Most people have heard about the Tax Cuts and Jobs Act of 2017—President Trump’s massive tax cut package that mostly benefits wealthy Americans. A late addition to the law was the creation of Opportunity Zones, which are 8,700 zip codes where governors have determined there needs to be more investment. Developers who build new structures on property in these places will now receive massive tax benefits.
It is not hard to like the idea of Opportunity Zones—more investment in struggling neighborhoods can be a very good thing. Senators Tim Scott (R-SC) and Cory Booker (D-NJ), who authored the new plan, are hoping to address blight and crumbling infrastructure. The final version of the law, however, does not provide incentives to, much less require, that any amount of Opportunity Zone development be used to benefit long-term residents by building affordable housing, supporting existing or new local businesses, creating decent-paying jobs, or providing other types of community benefits. Under the law, developers can now receive massive federal tax benefits to build anything from hotels to luxury condos to corporate office buildings, as long as they build it in a designated Opportunity Zone.
To compete for a governor’s Opportunity Zone designation, a zip code had to have a poverty rate of at least 20% or a median income no greater than 80% of the area median income. Zip codes can be quite big and can include a variety of income groups. There can be wealthy pockets or a major university or an arts district inside an otherwise impoverished zip code. Also, not all Opportunity Zone zip codes need to meet the “low-income” definition; up to 5% of the Opportunity Zones can include zip codes next to a “low-income” zip code, as long as the tagged-on zip code has a median income no more than 125% of the “low-income” zip code next door. This means it is possible then that all of the Opportunity Zone investment activity happens in the wealthier zip code, with little or no benefit trickling to the neighborhoods that truly could benefit.
Fighting back on this new gentrification pressure will require that advocates engage with local officials who approve all development. Advocates should argue that proposed projects in Opportunity Zones should include permanently affordable rental housing. Advocates must also urge their Members of Congress in Washington, DC to call upon the Department of Treasury to issue strong and clear regulations for the Opportunity Zone investments. The regulations should require a focus on extremely low-income people, expanding rental housing options, and supporting the neighborhood development vision of long-term residents.
Some have merely asked for “transparency” by requiring Opportunity Zone administrators to report outcomes – but that would merely be an after-the-fact exercise. Without regulations at least providing incentives, if not requirements, that not only protect long-term residents from displacement but also ensure real benefits, the reporting will be an empty exercise.