Over the past two years, Opportunity Zones (OZs) have become the most discussed piece of federal economic development policy. Now, as the policy rolls out in earnest, the focus once again shifts to the nation’s governors. Given the open-ended nature and limited federal accountability written into the law, state-level policymaking has significant power to shape how Opportunity Zones play out in practice.

Governors must decide whether and how Opportunity Zones fit into their priorities. Given competing demands for state funds, it is critical that governors consider the benefits of creating and modifying programs and policies against their costs to ensure they are worthwhile.

We don’t recommend states jump on the OZ bandwagon without carefully considering what they want the incentive to accomplish and how their supports will encourage that.

To this end, we’ve proposed a five-step process governors can use to maximize the potential benefits of Opportunity Zones for their state’s communities and minimize unintended harms.

1.            select state-level guiding principles for making decisions about OZs

2.            create support and accountability systems for OZ projects and investments

3.            assist aspiring Opportunity Fund managers

4.            engage with Opportunity Fund investors

5.            recruit other mission-driven financial actors

But what have governors actually done so far?

A handful of states have taken concerted action to support local community-planning efforts and project matchmaking. Additionally, there are several noteworthy state-level, OZ-paired incentives either recently enacted or currently under consideration.

Supporting community planning

• The New Jersey Economic Development Authority’s Opportunity Zone Challenge Program will award five grants of up to $100,000 to municipalities or counties in support of local planning efforts.
• The Colorado Office of Economic Development & International Trade provides smaller grants (PDF) (most less than $10,000) to localities to support project-feasibility studies, requests for proposals, investment memoranda and marketing, or legal or accounting support on specific projects.
• The South Carolina Department of Commerce has a grant program that helps localities create Opportunity Zone prospectuses and obtain outside consultation when selecting projects that could receive public assistance.

Playing matchmaker between investors and projects

• Many states (including  Maryland, New Jersey, Virginia, Washington, DC, and West Virginia), have begun maintaining central databases of aspiring fund managers and interested investors. The Opportunity Exchange is serving this role across a number of states.
• Alternatively, states can support other coordinators—like Opportunity Alabama, a nonprofit that acts as a market maker for in-state investors and projects—springing up across the country to serve this function.
• The District of Columbia’s OZ Community Corps will provide pro bono legal advice to residents and existing businesses in its Opportunity Zones to help projects in those zones benefit people already living and working there.

Creating new incentives

• Alabama’s Incentives Modernization Act created a series of benefits (PDF) for state-certified Opportunity Funds which meet specific impact investing standards. These funds receive the state capital gains tax benefits on Opportunity Zone investments, can seek investment from 10 state pension funds, and are eligible for a $50 million tax credit pool to offset losses and guarantee returns on mission-oriented projects.
• Maryland governor Larry Hogan has proposed a $3 million state grant program in Maryland to support workforce development training for businesses in Opportunity Zones, and the Maryland Department of Housing and Community Development is directing funding toward several Opportunity Zone priority areas, including $20 million for affordable housing projects, $8 million in small business lending, and $3.5 million in its Strategic Demolition Fund for site predevelopment work.
• The South Carolina state legislature is considering legislation that would provide a 25 percent income tax credit to any company investing within an Opportunity Zone.

The lack of federal oversight around Opportunity Zone investments has left a void that governors and state legislatures can step in to fill. Their actions will help shape the ultimate success or failure of the incentive to live up to its original purpose: bringing capital to disinvested communities and, in the process, bringing opportunity to low- and moderate-income residents.

Moving the needle on these goals will require careful state policymaking. Can governors effectively incorporate community voices and empower residents? Can they erect guardrails to prevent unintended negative consequences and require reporting to promote transparency for taxpayer-subsidized projects? And can they offer new incentives for projects that meet specified community needs or mission-oriented projects?

The clock is ticking for governors to say yes.