Opportunity Zones have outlasted the Trump administration
The poverty-fighting program had setbacks but still shows promise
In early April, New York lawmakers passed a budget that distanced the state from President Donald Trump’s signature poverty-fighting measure. The Opportunity Zones program offers generous tax benefits to investors who put capital in low-income census tracts.
New York state Sen. Michael Gianaris called the program “a scandalous giveaway to wealthy developers who didn’t need the money to do the development.” He has advocated ending the tax benefits for developers since 2019.
“A lot of the developments that were getting the credits were already in development before the program even existed, so this is not something that was needed to incentivize these projects,” Gianaris told New York’s Daily News.
New York’s opposition is one of many obstacles the Opportunity Zones program has encountered in just over three years of existence. Still, some investors still see great potential for its future.
Sens. Cory Booker, D-N.J., and Tim Scott, R-S.C., co-sponsored the Opportunity Zone legislation, which passed as part of Trump’s 2017 Tax Cuts and Jobs Act. But it had a slow start: The IRS did not release guidelines for implementing it until late 2019.
In August 2019, The New York Times reported on Opportunity Zone projects like luxury hotels and apartment complexes that it said helped the wealthy more than the poor. People began complaining that projects in poor areas aimed at the wealthy would just raise the cost of living while allowing investors and developers to profit. Critics also highlighted the lack of reporting requirements: The public had no way to track what kind of development the program was fueling or how many jobs it was creating.
In 2020, the pandemic slowed economic activity, including investment and development. In some areas, lockdown restrictions prevented construction. The IRS extended some of the program’s deadlines. President Joe Biden’s campaign website included a plan to add new restrictions to the Opportunity Zones program, and the program faced uncertainty as a new administration took over the White House.
Opportunity Zones offer three main federal tax benefits, which most states adopted, as well. New York discontinued two of the state benefits, meaning investors could receive relief from capital gains taxes at the federal level but still have to pay the state tax. Jill Homan, president of a real estate investment and Opportunity Zone advisory firm, suspects the state wanted to reclaim tax money in light of its budgetary struggles. In 2019, New York’s Citizens Budget Commission estimated the program was keeping $63 million from the state in tax revenue per year.
New York’s move to cut off Opportunity Zones has raised the question of whether other states will follow suit. But Jimmy Atkinson, founder of the Opportunity Zones Database, said New York’s recent move is not as big a deal as many are implying. Its effects are limited to investors who pay taxes in New York and who utilize two specific Opportunity Zones benefits at a state level. “Those two benefits aren’t really the driver of the program,” said Atkinson. New York is keeping the third and largest benefit, which protects investors from taxes on capital gains produced by an Opportunity Zone investment once they have held it for 10 years.
“So I don’t really think this moves the needle much, frankly,” Atkinson said.
Homan said she fears the Biden administration will add too many requirements to the process. “The second you start having the government step in the middle of that is when it becomes a government program,” she said. “Even with the best intentions, a governmental program is never, ever, ever going to be as effective.” Still, she foresees a lot of investor interest in Opportunity Zones: “I’m very optimistic about 2021.”
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