6. Opportunity Zones tax breaks aren't helping low-income communities
Axios' Kim Hart writes: An Urban Institute report finds that the Opportunity Zone (OZ) incentive created by the 2017 Tax Cuts and Jobs Act is falling short of its goals of fostering equitable development and business growth in undercapitalized communities.
The big picture: Researchers found some examples of capital flowing to neighborhoods that otherwise might not attract it, but Opportunity Zone incentives aren't sweet enough to motivate investors to seek out mission-oriented projects that may truly benefit low- and moderate-income communities, such as affordable housing or small businesses.
"This was sold as a business creation, job creation program in the heartland," said Brett Theodos, Urban Institute senior fellow, noting that only 3% of OZ resources are for operating businesses. "It's not a business creation program, it's a real estate subsidy. That may be the most egregious fault of the program."
What to watch: Congress is actively considering changes to the program, including extending the timeline by four years to 2030, Theodos said.
How it works: The program lets investors defer capital gains taxes if they invest in designated areas and, for the maximum tax benefit, keep money in the project for at least 10 years. Opportunity Zones have attracted more than $10 billion in investments.
Yes, but: Investors with the ability to park money in a project for 10 years naturally look for projects with the highest return. So investing in a high-rise condo in an economically distressed part of town will almost always be more attractive than, say, a grocery store.
- And because eligible investors are wealthy, "people from outside the zones will largely be making investment decisions that affect zone residents," per the report.
- Interviews with 70 stakeholders revealed that black project organizers have found it difficult to connect with or be taken seriously by investors.