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Opportunity Zones in Texas: Promise and Peril

October 2018

Opportunity Zone Demographics

Map 1 shows the geographic distribution of tracts officially designated as Opportunity Zones in Texas. Zoom in to view OZs in the more populous counties, where individual census tracts are small in area.

Map 1. Designated Opportunity Zones Spread Across Texas

OZs are dispersed across the state and are overrepresented in rural areas: While 38 percent of census tracts across Texas are considered either partially or fully rural, 60 percent of OZs are in at least a partially rural tract.[1] Rural tracts are also overrepresented in terms of population: 61 percent of the total OZ population lives in a partially or fully rural census tract, compared to 40 percent of the general Texas population. (For more discussion of rural OZs, see box, "Will Rural Communities Benefit? Lessons from the New Markets Tax Credit Program.")

Will Rural Communities Benefit? Lessons from the New Markets Tax Credit Program

In rural communities, access to capital has traditionally been a barrier for economic development due to factors such as “brain drain,” lack of industry clusters and distance to markets. An Opportunity Zone (OZ) designation could provide a step in the right direction.

Experience with the New Markets Tax Credit (NMTC) program offers some insights. The NMTC program has had success rurally, generating $11.6 billion in project costs in rural communities across the country from 2003 to 2014.1 Analysis indicates that a quarter of NMTC projects occur rurally.2 Some examples of successful investments in rural Texas include mixed-use developments, science accelerators, schools, and healthcare centers.

However, attracting investors can be challenging when rural areas are competing with urban ones. OZs might have a harder time attracting capital rurally than NMTCs, in part because the NMTC program distributes tax credits through intermediaries called Community Development Entities (CDEs). CDEs must be certified by the Community Development Financial Institutions Fund (CDFI Fund), an agency of the Treasury Department, and some have standing partnerships with rural organizations. OZs offer no such certified intermediary with standing ties to rural areas, so private investors residing in urban locations may be more likely to look at metro areas, with which they are more familiar. Additionally, the CDFI Fund specifically targets 20 percent of its NMTC allocation to non-metropolitan counties. For OZs, no reserve is driven to any specific place.

Designation as an OZ does not guarantee that a tract will see even a dollar of capital, but there is potential incentive for investment. The NMTC program requires yearly Congressional approval and requires CDEs to participate in a competitive application process for tax credit allotment—while OZ capital gains exclusions are, for eligible investments, unlimited. Gentrification is also less of a concern for rural localities, unlike in the urban core. For rural OZs, the challenge will be to highlight opportunities that will attract Opportunity Fund investment.

Notes
  1. This calculation uses the Census Bureau definition of rural areas, which includes any area that is not urban or suburban.
  2. “Urging Congress to Preserve New Markets Tax Credits,” Reinvestment Fund, Dec. 11, 2017.

By county, the greatest number of OZs is found in Houston’s Harris County, the most populous in the state (Table 1). Hidalgo County in the Rio Grande Valley along the Texas-Mexico border also has a large concentration of OZs. At 23, the number of zones is higher than that of Travis or Dallas counties, both of which have larger populations. And Hidalgo’s neighboring Cameron County has an additional 16 zones, giving notable emphasis to the Rio Grande Valley.

Table 1. Texas Counties with Most Opportunity Zones

  Number of OZs Percent of Total
Harris 105 16.7
Bexar 24 3.8
Hidalgo 23 3.7
Travis 21 3.3
Dallas 18 2.9

Unsurprisingly, OZ tracts differ significantly on some important demographic measures from tracts that were ineligible to be designated—but in some cases, they also differ significantly from eligible tracts that were not selected. As seen in Table 2, all eligible tracts, whether selected as OZs or not, differ significantly from ineligible tracts on race, poverty, education and home price. In comparing the two groups of eligible tracts—low-income tracts selected as OZs and those that were not—similarities are found in median home value, percentage of residents without a high school diploma and increase in college graduates. For other measures, however, significant differences emerge between tracts that Texas selected as OZs and those that were passed over. On average, designated OZs have higher percentages of black and white residents but a lower share of Latinos than their unselected counterparts. The OZs also have higher poverty rates (28.1 versus 26.5 percent) and a lower share of residents with a bachelor’s degree or higher. And, while the OZ median home value of $89,932 is not considered statistically different from the eligible, non-selected median value of $102,343, [2] the percent increase in home value since 2012 is significantly higher for OZs.

Table 2. Texas Opportunity Zone Demographic Differences

  Not Eligible Eligible, Not Selected Opportunity Zone
Race/Ethnicity (%)      
White 60.5 27.2 34.0
Black 8.0 14.8 18.9
Hispanic/Latino 24.1 54.2 44.6
Poverty (%)      
In poverty 8.6 26.5 28.1
Education (%)      
Less than high school 9.7 28.3 28.0
Bachelor’s or higher 37.4 16.4 13.4
Percentage point increase in college graduates 2012–2016 7.6 19.2 21.9
Median Home Value      
Median home value 2016 ($) 211,141 102,343 89,932
Percent increase in home value 2012–2016 (%) 12.5 7.0 9.3
Indicates significant difference between OZ tract and eligible, not-selected tract
SOURCES: American Community Survey, U.S. Census Bureau; author’s calculations.
Notes
  1. This calculation uses the Census Bureau definition of rural areas, which includes any area that is not urban or suburban.
  2. We calculate statistical significance at an alpha level of 0.05, or a 95% confidence interval. When two values are not statistically different, this means that we cannot be certain that the difference is not just due to the sheer chance of sampling.

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