The Real Impact of Opportunity Zones

Bipartisan legislation has proved successful in attracting investment that transforms communities.

Rep. Mike Kelly Office of Rep. Mike Kelly

Erie, Pennsylvania, near the Great Lake that shares its name, is known for its deep-rooted manufacturing industry. During the 1950s and 1960s, the city’s iconic 12th Street corridor was full of bustling factories and machine shops. At its peak, GE Transportation, famous for building locomotives, employed as many as 18,000 people at its Erie plant. Erie was synonymous with blue-collar work ethic and grit.

But as the decades passed, factories either scaled back their workforce or left Erie altogether. This resulted in a declining population and a shrinking tax base. In 2018, that economic and population loss made Erie home to the poorest ZIP code in Pennsylvania, according to a Business Insider report citing data from the 2012-2016 American Community Survey.

A Springboard for Investment

Despite this grim designation, the city of nearly 100,000 residents has become a shining example of an urban turnaround in the ensuing years. The story starts just a few months before that report was released. In 2017, I co-led the Tax Cuts and Jobs Act (TCJA) with congressional Republicans and former President Donald Trump.

TCJA included a bipartisan policy provision to create Opportunity Zones, defined as federally recognized, economically distressed communities where new investments can be eligible for preferential capital gains tax treatment. Opportunity Zones allow investors from all over the United States to invest their capital gains earnings into communities that have not seen significant private investment for some time. Ultimately, the city of Erie received eight Opportunity Zone census tracts.

The stigma of being the poorest ZIP code in Pennsylvania turned into a springboard for investment in Erie. Soon after TCJA was signed into law, a group of residents with an eye for the tax code saw how Opportunity Zones could potentially revitalize the city.

Major employers in downtown Erie such as Erie Insurance (a Fortune 500 company), local universities, and the city’s top hospitals partnered to provide the initial financial backing to form the Erie Downtown Development Corporation (EDDC). The EDDC has since leveraged its initial $40 million investment to complete approximately $115 million in private investment into Opportunity Zone projects in the city’s core.

The EDDC was tasked with a tall order: to shock downtown Erie back to life. With Opportunity Zone legislation as a catalyst, plus a committed community of private stakeholders, the capital of a national Opportunity Zone impact fund, and local bank financing, the EDDC has seen significant success.

Over the last six years, the EDDC has:

• Built 110 new residences.
• Established space for 25 new businesses.
• Restored eight historic properties.
• Revitalized and created 100,000 square feet of new commercial space.
• Established a grocery store in a U.S. Department of Agriculture-designated “food desert.”

The citizens of Erie have come to see the EDDC’s work as a signal of progress and hope. Outside investors have done the same, and the flywheel is in motion. The real impact transcends statistics as we reach the cusp of the economic multiplier effect that well-crafted policy can facilitate.

Opportunity Zones are a successful, bipartisan piece of legislation that is transforming communities in real time. Currently, more than $400 million of long-term capital investment is at work revitalizing downtown Erie and breathing new life into what was once the poorest ZIP code in Pennsylvania.

Erie’s economy, like others across the country, continues to evolve. Erie Insurance is now Erie County’s top employer, with Wabtec (which purchased GE Transportation) currently in third.

Spreading the Wealth

According to a 2023 Economic Innovation Group report, more than $48 billion has been invested in 7,800 Qualified Opportunity Zone funds nationwide.

In September 2023, I introduced the Opportunity Zones Transparency, Extension, and Improvement Act to ensure more communities benefit from this legislation in the same way as Erie. This bipartisan legislation builds upon the success of the 2017 tax law by requiring mandatory data reporting of Opportunity Zone investments to increase transparency and streamline the reporting process. The bill would also extend the investment and deferral window, providing a longer time horizon to drive more investment into high-impact projects in low-income communities.

The House Ways and Means Committee, of which I serve as chair of the tax subcommittee, also continues to explore new ways to make Opportunity Zones benefit rural America. Last year, the committee passed the Small Business Jobs Act, which includes a new Rural Opportunity Zone program that will revitalize struggling communities. It is a way to ensure that cities and towns, regardless of their population, can benefit from this legislation.

Opportunity Zones can continue to support underserved communities as they develop a modern identity. Perhaps the most effective part: They can do it all without spending a single taxpayer dollar.

U.S. Rep. Mike Kelly is a Republican representing Pennsylvania’s 16th Congressional District. He serves as chair of the House Ways and Means Subcommittee on Tax.

• Magazine Article
• Advocacy
• Economic Development
• Redevelopment