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GAO: Opportunity Zone program lacks oversight, accountability

November 12, 2020
By: Mark Skinner

Criticism of the federal Opportunity Zone program has been directed at individual examples of questionable tracts for inclusion, the process for selecting tracts in each state, and the merits of some of the development projects underway. For example, some question inclusion of lowlands subject to flooding as sea levels rise with climate change and subsidence, while others raise eyebrows at inclusion of greenfield freeway interchanges or tracts already undergoing gentrification in fast growing cities. Complaints have been raised about projects where the end use (e.g. a hotel) will offer low-wage, part-time jobs without benefits for worker or a chance of raising them out of poverty.  Still others question if a decade of forgone public revenues from real estate projects that would have happened anyway is good policy. A new report from the U.S. Government Accountability Office recommends Congress pass legislation granting the Treasury Department the authority to actually evaluate the program to determine if all of the concern is justified. 

The economic development linchpin of President Trump’s re-election effort, and further embraced in President-elect Joe Biden’s campaign platform, the Opportunity Zone/investor tax abatement program touches 9,000 census tracts around the country and promised initially to serve as an economic development tool to simultaneously redevelop areas of significant distress while increasing economic mobility of the nation’s poorest citizens. But the GAO states:

“Congress did not designate an agency with the responsibility and authority to collect data, evaluate, and report on OZ performance. As a result of unclear statutory authority, there are insufficient data available to evaluate OZ performance … . Additional data collection and reporting on OZ are necessary to evaluate outcomes … .”

In coming to this conclusion, the office acknowledges one of the broadest complaints about the program intended to help people living in distressed communities: “Compared to some other community development tax expenditures, OZ generally has fewer limits on the project types that can be financed and fewer controls to limit potential revenue losses. [OZ] can generally be used to support investment in any type of tangible asset class within a Zone ... .

In examining how Congress passed this piece of legislation, Jason Rittenberg, SSTI’s policy and development director, explained that Congress decided to pass OZs through a tax bill, which posed barriers to adding "programmatic" requirements like reporting or means-testing qualifying investments.

“As the GAO points out, most economic development incentives rely on a ‘but for’ principle — that public funds are not spent unless the project cannot go forward but for the public funds,” Rittenberg said. “Unfortunately, OZ's lack of project-specific requirements or reporting means that public funds can be spent for any and all projects, and we'll likely never know how much of the tax support was actually needed compared to how much was superfluous.”

As a cautionary note lowering expectations of improvement, Rittenberg cautioned that changes to the program, such as those GAO has suggested, likely would only affect new investments going forward and not be able to be applied to whatever number of investments have already taken place.

The GAO report can be found here.

gao, opportunity zones