Opportunity zones and revitalization planning

 The New York Times reports ("Biden Administration Debating How to Overhaul a Trump-Era Tax Break") that the Biden Administration is proposing changes to Trump's Opportunity Zone initiative.  

8.764 census tracts are designated as Opportunity Zones

Source: OpportunityDb investment website

Trump et al touted it as a great program to stoke development in distressed areas, but mostly it was a boon for real estate investors.  From the article:

The most comprehensive study of investment in the zones to date, released by a pair of University of California, Berkeley, researchers last week, contradicts Mr. Trump’s assessment of the zones’ early performance. The authors, Patrick Kennedy and Harrison Wheeler, are graduate economics students who were granted access to anonymous tax returns filed electronically. Mr. Kennedy is also an economic analyst at the congressional Joint Committee on Taxation. 

The study suggests that in 2019, only about 16 percent of the 8,000 census tracts nationwide that were designated by state officials as opportunity zones using criteria set under the Trump administration received any investment at all. Rural areas received almost no investment. Most of the capital was concentrated in a small slice of zones.

That shouldn't be a surprise.  Even in the best of circumstances, revitalization is tough.  It's toughest in weak markets.

But it's also hard to stoke when the process is run by real estate investors motivated by tax savings, not the best interests of the community.

Not unlike my point to artists ("Reprinting with a slight update, "Arts, culture districts and revitalization" from 2009") that they shouldn't be looking to real estate interests to save them or do their planning, the same goes for revitalization.

My basic point is that real estate development interests have their own interests apart from artists, and that artists and arts organizations need to be conscious of what those interests are, harvest what they can from them, but never stop representing their own interests first and foremost.

I know the Trump Administration would have been opposed, but before initiating investments in these communities, there needed to be a revitalization plan.  Maybe there were in many of the communities, but even so they likely required an update.  I wrote about this at the time:

-- "I figured out why Opportunity Zones won't amount to much: no planning," 2019

I make similar points that:

• an RFP isn't a plan ("Another example of an RFP isn't a plan: Santa Fe, New Mexico versus Denver, Colorado," 2021)
• that the EB5 visa program needed broader plans to direct where the money went
• that community benefits agreements need to be based on an overall plan of consensus priorities to be able to direct proffers in judicious ways ("Structuring community benefits agreements," 2015)

And about how revitalization planning should be organized, with what I now call "Transformational Projects Action Planning":

-- "Why can't the "Bilbao Effect" be reproduced? | Bilbao as an example of Transformational Projects Action Planning," 2017

Plus, the program is for ten years.  The revitalization process usually takes a lot longer than that, especially in distressed communities--periods of a minimum of 20-30 years are not uncommon.

How to move capital to underinvested areas?  But, you can also argue that as charlie pointed out wrt the New Deal, that it was about moving capital from Wall Street to the country's interior, especially the South and West, there need to be vehicles to incentivize capital investment in these places.

Especially because projects in distressed areas are harder to do, often more expensive, less profitable, and more risky.

Needed changes to the program.  But the program requires major changes:

• community development plans should be created for each "Opportunity Zone"
• investment incentives should be targeted to community priorities set out by the plans
• extend the length of the program
• provide the most incentives for the most difficult areas, especially weak market communities and rural areas
• graduate the tax benefits, with minimal extra benefits in strong markets, e.g., Brooklyn
• coordinate with other investment programs like New Markets Tax Credits, Historic Preservation Tax Credits, Low Income Housing Tax Credits, and Community Reinvestment requirements for banks.

Other changes to Trump changes in tax credit programs are in order.  Note that the lowering of the corporate tax rate made participating in tax credit programs much less attractive.  

Plus they made changes to certain programs like the Historic Preservation Tax Credit making it much less beneficial and therefore less effective as a tool for revitalization ("Historic preservation tax credit is saved, but weakened," Chicago Tribune).  And if anything, it should probably be increased from 20% to 30-40%.  

Same with tax credit programs for affordable housing ("Trump’s proposed tax overhaul puts affordable housing in jeopardy," The Real Deal).

These programs should be revisited as well, and necessary changes made.