was initially 
designed is there is a certification process in place for 
opportunity funds. And funds could be legitimate gatekeepers if 
they are certified to pick and invest in mission-driven 
projects. As currently advanced by Treasury, there is a self-
certification process, which allows any actor to step through 
the door in a way that does not steer or any way direct the 
program or the dollars towards mission-driven projects.
    Ms. HOULAHAN. Thank you.
    Would anybody else like to contribute to that?
    Mr. SEYBERT. I would just say quickly that while I agree 
that it would be nice for that to exist, we do have a voluntary 
framework that has been put forward by philanthropy and we put 
forward our own. And the uptake as a percentage of the 
identified industry is relatively small today. The Ranking 
Member mentioned the reasons that these communities are 
distressed to begin with, and I do not think that we should 
ignore the historical conditions that led to disinvestment in 
these communities, particularly concentration of poverty really 
driven by racism and discrimination in many of these places. 
And while voluntary frameworks are useful for those actors who 
want to do the right thing, and we applaud the business 
roundtable for taking that action, we know capital does not 
flow to these places. Not because these places are not worth 
investing. Not because there are not good ideas or smart people 
or growing businesses. It is because the market does not value 
these places. And this incentive creates an opportunity. Right? 
But without something further to nudge a market in the 
direction, you know, I fear personally that what we are going 
to do is reinforce those stereotypes that exist in the way that 
capital flows currently. And I do not see any mechanism where 
we sit today to address any of that inequity, particularly 
racial inequity in a lot of these places. So I am all for 
voluntary frameworks. We want every good actor to act to their 
fullest extent, but we believe that it may not be enough.
    Mr. LETTIERI. I agree. I would be concerned about anything 
that adds a new hurdle to already struggling areas. So things 
that may sound good in intention but really come down to the 
eye of the beholder. So what is a mission aligned investment? 
There are a lot of different ways to define that.
    Ms. HOULAHAN. Of course.
    Mr. LETTIERI. And creating a national standard for such a 
wide variety of communities I think carries some potential 
downsides that may have exactly the opposite of the intended 
effect. And so it is the kind of thing where I would want to 
see a lot more state and local agency engagement in that kind 
of a process to shape the outcomes.
    Ms. HOULAHAN. Do not disagree. I guess my concern is when 
you are talking about the taxpayers' dollar and resources that 
are benefitting communities, we should have some say in who 
gets the money and we should have say in what sort of actors 
they are. And I do agree that there ought to be in some ways a 
voluntary process there but also certainly one that 
incentivizes people to be good stewards to communities.
    Thank you. And I am sorry, I have run out of time. I yield 
back.
    Chairman KIM. Thank you, Congresswoman.
    Just a few other questions. Why do we not do sort of a 
quick second round here in case anybody else has some follow 
up.
    I will keep mine brief but building off of the first 
question I asked just about how do we measure the success, the 
reason I wanted to just ask that is it helps me kind of frame 
then the question of what information do we need? If the four 
of you are in agreement to some extent in terms of needing to 
have some type of information, some type of reporting, I would 
like to just try to leave this hearing with a better sense of 
what all you recommend we need in terms of the scope of that 
information and from who.
    Mr. Theodos, you kind of went through if I remember the 
who, what, where, when, and how much; is that correct?
    Mr. THEODOS. Yeah. There are three things that I would like 
to convey. First, the information needs to be collected not on 
the tax form because we need to get the information out. And so 
we need the information collected not on the tax form.
    Second, what we need collected is that simple who, what, 
when, where, how much. Every investor ever has known those 
details about every investment they have ever made and so those 
are not cumbersome reporting requirements. Those are basic 
inventory tracking. So very straightforward, not cumbersome.
    And then the third important step is we need this 
information distributed publicly so that Congress and mayors 
and governors and others can know, including community 
residents, how their Federal resources are being deployed in 
their district.
    Chairman KIM. Yeah. Well using that as just sort of a 
framework for discussion, what would be the reactions from the 
three of you? Are you in agreement with that approach of 
framework? Do you think there needs to be more or less 
information? That would be just helpful for me to understand.
    Ms. VASILOFF. I think this is an area where there is a lot 
of agreement. And in fact, there is a bill in the house that 
you all have an opportunity to support that would go a long way 
towards putting some of these things in place. I think all of 
us are supporting this legislation actively.
    Chairman KIM. Okay. Same for the two of you in terms of 
that framework?
    Okay. Well, that is helpful from my end.
    Ranking Member?
    Mr. HERN. Just a quick statement.
    I was really pleased with the responses that we got from 
our witnesses today. What things, since we are short on the 
information, I would caution us of not trying to kill this 
program right off the bat here. I mean, there have been some 
comments made that, you know, became very political in 
narrative. I think you said, Mr. Seybert that the racial and 
discriminatory. I can think of half of mine that are not in 
racially discriminated areas. They are where big industry 
changed, move abroad, left very large vacant buildings out near 
the airport, industrial parks. It has nothing to do with racial 
discrimination or anything of that kind of stuff. So I would 
challenge us to please keep this on the narrow. I mean, you all 
have some great ideas. I think you can expect what you inspect. 
And as the Chairman said, it is very difficult to make hard 
decisions unless you really have some fact-based information. 
So I would challenge us.
    Mr. Theodos, I think you nailed it perfectly. We have got 
to get this information. In our state, the lieutenant governor 
is in charge of managing Opportunity Zones. I think there needs 
to be a person that has the interest of seeing these 
communities grow, whether it is the mayors that can roll up 
locally into the state level. I do agree with you, it needs to 
be outside the tax process because, again, I can tell you that 
the largest investor in Opportunity Zones in our area is a 
very, very wealthy gentleman from the other side of the aisle 
that I am on that was not investing in those areas until these 
Opportunity Zones came along.
    So in a free market society, capital will flow where it is 
incentivized to go and to get the best RY. And as long as our 
country is under free market principles without government 
interference that is what we would always hope it to be. But 
again, I think we do need to know who is going there so that we 
can adjust because currently all we are using is our census 
trap to define these areas which may or may not be right. Maybe 
we need to have additional metrics to define how these 
opportunity zones are laid out and designated.
    So again, thank you, Mr. Chairman.
    Chairman KIM. Thank you.
    I agree with you wholeheartedly. I think all of us kind of 
hit the same points. We all have different qualitative analysis 
that we are bringing to the table, stories that we have heard 
or examples. And your insights were incredibly important. I 
think the Ranking Member and I are in agreement that there 
needs to be more, and especially on the quantitative side which 
I was glad to hear all four of you are in agreement of. And we 
will think through how best to be able to approach this going 
forward.
    We are all aware that the places in this country that need 
capital investment to bring back jobs and revitalize 
communities, that these are incredibly important and that this 
will only happen if small businesses are given the chance to be 
able to lead the way. You can look no further than my home 
state of New Jersey where small businesses in my district 
simply need affordable access to capital and simple fair tax 
policy that allows them to compete against big corporations. 
While Opportunity Zones have the potential to do this, there 
are still many outstanding questions and concerns that need to 
be addressed.
    My hope is that today's hearing allowed us to dive deeper 
into the subject and how we can improve any place-based 
policies to improve outcomes in communities that are 
desperately needed.
    I just want to take this moment again to just thank the 
four of you for coming out. I am sure we will continue to draw 
upon your expertise and your insights on this going forward and 
look forward to working with you as we try to figure out what 
is best for our communities, for our small businesses, and some 
of our most disadvantaged communities in our area.
    With that, I would ask unanimous consent that members have 
5 legislative days to submit statements and supporting 
materials for the record.
    Without objection, so ordered.
    And if there is no further business to come before the 
Subcommittee, we are adjourned. Thank you.
    [Whereupon, at 11:10 a.m., the subcommittee was adjourned.]
    
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