OZs by the Numbers, from Financial Stability to Life Expectancy
Opportunity Funds are launching, intrigued investors are beginning to liquidate capital gains, lawyers are getting involved, and communities are proactively working to court investors. Interest in Opportunity Zones — a federal tax incentive designed to stimulate economic investment in economically distressed communities across America — has never been greater. Much of this interest and excitement stems from the sheer potential of the Opportunity Zone initiative to breathe new life into struggling communities; as much $6 trillion in unrealized capital gains will be eligible for investment in 8,762 census tracts across all 50 states. For communities with little investment capital, Opportunity Zones could become the most impactful economic intervention since the New Deal.
We want to make the most of Opportunity Zones. That’s why the Sorenson Impact Center collaborated with Forbes to create The Forbes OZ 20: Top OZ Catalysts. In support of this effort, we analyzed indicators from 7,500 Opportunity Zones, including education, housing costs, and life expectancy. Although our current findings are only preliminary, they’re revealing: when compared to non-designated census tracts within the same state, Opportunity Zones tend to have worse economic, educational and health-related outcomes, despite some variation across states. Our observations, further detailed below, serve to highlight the challenges that distressed communities face in stimulating economic development, as well as the importance of this initiative’s success.
Rates of educational attainment within a population often serve as an important indicator of economic well-being. In the US, educational attainment beyond high school is associated with greater earning potential, more employment prospects, and reduced reliance on social assistance. According to the Bureau of Labor Statistics, the average employee with less than a high school diploma earns $520 weekly, compared to $1,173 for those with a Bachelor’s degree.
Given the influence of educational attainment rates on average income, it’s unsurprising that the proportion of residents with less than a high school diploma is on average 2 percentage points higher in Opportunity Zones than in non-designated census tracts. This association is derived from averaging the in-state difference between census tracts designated as Opportunity Zones and non-designated tracts across fifty states and the District of Columbia. In a small number of states, there actually isn’t much of a difference between Opportunity Zones and other census tracts when it comes to High School diplomas, and in New Hampshire, the proportion of residents who’ve completed high school is more than 2% higher in Opportunity Zones. In a few other states, the proportion is technically lower in Opportunity Zones, but the difference is close to zero.
However, in the majority of states, Opportunity Zones have proportionally greater numbers of residents without a high school diploma, and the difference in a few states is particularly stark. Opportunity Zones in Florida, Nevada, Illinois, New Jersey, and the District of Columbia have higher rates of residents without a high school diploma, by at least five percentage points, than their non-designated counterparts. Especially within these communities, low rates of educational attainment may pose a significant barrier to reducing poverty.
Cost of Housing
Over the past twenty years, the cost of housing has increasingly become another important indicator of economic well being. While average rents have increased in the years since 2000, real incomes have declined. This has left those at the lower end of the income distribution with little savings for other expenses; the Federal Reserve reports that nearly 40% of Americans would have difficulty covering an emergency expense of $400. Additionally, housing burdens are not limited to America’s most expensive cities, such as New York and San Francisco. Low-income renters in rural areas and cities of all sizes face similar burdens, which are associated with higher eviction rates and greater utilization of the social safety net.
The federal government defines a “cost-burdened” household as one that spends 30% or more of its income on housing, and notes that burdened households may experience difficulty in paying for necessities such as transportation and medical care. Households with high incomes may also qualify as burdened under this definition, but are unlikely to experience significant financial stress. Conversely, lower-income households falling just under the benchmark for housing burden may still experience some difficulty with managing expenses. While the average housing burden for Opportunity Zone renters does not exceed the government definition in any of the states, many renters living in Opportunity Zones still shoulder large housing burdens. Our analysis shows that the average renting household for Opportunity Zones in California, Florida, Nevada, Rhode Island, New York, New Jersey, and Connecticut spends more than 25% of its income on housing. Even this share of income may impose a strain on the financial health of lower-income households, which tend to be disproportionately represented in Opportunity Zones due to the use of poverty rates as part of the selection criteria.
In several states, renters in Opportunity Zones spend up to an additional 2% of their income on housing compared to renters living in non-designated census tracts. In other states the difference is even greater; renters in Illinois and Pennsylvania’s Opportunity Zones, for instance, pay an extra 6–10% of their income on rent compared to those in other areas. This data reflects that communities in Opportunity Zones often fare less well economically than neighboring communities located in non-designated census tracts.
This is a common measure of economic well being that displays dramatic differences between countries. However, it’s the surprising variations within a single country which make this indicator a potentially interesting vector for analysis. A recent study by JAMA Internal Medicine shows that life expectancy in the US can vary by as much as 20 years depending on county of residence. Large discrepancies in life expectancy even exist within the same city; in Washington, DC, for instance, life expectancy by neighborhood varies from age 63 to 94.
Our analysis indicates that life expectancy is on average 1.7 years lower in Opportunity Zones than in non-designated census tracts within the same state. At the extreme, the difference in life expectancy can be shocking; residents of Opportunity Zones in North Dakota live on average 4–5 years fewer years than their counterparts. A handful of other states — many in the Northeast and Midwest — also register sizeable decreases in life expectancy of up to 2–4 years compared to non-designated tracts. This observation underscores the importance of investing in distressed communities; beyond the material implications, economic development has crucial consequences for the health and wellbeing of residents.
It must be stressed that these results are only at the surface level. We’ve displayed averaged comparisons, but not established causal relationships. We’ve raised interesting topics for further research, but we have not presented definitive conclusions. Within each state, the disparities for a single Opportunity Zone can be even more dramatic than what we have presented. Still, these observations create a compelling image: Opportunity Zone communities, on average, fare less well across indicators for educational attainment, economic well-being, and physical health than non-designated census tracts, with grave consequences from household financial instability to lower life expectancy. Some of the most intense excitement around Opportunity Zone incentives springs from within these communities, where stakeholders are already pitching well-planned proposals to interested investors. The positive outcomes of Opportunity investments will not cease at their borders. As members of the same economy and society, the success of these overlooked communities benefits us all.
This article is featured on Forbes here.