With Opportunity Zone 2.0 designations on the horizon, communities have something they didn’t have the first time around: the benefit of experience. OZ 1.0 taught us about where investment flows, what kinds of projects attract capital, and where the program falls short. Now is the time to put those lessons to work.
Start with strategy, not transactions
It’s worth stepping back to remember why we use incentives in the first place. They’re tools for achieving community goals — creating good jobs, attracting quality investment, revitalizing underutilized properties, supporting local businesses. They’re not about winning a deal or completing a transaction.
OZ 1.0 showed us that investment tends to flow toward places and projects that are already investment-ready. If a location isn’t ripe for productive investment on its own, an OZ designation alone won’t change that. Communities should review their existing plans — comprehensive economic development strategies, regional infrastructure plans, local housing assessments — and honestly assess where OZ investment is likely to fit and where other interventions may be better suited.
One candid note: OZs will likely support real estate and housing projects far more readily than operating businesses, innovation ecosystems, or small business development. Knowing that going in helps communities set realistic expectations and target their efforts wisely.
Build a rigorous incentive process
OZ investors in round two are widely expected to seek additional state and local incentives on top of the federal benefit. Now is the time for communities to decide if, when, and how they want to layer those incentives — rather than reacting under pressure when a deal arrives at the door.
That means building a consistent process for evaluating projects, not improvising deal by deal. At Smart Incentives, we use a 4×4 framework that applies data and analysis at four stages: vetting the recipient, evaluating the deal, monitoring compliance, and assessing long-term effectiveness.
That means asking hard questions upfront. Is this investor a reputable partner with a demonstrated track record? Does the project’s business model hold up? What other capital is coming to the table? And critically — does this specific project advance the community’s strategy?
Not every project that shows up is worth supporting. A consistent process helps communities focus on the best opportunities and walk away from the rest.
Plan for accountability from day one
Good accountability is not just about compliance. Done well, it gives communities a way to demonstrate responsible use of public resources, identify shortfalls early, and build a feedback loop that improves future incentive decisions.
That means setting clear outcome expectations before any incentive agreement is signed. New federal reporting requirements will generate some data on results, but communities shouldn’t rely on that for their own accountability needs. Local tracking, tied to specific milestones and outcomes, is essential.
The question worth asking now is: what story do you want to tell about these investments in the future? OZ 2.0 presents a genuine opportunity to generate meaningful economic benefits in distressed communities. Planning for that story from the beginning — with the right goals, the right process, and the right data — means OZ 2.0 will have a real chance to deliver on its promise.
Recent Comments