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President Donald Trump is centering his pitch to Black Americans for a second term on the expansion of opportunity zones, a program intended to fight poverty that his administration is touting as having brought $75 billion in private investment to distressed communities.
The program, created in 2017 tax legislation, targets low-income areas for development with a guarantee of tax breaks for investors and a promise of improved economic conditions for residents.
Critics say they are concerned that opportunity zones are not reducing poverty, and they are calling for greater transparency and accountability on who benefits from the land development.
Democratic lawmakers have proposed legislative changes to the program to prevent future projects from resulting in low-income residents being displaced from newly developed neighborhoods.
Trump has used executive authority to direct additional federal resources to opportunity zones, but he has yet to present a plan that backs up a campaign promise to expand them if he’s reelected.
Ja’Ron Smith, a key adviser to Trump at the White House on the policy, told McClatchy in an interview, there are “a lot of things” the federal government can do to expand opportunity zones.
“We can just start with creating more zones. That’s a simple way of doing it,” Smith said.
The Department of Treasury has designated 8,766 areas as opportunity zones since 2018.
To create more, Congress would have to rewrite the law to give governors the authority to select additional low-income areas for special treatment than what is currently allowed.
Such a legislative change would hinge on Democratic support that is unlikely to be granted without the inclusion of proposed reforms.
Unlike when the initial bill passed, Democrats now control the House of Representatives. And while the GOP retains a majority in the Senate, the top Republican lawmaker working on the issue told McClatchy that it will take bipartisan support for a bill to clear critical procedural hurdles.
Republican Sen. Tim Scott of South Carolina, who proposed the opportunity zone program, said in an interview that he is putting together a coalition he hopes can pass legislation to expand the initiative during the brief lame-duck session at the end of this year, after the November election and before the new session of Congress.
While he does not have committed Democratic support for the effort now, Scott said he has had productive conversations with colleagues on the other side of the aisle, who may be more inclined to support legislation that couples reforms with the expansion of opportunity zones after the election.
“There are a number of Democrats that are very interested in expanding the number of zones,” he said. “Part of the price we would have to pay to get that may be changing the requirements for zones.”
Democrats are pushing to prohibit areas that meet the technical requirements to be an opportunity zone but are at the higher end of the income scale from receiving the federal tax benefits. They are also seeking to stop luxury apartments and sports stadiums from being built in zones and instead encourage the construction of businesses and housing projects that are more likely to benefit existing residents.
Among the lawmakers pushing for modifications is Sen. Ron Wyden, D-Ore., the ranking member on the Senate Finance Committee, who said in an interview that the goal of the proposed changes is direct investment to the communities that are most in need.
Wyden said his office had been in touch with Scott’s, and there is bipartisan support for significant reforms to the program. He said expansion should only be considered after Congress is able to determine whether the program is relieving poverty and advocated for the termination of zones that are not in low-income areas.
“What we’re going to try to do is focus on the future. It’s very hard to unravel everything that is already set in motion,” he said of his push to reform but not eliminate the program. “There were no guardrails to ensure compliance.”
PILLAR OF MINORITY OUTREACH
The Trump administration routinely cites opportunity zones as a major accomplishment of the Republican’s first term in office, and the president’s campaign has made the policy a pillar of its outreach to minority communities.
“We’re going to be expanding opportunity zones, and we will keep that going. It’s been a tremendous — a tremendous program,” Trump said at a Labor Day news conference.
In brief remarks on the policy, Trump told reporters, “I want to thank Senator Scott, South Carolina, for coming up with that whole concept, because he came up, and I liked it right away, and it was — it’s really turned out to be a tremendous thing, especially for African Americans, Hispanic Americans.”
The extent to which the program is benefiting communities of color is in dispute.
A report compiled by the president’s Council of Economic Advisers and released at the end of August assessed that the opportunity zones had more residents who were African American, Hispanic, and without high school degrees than other areas of the country.
But CEA could not measure whether those demographic groups were financially benefiting from the zones, aside from a projection of improved housing values, because the data it said was needed to make a determination about the effectiveness of the anti-poverty program will not be available for several years.
The report relied on a 2012 study that predates the creation of opportunity zones to project that 1 million people would be lifted out of poverty by the current program.
Without additional information from the Trump administration, critics of the program said it is not possible to determine the extent to which minorities are benefiting.
“There’s nothing to show that low-income communities have benefited from the program at all,” Wyden said.
Rep. Alma Adams, a cosponsor of a reform bill in the House that is identical to Wyden’s, in a statement to McClatchy cast doubt on the program’s ability to drive upward mobility for residents of disadvantaged communities without changes.
The Democrat from North Carolina said she continues to be concerned that opportunity zones have been lucrative for “investors, speculators, and even some gentrifiers” but not for the most in need.
“While the intentions behind opportunity zones are good, we can’t allow the program to displace residents from affordable communities, and have a reverse Robin Hood effect of taking opportunity from those in greatest need and giving it to the wealthy,” Adams stated.
Brett Theodos, a senior fellow at the Urban Institute, said that the Treasury Department has not disclosed information about the level and type of investment in each zone, making it difficult for experts to assess the short-term impact on economically disadvantaged communities or on their minority residents.
He and his fellow researchers concluded after conducting their own extensive interviews that private capital was often being spent on real estate projects rather than businesses like grocery stores that directly benefit neighborhood residents.
Some analysts say the current tax benefit from investing in opportunity zones applies mainly to corporations and wealthy investors with large unrealized capital gains. The Urban Institute is advocating for modifications such as a refundable tax credit that would benefit small investors.
“The program as it is set up really is meant for billionaires, or at least multimillionaires, those are the people who have capital gains enough that they don’t miss them for 10 years,” Theodos said in an interview. “I can’t take $20,000 in capital gains and lock it up for 10 years and not need it.”
The legislation that Wyden and Adams sponsored places an emphasis on reducing the number of high-end projects that critics say are causing unintended outcomes such as gentrification of neighborhoods and the displacement of residents.
Scott said that the intent of the program is to transform and improve neighborhoods without running people out of their communities. Smith blamed local leaders for reported problems.
Trump last month directed federal agencies to prioritize opportunity zones for new government offices in a move that Smith said was intended to give local residents more access to jobs. The Trump aide denied that the order was in response to criticisms that the zones were being used too often for luxury projects.
“It’s being just very intentional about the public role with leveraging this tool,” Smith said. “Opportunity zones have always been a tool given to local communities to help empower them — not a fix all for the problems. It has to be leveraged and cultivated in a way that creates that shared prosperity.”
ROOM FOR EXPANSION
Despite their skepticism about the effectiveness of the program, most Democrats have not called for the elimination of opportunity zones.
A proposal from Democratic presidential candidate Joe Biden calls for detailed public reporting from the Treasury Department, a review of the tax benefits’ impact on communities and a focus on projects that lead directly to job creation and other financial benefits for impoverished residents.
Scott said the program is receiving increased attention in the minority investment community, and he has been working for the last six months on an effort to expand and improve it.
“It’s not a large community, but it’s a growing community,” he said of interest in the program. “They see opportunity zones as a golden opportunity.”
Scott Turner, the executive director of the White House Opportunity and Revitalization Council said that the push for expansion is coming from both the localities and the private sector.
“That’s a good issue to have that the people of the county that are inside our most distressed communities are asking for the expansion of this because of the fruit that’s come about,” he said in an interview.
Theodos of the Urban Institute warned that creating additional zones could lead to the redirection of investment from the neediest neighborhoods to more desirable areas for development.
“There’s a lot of other places that are zones, and it’s not that special that you’re a zone,” he said of the large number of existing zones. “Making more zones oddly enough hurts the existing zones.”
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