Sunshine Week: Lack of transparency and accountability casts shadow over Opportunity Zones
By Kasia Tarczynska
March 16, 2021
“Nothing good grows in the dark for poor communities.” I heard this caution about Opportunity Zones some time ago at a community developers conference. It stuck with me.
The idea behind the Opportunity Zones is to persuade individuals and corporations to invest their capital gains in projects in poor neighborhoods. In return, those investors receive lucrative federal tax breaks on those and future capital gains. No matter what one might think about this underlying idea of OZs (Good Jobs First has questioned the wisdom of giving the wealthiest investors even more tax breaks), the execution and administration of the program has fallen short. Their pervasive lack of transparency and accountability is largely to blame.
Opportunity Zones, or OZs, are poor census tracks that were nominated by governors and certified by the Treasury Department. Some wealthy census tracks bordering poor ones were also eligible for the designation. Investors who invest capital gains (money made on the sale of stock, real estate, etc.) in projects in those zones, can get federal tax breaks on reinvested capital gains and on new gains made from OZ projects.
There is an inherent racial bias when considering who gets the breaks: Those with enough assets to have capital gains are overwhelming white; those who live in OZs are mostly black, Latino, and poor.
OZ projects have no requirements for job creation, living wages, affordable housing, local hiring, or even basic community engagement. We don’t know who is getting the tax breaks, which projects receive OZ investments or where, or how much money is being invested. Experts say that most likely the previous administration intentionally chose to make OZs almost impossible to evaluate.
Since the program enactment in 2017, OZs’ flows have been revealed by journalistic and think thank investigations. We’ve learned some census tracts became Opportunity Zones because of political and lobbying influences; college campuses become OZs because of their artificially low (student) incomes; professional stadiums owned by billionaires qualify for OZ tax breaks; gentrifying neighborhoods were designed as Zones; wealthy tracts were eligible because they also include public housing.
We see now that real estate developers have been main beneficiaries of the program while small, existing and minority owned businesses have seen just a fraction of OZ investments. Rural communities have seen very little investment, and mission-driven projects have struggled to raise OZ capital.
There is also very little we know about the cost of the program itself. There are some estimates of the cost to the federal treasury, but OZs harm state budgets (because most states tie their personal and corporate taxable income definitions to the federal one). In addition, we must assess the cost of new subsidy programs that were created by many states to go with OZs.
It seems that OZs are here to stay, so we must demand better transparency and accountability in a program costing us billions. Reform legislation has been introduced in the Congress but for now, it is not moving.
That’s where we come in. Community groups, think tanks, academics, and NGOs including Good Jobs First must continue pushing for common-sense reforms. Journalists should continue telling the stories of the program’s shortcoming and outright failures. It is a program rife with injustice and if it’s not going to be eliminated, let’s work to make the outcomes benefit people and places who need it the most.
(Good Jobs First hosts an Opportunity Zones resource page, which provides links to the best studies and journalistic investigations on the program. Check it out.)