The story of federal Opportunity Zones in Massachusetts the first time around can be summed up in one word: ambivalence.
Back in 2018, when Opportunity Zones (OZs) were a new program and communities were uncertain about whether they would spur meaningful investment – or just rampant speculation and gentrification – the Baker administration asked for nominations of eligible low-income census tracts to send to the Department of Housing and Urban Development.
Among its selections, the city of Boston chose the Franklin Park Zoo and a cemetery, large public housing projects and many of the Harbor Islands, including the Deer Island Wastewater Treatment Plant.
Not surprisingly, none of those sites saw a shovel.
But nationally, this is a huge program, with OZ funds processing over $20 billion per year. That’s four times larger than the New Markets Tax Credit.
Regardless whether you believe that this represents sound federal policy, it is likely that large amounts of capital from Massachusetts investors flowed out of the state toward high-growth states like Arizona, Oregon and Colorado that embraced the program. We need an OZ ecosystem that encourages those funds to deploy here, especially in our undercapitalized mid-sized cities.
A Second Bite at the Apple
Nearly 10 years later, the One Big Beautiful Bill Act made the Opportunity Zone incentive permanent and launched a new designation cycle.
Beginning July 1 of this year, governors have 90 days to nominate up to 25 percent of eligible census tracts, with stricter income thresholds that reduce the pool of eligible tracts. The new OZ map takes effect Jan. 1, 2027 and will last 10 years.
Most observers equate Opportunity Zones with real estate development. That’s not surprising given that more than three-quarters of OZ investments have been in real estate.
However, OZs can be used to invest in operating businesses, commercial growth and even anchor institution expansions like hospitals and universities. I’ve heard that OZs have been used to purchase new fishing boats in New Bedford.
As familiarity spreads among finance experts and property owners, these other uses may become more significant.
Targeting Matters
An Urban Institute analysis of data from Ohio indicates that over half of OZ investment in that state between 2020-2024 went to just nine census tracts in Cleveland and Columbus.
Informal reporting here indicates the same. A single census tract in Worcester received multiple investments but remained sparse elsewhere.
Nationally, OZ capital gravitated toward major metropolitan areas. Institutional funds chased splashy, high-return deals in places where capital was already flowing. That doesn’t add value.
Rather, the commonwealth should designate undercapitalized census tracts that show potential for near-term development, include anchor institutions poised to expand and which contain major employers and locally significant industries. Our mid-sized cities should form the core of our state’s targeting strategy.
Gateway Cities have developable sites, legacy infrastructure, public transit and welcoming, diverse communities – all of which should make them strong candidates to leverage Opportunity Zones.
However, they lack the bandwidth to market themselves to investors.
They often need site readiness investments for demolition, clean up, and infrastructure modernization. These represent tools that the state must provide so that they will not become barriers to their participation. OZ must not become a tool for the haves, but an impetus to solve the barriers to capital deployment in regional centers.
Stack State Incentives
The state should also look strategically at how its programs and incentives interact with OZ investment. The state must take care not to “throw everything” at OZ investors to the detriment of other projects and funding pipelines.
Let’s give an example. The Housing Development Incentive Program (HDIP) could be a powerful complement to an OZ project, but that does not mean that the state should commit all its HDIP tax credit funds to OZ projects. Instead, we should encourage OZ projects to use HDIP’s local property tax relief.
There may be other tools we can creatively stack or expand without cannibalizing projects outside of Opportunity Zones. One attractive possibility includes privately managed OZ funds dedicated to Massachusetts, like the mission-aligned ones directed by Arctaris Impact Investors. Philanthropic and institutional partners could help seed such a fund with a modest amount of first-loss capital to de-risk the portfolio.
Massachusetts has lagged much of the nation in understanding how to use Opportunity Zones, but we are catching up quickly.
The Executive Office of Economic Development has just rolled out a new OZ web portal and nominations form for census tracts. At MassINC, we have built our knowledge in dialogue with local economic development leaders, OZ fund managers, developers and national and state partners.
This time around, we can stick together and guide more OZ investment to the places that need it.
André Leroux is director of the Gateway Cities Innovation Institute at the MassINC Policy Center.
This article was originally published by Banker & Tradesman.