How OZ Signal Works
OZ Signal scores every eligible census tract on seven economic indicators, then validates those scores against actual OZ 1.0 designation data from 2018. Here's exactly what we measure, how we weight it, and where the data comes from.
Which Tracts Are Eligible?
To qualify for OZ 2.0 designation, a census tract must meet at least one of two statutory thresholds and pass an anti-gentrification screen.
Tract median family income ≤ 70% of the area median income (AMI)
AMI uses the higher of metro-area MFI or state MFI, whichever benefits the tract.
Tract poverty rate ≥ 20%
A tract meeting either the income or poverty threshold qualifies.
Tracts disqualified if they show signs of significant recent upward economic pressure
Prevents designation of tracts that no longer need the incentive. Specific thresholds pending Treasury guidance.
26,556 tracts across all 50 states meet these criteria based on 2020-2024 ACS data, our current scoring universe.
The OZ Score (0–100)
Each eligible tract receives a composite score from seven components, each scored 0–100 and weighted based on their historical predictive value from OZ 1.0 backtesting. Exact weights are calibrated through backtesting against OZ 1.0 outcomes and are proprietary.
Income Distress
How far the tract's median family income falls below 70% of the area median income (AMI). Uses the higher of metro-area MFI or state MFI as the reference, per IRS methodology.
Poverty Intensity
Concentration of residents below the federal poverty line. Higher poverty rates reflect deeper economic need and stronger alignment with OZ 1.0 designation patterns.
Employment Proxy
County-level private employment growth. Tracts in growing employment markets tend to attract follow-on investment. County-to-tract allocation is population-weighted.
Housing Distress
Combined signal from vacancy rate and rent levels. High vacancy + low rents indicate distressed housing markets, the pattern seen in OZ 1.0 designated tracts rather than high-demand markets.
Rural Bonus
Binary indicator for USDA RUCA rural classifications. Rural tracts are eligible for the QROF 30% basis step-up (vs. 10% for urban), making them significantly more attractive to fund managers.
Existing Investment
Presence of Low-Income Housing Tax Credit (LIHTC) or New Markets Tax Credit (NMTC) projects. Prior government-subsidized investment signals that capital has successfully deployed in the tract.
Population Trend
Population growth or decline comparing 2015–2019 to 2020–2024 ACS 5-year estimates. Growing tracts signal rising demand; declining tracts may reflect disinvestment. Both patterns appeared in OZ 1.0 designations.
Governor Nomination Probability
In addition to the OZ Score, each tract receives a nomination probability, an estimate of how likely a governor is to designate that tract given historical patterns from 2018.
The model uses poverty rate, income ratio, rural classification, existing investment, and population size to predict designation likelihood. Probabilities are calibrated so that a tract showing 30% probability historically had roughly a 30% designation rate in comparable tracts.
Calibration method: Platt scaling fitted against 5,406 OZ 1.0 designations across 26,556 eligible tracts. Before calibration, all tracts showed 74–95% probability; after calibration the range is 4–76% with a mean of 20%, matching the actual designation rate.
Validation Against OZ 1.0 Data
We tested whether OZ Signal scores predict which tracts governors actually designated in 2018 under the original Opportunity Zone program. The source is the CDFI Fund's official designated QOZ list (December 2018).
In 49 of 51 states, tracts designated in 2018 scored higher on average than non-designated tracts.
Top-quartile OZ Score tracts were 1.44× more likely to have been designated under OZ 1.0.
Designated tracts scored 7.6 points higher on average than non-designated eligible tracts.
Every decile from lowest to highest OZ Score showed a higher designation rate than the one below. A perfectly monotone trend.
Data Notes & Precision
Every data-driven model has limitations. Here's what we know about ours, and what we're doing about it.
The official Treasury OZ 2.0 eligibility list has not yet been published. Our eligible tract universe uses the statutory criteria applied to 2020-2024 ACS data.
MitigationWhen Treasury publishes the list, we will reconcile and flag any differences.
Employment data is county-level (BLS QCEW), allocated to tracts using population weighting.
MitigationWe are evaluating tract-level LODES data as a future upgrade.
Data Sources
OZ Signal is built on authoritative federal data from the U.S. Census Bureau, Bureau of Labor Statistics, Department of Housing and Urban Development, and USDA Economic Research Service.
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