opportunity zones

Earlier this month, legislators introduced bipartisan and bicameral legislation to modify Opportunity Zones (OZs). The beneficial changes would include a reporting requirement, which is overdue for the program,[i] as well as decertification of relatively wealthy zones. However, the bill also introduces questionable changes, including extending the program by two years, shortening the holding period for one of the tax benefits by one year, adding zones with zero population in former industrial sites, and proposing to spend up to $1 billion on technical assistance. The bill also fails to address several fundamental concerns with OZs.

While the debate over how well Opportunity Zones (OZs) have performed and whom they most benefit remains far from settled, two uniting perspectives — a commitment to continuing increased investment in impoverished and vulnerable communities, and the desire for better data collection — may encourage lawmakers to make changes to the program.

In an event organized by the Hutchins Center on fiscal and Monetary Policy at Brookings, academics from some of the nation’s leading universities sought to answer questions centered around Opportunity Zones (OZs), including what is the goal of OZs, are they helping, and how would we know? The 2017 Tax Cuts and Jobs Act created more than 8,700 Opportunity Zones (OZs) across the United States. The program was intended to spur economic development in distressed communities and offered favorable capital gains tax treatment to investments in such locations. The program has already stimulated a flurry of academic research even though final regulations for designating OZs were not published until late 2019. these questions.

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. 

A new report by the Urban Institute indicates that the Opportunity Zone (OZ) tax incentive program has had varied success throughout the country. An Early Assessment of Opportunity Zones for Equitable Development Projects assesses the effects that OZs have had within low-income communities while also reviewing the types of developments that have benefited most from the incentive. An over-arching finding in the report is that it has been difficult for mission-oriented and community-driven projects to access capital, as investors have instead focused on funding projects that can produce larger, short-term returns, including luxury real estate properties. The authors suggest that policymakers could redesign the program to better incentivize investments that target innovative small business opportunities and equitable community-focused projects.

In 2019, the administrations and legislatures in many states grappled with if and how to adjust state economic development initiatives to leverage the federal Opportunity Zone (OZ) program. The actions of 12 states that implemented new activities are described below.

SSTI and five peer, economic development-focused organizations submitted a letter to assistant secretary for economic development, John Fleming, in response to a request for information about incorporating Opportunity Zones (OZs) into existing EDA practices. The letter encourages the agency to be cautious in its approach, pointing out that OZ’s impacts are not yet understood. In the meantime, EDA can continue to support distressed regions by providing more education about available programs, technical assistance to strengthen competitiveness, and leverage existing research funding and grant reporting to increase the country’s understanding of economic activity within OZs. The other organizations signing the letter are: International Economic Development Council, National Association of Counties, National Association of Regional Councils, National League of Cities, and Rural Community Assistance Partnership. Read the full letter.

Ensuring the success of the 8,700 Opportunity Zones created in low-income, communities across the country will take “intentional, collective action from everyone involved,” according to the President’s Council on Impact Investing, a philanthropic leadership group that is part of the U.S. Impact Investing Alliance. Without a coordinated effort that includes policymakers, investors, fund managers and philanthropists, Council members are concerned the residents of the Opportunity Zones won’t have a voice, could be displaced if their neighborhoods become gentrified and “are at risk of losing out and falling further behind, while Zones in already-gentrifying parts of urban areas like New York City or Washington, D.C., continue to draw the lion's share of development capital,” according to a press release the group issued.

After 18 months, some communities are starting to see Opportunity Zones (OZ) investments. LISC, a community development entity with a long track record of project finance, has published a new guide to help communities plan to capitalize on the investment. These activities remain heavily focused on real estate projects but may still be informative for groups looking to bolster their regional innovation economy.

As covered recently in the SSTI Weekly Digest, the IRS has released its second round of guidance related to Opportunity Zones. At the same time, the agency announced its intention to release a request for information (RFI) around program reporting. Days earlier, the Department of Housing and Urban Development (HUD) released an RFI for ways to adjust programs to better-support the zones. Comments close on the IRS reporting RFI May 31, on the HUD policy RFI June 17, and on the IRS investment guidance July 1. Members interested in SSTI’s responses to the agencies should contact Jason Rittenberg (rittenberg@ssti.org | 614.901.1690).