Governors have until today to nominate “opportunity zones” that are intended to bring investment capital and jobs to low-income communities in their states. The GOP tax bill established rules for the zones, which allow businesses and individuals to defer tax payments on capital gains by rolling their profits into “opportunity funds” that invest in designated communities. The longer the investment period, the larger the reduction for the eventual tax rate.
Governors can nominate up to a quarter of the census tracts in their states with poverty rates of at least 20 percent and median family incomes less than 80 percent of the region’s median income. The Economic Innovation Group, a centrist policy shop that played a role in creating the new program, expects about half the states to submit their nominations Wednesday, with the rest requesting 30-day extensions. The Treasury Department will have the final say on the designations, certifying the zones later this year.
It’s not a small program, estimated to cost the federal government $7.7 billion in lost revenues over the next five years and $1.6 billion over a decade once the deferred taxes are finally paid at lower rates, according to data from the Joint Committee on Taxation cited in The Wall Street Journal.
Supporters of the program say it will help bring investment money to economically challenged parts of the country. Former Rep. Pat Tiberi, who helped write the provision as a congressman from Ohio, said, “It’s about people putting their private dollars into communities.” The Economic Innovation Group says there is about $6 trillion in unrealized capital gains available in U.S households and corporations, and that if just a fraction of that money finds its way into the program, the zones could become “the largest federal community development initiative in memory.”
But skeptics warn that similar programs have shown mixed results at best, with much of the investment money going into gentrifying neighborhoods or projects that were already underway. Timothy Weaver, a professor of urban studies at SUNY Albany, told NPR’s Marketplace on Wednesday that similar programs over the last 40 years have created few jobs and done little to help poor residents in the zones. Real estate developers, on the other hand, have profited handsomely.
The Journal points out that the rules can be gamed by savvy investors: “Some places with many students or few residents can end up being defined as low income. Much of Boston’s financial district sits in an eligible area as do nine Ritz-Carlton hotels across the country.”