Opportunity Zones Priority

The U.S. Department of Education (ED) has increased its focus on grants targeting Opportunity Zone census tracts, including more detailed requirements for getting Opportunity Zone preference points. Last week the new priority went into effect. It provides multiple options for how the Department can utilize these preference points in future Requests for Proposals (RFPs). This directly impacts your chances for funding when submitting proposals.

What are Opportunity Zones?

Opportunity Zones (OZs) are part of the 2017 Tax Cuts and Jobs Act. Each state designated high-poverty Census tracts as OZs, with over 8,700 across the country. Investments in Opportunity Zones come with special tax benefits, specifically a reduction of capital gains taxes. They’re intended to incentivize investment in distressed neighborhoods to spur new housing, job growth, and overall economic development. You can read more about Opportunity Zones here

What is a priority in an RFP and why does it matter?

The federal government can (and does) prioritize certain types of projects within a grant competition by using an absolute priority (all applicants must meet the priority), a competitive preference priority (bonus points for applicants that meet it), or an invitational priority (interest in applicants that meet the priority, but no special consideration given). 

Here at Grants Republic we are particularly interested in competitive preference priorities, as these have a direct effect on scoring. Case in point – we have worked for months on a grant only to miss out on funding by ⅔ of a point (literally! So painful). 

So even one or two bonus points can mean the difference between a grant award or not receiving funding. And a recent ED RFP provided up to seven points for meeting the OZ priority, so anyone interested in ED funding this year should start planning for how to get these points. 

In ED’s FY2019 funding, four competitions included an OZ competitive preference. 60% of the funded applications addressed the OZ priority. And over $30m of the total $55m awarded in these four competitions went to OZ projects. It pays to gets these points when you can.

ED’s Opportunity Zones priority explained 

ED’s new OZ priority provides some flexibility for how programs uses the priority. They can select whether to make it an absolute, competitive preference, or an invitational priority. This includes one or any combination of the following definitions for receiving OZ priority:

  1. Proposed services are provided in an Opportunity Zone Census tract;
  2. The applicant is located in an Opportunity Zone Census tract (at least one location);
  3. The applicant has received or will receive an investment from an Opportunity Fund for a purpose directly related to its project. 

These parameters are very specific. Before now, RFPs that included an OZ priority only focused on whether the applicant was located in an OZ tract. For example, last year’s School Climate Transformation Grant RFP included an absolute priority for Opportunity Zones and required that the applicant school was located in an OZ tract to get all priority points offered. The updated OZ priority gets a lot more specific, particularly for #3, and offers partial to full points for applicants.

Let’s break down why these changes matter. 

We’ll start with #2 – either the applicant has a location in an OZ tract or they don’t. It’s unlikely any applicant would open a new location solely to meet this priority, so you are lucky if you have a location in an OZ already and can meet this part of the priority and get these points.

The inclusion of #1 – providing services in an OZ tract – is something all applicants can (and should) strive to meet, particularly if this priority is a competitive preference that provides bonus points. Applicants should be creative in thinking through where they might offer services if they don’t currently work in an OZ, and could consider partnering with schools, community centers, or government agencies to use their location. If your agency works relatively close to an OZ Census tract, it is reasonably feasible to meet this priority, and get these points. 

The third part of the priority – receiving an investment from an Opportunity Fund that directly relates to the proposed project – is by far the most difficult to meet. 

Most ED grants focus on providing direct services at low or no cost, typically to high-need students and families, and since these do not produce revenue it’s hard to imagine how an investor can make a return by investing in such services. 

Also, applicants will need to have connections to an Opportunity Fund in order to initiate a potential investment. Opportunity Funds are private investment vehicles, and since most eligible entities for ED grants are schools/school districts, nonprofits, and institutions of higher education, they may not have existing relationships with investors. It will take more legwork for these applicants to seek out Opportunity Funds with a geographic and topical interest in investing in their proposed project. 

The last issue for grant applicants is timing. Most ED RFPs have a six- to eight-week turnaround from when they are released until the deadline. This is a short timeframe to set up an Opportunity Fund investment from scratch (while still putting together the rest of the grant proposal!). Many applicants simply won’t have the bandwidth to pull this off. 

Smart grant applicants will begin work now to develop the partnerships and OZ investments needed to earn the maximum preference points allowed on future grants. These points can mean the difference between funding or nothing – so you’d be wise to get your OZ ducks in a row if you plan to apply for ED funding in FY2020. 

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