Creating jobs where they are most needed

The Opportunity Zone program is a creative vehicle to encourage investment in disadvantaged neighborhoods. As Kent Gardner’s post describes, it is clearly well suited to development of real property in census tracts designated as qualified opportunity zones.

The IRS has issued regulations and memoranda seeking to clarify the scope of the program and technical requirements for meeting conditions required to enable the tax benefits. However, more regulations and advisory memoranda will be forthcoming as potential organizers of qualified opportunity zone funds seek clarity on whether their likely investment objectives, structures and timeframes meet requirements of the program. This uncertainty and the implications for traditional venture funds was addressed during a recent webinar on the program offered through the National Venture Capital Association. 

A main purpose of the Opportunity Zone program is job creation in distressed communities. In concept, this aligns well with the mission of the Venture Jobs Foundation, to bring new low- and mid-skill jobs to Rochester’s challenged neighborhoods.

In Rochester’s low-wealth neighborhoods, there are entrepreneurs seeking to launch their own small business. Funding these new enterprises is critical; they broaden the base of small business ownership and offer in the neighborhood products and services lost over years of decline. Fresh food is typically high on the list of needed products. 

Urban entrepreneurs can apply for small-business loans and, if needed, can obtain technical support needed to access capital. Local lenders, including the VJF, Kiva Rochester, Genesee Federal Credit Union and Pathstone, provide such small business funding at stages from inception to growth. For these programs, resources will likely be adequate without relying on the Opportunity Zone program.

Beyond small business entrepreneurs, residents of our challenged neighborhoods include a significant number of job seekers without plans to launch their own business. Many lack adequate and affordable transportation options to access new jobs that are increasingly located in our suburbs. This lack of accessible job opportunities contributes to the ongoing cycle of poverty.

The VJF believes that access to “walkable jobs” is needed for such job seekers, and that it is best addressed by programs that invest in businesses that will locate in or expand into a challenged neighborhood as a condition of the investment. The VJF has begun to discuss its planned Anchor Jobs program that would create a pool of capital to invest in businesses that would address this jobs gap, creating walkable job opportunities for residents.

Target businesses would include those with sustainable growth models expected to reach a minimum of $5 million in annual revenue over several years and create a significant number of low- and mid-skill jobs. Each such business, depending on the level of revenue, has the potential to significantly narrow the jobs gap in the selected neighborhood. Over time, growing midsize businesses bring higher wages, potential employee benefits and a significant increase in prosperity to the neighborhood. 

We hope to pilot this program later in 2019. We will assess carefully if it can be structured such that an available source of capital can be a qualified opportunity zone fund. We are unsure if current constraints in the program will lend themselves to a funding source operating as a quasi-venture fund. If the Opportunity Zone program is to fulfill its mission, there must be flexibility to invest in businesses that locate in challenged neighborhoods, are able to generate revenues much more broadly and bring prosperity to the neighborhood. The VJF will work to drive the program in this direction.

Dennis DeLeo is president of the nonprofit Venture Jobs Foundation and a senior partner at Trillium Group, a regional venture capital firm based in Rochester.