How states can turn Opportunity Zones into a long-term investment strategy

Opportunity Zones represent one of the most powerful—and still underutilized—tools available to states seeking to attract private capital at scale. Made permanent in 2025, the program provides a tax incentive to spur private investment in low-income communities. OZs offer states a rare opportunity to mobilize equity for housing, commercial development, operating businesses, infrastructure, and other economic development priorities.  

But capturing that capital is not automatic. States that do the bare minimum and take a passive approach to Opportunity Zones risk losing out to more proactive states. By contrast, states that are proactive, coordinated, and creative can attract more capital and use OZs as a durable financing channel that is aligned with the state’s economic growth strategy. 

As the next phase of the program gets under way—with states able to nominate Opportunity Zone 2.0 census tracts starting July 1, 2026—the question is no longer whether Opportunity Zones provide value, but whether states will be prepared to use them strategically. 

Gaining a competitive edge with a project-first approach 

Through the Opportunity Zone program, taxpayers may invest an amount equivalent to eligible federal capital gains into designated real estate projects or businesses located in Qualified Opportunity Zone census tracts. Investments must be made through Qualified Opportunity Funds (QOFs) and structured as equity. In return, investors receive three core benefits: deferral of capital gains, partial reduction of the original gain, and permanent exclusion of appreciation on the OZ investment itself. Enhanced benefits for Rural Qualified Opportunity Funds further expand the program’s relevance for infrastructure, energy, broadband, housing, and healthcare investment outside major metros.  

Critically, investors can deploy OZ capital anywhere in the country. The federal tax benefit is uniform, regardless of location. Like it or not, this makes states competitors with one another.  

In light of that reality, states need to recognize that, even though they have a limited window to nominate Opportunity Zone census tracts, designation of those tracts alone does not attract capital. A number of states are selecting tracts using publicly available data tools, or through a public comment process. But the question state leaders need to be asking is not which tracts should qualify, but which projects matter. 

Rather than starting with census tracts, States should instead begin by identifying a ten-year pipeline of priority projects across housing, commercial development, transportation, transmission, broadband, energy, manufacturing, community facilities, and other projects that advance the state’s economic growth goals. States should then look at which of these projects are the best matches for OZ equity as a financing source. This approach requires early and sustained coordination across state agencies, local governments, developers, utilities, infrastructure authorities, and federal partners to assess site readiness and capital needs and to determine where OZ equity can realistically sit within the capital stack. 

Opportunity Zone equity is unusually flexible. It can support nearly any asset class, including mixed-use real estate, industrial facilities, transportation and energy infrastructure, and operating businesses. That flexibility demands an interagency approach and, increasingly, software platforms that allow states to track, evaluate, and refresh project pipelines over time. The tracts that states designate this year will be locked in for ten years. It is important to get them right, and that means aligning them not with data pulled from publicly available tools, or from crowdsourced information, but with a real-world priority-project pipeline. 

Capital attraction must be proactive 

Because investors receive the same federal tax benefit regardless of geography, states must actively differentiate themselves. Simply designating tracts will not be enough to compete with lower-cost states or those with more established OZ ecosystems. 

One effective approach is establishing a dedicated Opportunity Zone function within state government that integrates pipeline development, investor outreach, and interagency coordination. This provides a clear entry point for QOFs, family offices, and corporate investors while ensuring alignment with state priorities. 

States can further enhance competitiveness by layering state-level incentives on top of the federal OZ benefit—such as complementary tax credits, targeted guarantees, or regulatory streamlining. Public financing authorities can also play a role by offering OZ-specific capital products, including predevelopment funding, mezzanine debt, or other low-cost capital that pairs naturally with OZ equity. 

Capital attraction should be treated with the same rigor as economic development marketing. States need a clear value proposition: Why deploy OZ capital here instead of elsewhere? Proactive outreach to in-state capital-gains holders and businesses is especially important to keep capital local and politically durable. 

Build data, tracking, and governance capabilities before you need them 

If Opportunity Zones are to function as a long-term strategy, states must be able to evaluate performance and adjust course. Federal reporting under the OZ framework remains limited and is not sufficient for real-time policy or capital-allocation decisions. States can develop their own methods for collecting data, such as when QOFs, investors, or project sponsors wish to utilize state incentives and financing for their projects that involve OZ equity. 

Developing state-level data collection and reporting methodologies allows state governments to track investment volumes, sectors, geography, and outcomes in real time. High-quality software solutions are essential to synthesize data into dashboards and reports that can inform policymakers, investors, and the public. States should establish clear mechanisms—whether mandatory, voluntary, or automated—for funds and projects to report key metrics. 

For projects that involve public financing or public incentives, it is important to establish clear governance guidelines, lines of accountability, and risk-tolerance thresholds. 

Action can’t wait. This infrastructure should be in place well before 2027, when states will need to benchmark outcomes, forecast investment trajectories, and demonstrate public value. 

Making Opportunity Zone capital go farther 

Opportunity Zone equity is not required to target a specific rate of return. That feature creates a powerful opportunity for states to use OZ capital strategically. 

States can work with eligible taxable entities to establish QOFs designed explicitly to invest in state priority projects. When structured thoughtfully, OZ equity can be highly concessionary—lowering the overall cost of capital and enabling projects that would otherwise be infeasible. 

OZ equity can be designed to behave less like traditional private equity and more like long-duration infrastructure capital. With preferred equity structures, fixed returns, or senior waterfalls, OZ investments can function alongside—or in some cases in place of—low-cost debt.  

States should model capital stacks across housing, infrastructure, healthcare, energy, and business development to test how OZ equity interacts with bonds, tax credits, and federal programs, ensuring feasibility for sponsors and acceptability to other capital providers. 

Opportunity Zones as strategy, not just tax policy 

In an era of constrained general funds, rising borrowing costs, and growing infrastructure needs, the states that succeed in attracting significant investment will be those that align OZ designations with real project pipelines, actively compete for capital, invest early in data and accountability, and structure OZ equity to fill financing gaps rather than simply chase returns. For leaders in state government, this approach can ensure that capital will be deployed in the service of their own long-term development priorities—not another state’s.