January 15, 2021
CAREY L BIRON
Washington DC, USA
Thomson Reuters Foundation
Changes to a US tax rule to transform poor neighborhoods could get a boost as a Democratic Senate makes it easier for President-elect Joe Biden to push through his legislative agenda.
The Democrats finalized a review of the two seats of the U.S. Senate in Georgia last week to give the party control of the chamber – and the prospect of Biden-backed changes to a law that could encourage investment in deprived areas.
An affordable housing development is under construction in what is considered an opportunity zone of Los Angeles. PICTURE: Martin Cuellar / SoLa Impact.
Martin Muoto’s firm has been helping build affordable housing in south Los Angeles for nearly a decade, but it was only recently that he was able to entice many others into investing in the impoverished area.
The developer attributes the turnaround to a tax regulation known as “Opportunity Zones” which, when it came into effect in 2017, met with widespread hope that it could help steer investors towards neighborhoods that rarely receive such attention .
The law seeks to lure investors into low-income areas by offering tax incentives if they hold onto a project – a housing estate, for example – for a decade rather than looking for a quick return, and if they can demonstrate they can add value create.
The program has “enabled us to invest significantly in black and brown communities as they have been overlooked and underinvested in the past,” said Muoto, founder of real estate investment company SoLa Impact, in a telephone interview.
Opportunity zones have “increased five or ten times the number of investors willing to speak to us,” added Muoto, whose company is taking advantage of the incentives to raise $ 1 billion in a Black Impact Fund To compile promotion of minority areas.
The law seeks to lure investors into low-income areas by offering tax incentives if they hold onto a project – a housing estate, for example – for a decade rather than looking for a quick return, and if they can demonstrate they can add value create.
However, Muoto notes that not everyone follows the spirit of the law to focus on nonprofit investing.
Now he and others who share this concern are using in-depth administration under Biden to revise the program.
Biden’s campaign platform includes a pledge to “reform opportunity zones to deliver on their promise” and notes that “in too many cases investors prefer high-yield projects like luxury apartments over affordable housing and local entrepreneurs”.
The promise suggests that opportunity zones, well done, provide an opportunity to “fill the racial wealth gap”.
When it was announced, opportunity zone legislation was seen as potentially transformative to affordable housing and urban development, said Brett Theodos, a senior fellow at the Urban Institute, a DC-based think tank.
However, when the administration of President Donald Trump put in place rules for implementing opportunity zones, Theodos became increasingly clear that the program was not going to realize its potential.
“We see the program largely going to projects or communities that don’t need help,” said Theodos, who co-authored a review of opportunity zones that the Biden campaign included in its plan.
The US Treasury Department, which oversees the program, said in email comments that opportunity zones “have successfully brought investments into communities that investors previously overlooked.”
By the end of 2019, $ 75 billion in private capital had been invested in opportunity zones “most of which would not have come [these areas] without the incentive, “it said.
These investments will lift a million people out of poverty, according to the White House website.
Across the country, nearly 8,800 areas of more than 30 million people have been designated as opportunity zones, covering roughly half of the country’s “pockets of concentrated persistent poverty,” said Senator Tim Scott, who co-drafted the law.
While many welcomed the law’s original vision, the program is now widespread.
Two main issues concern the types of investments that are eligible under the Opportunity Zone guidelines – almost anything, Theodos said – and data on projects themselves.
“One of the biggest flaws in the law is very obvious – there is no data,” said Jesse Van Tol, executive director of the National Community Reinvestment Coalition, a Washington-based nonprofit.
“We have no idea the ramifications of any tax giveaway other than anecdotal. We don’t even know what the projects were,” he told the Thomson Reuters Foundation.
Van Tol said the program also needs guidance to align investments with community priorities, for example by targeting local governments and organizations.
Nonetheless, his group is actively campaigning for the future Biden government, believing that the law’s potential remains substantial.
“Opportunity zones with some major changes could have a positive impact,” he said.
An affordable housing development is under construction in what is considered an opportunity zone of Los Angeles. PICTURE: Martin Cuellar / SoLa Impact.
Those who support legislative changes say the Biden government must also ensure that areas that benefit from these investments are not gentrified.
“What we’ve traditionally seen is when investing in previously divested communities, color communities tend to be crowded out,” said Bridgett A Simmons, attorney for the nonprofit National Housing Law Project.
Her organization is calling on the von Biden government, among other things, to examine how opportunity zones affect federal housing construction.
“When public housing is in very bad shape, we need to think about how we can not only tear it down, but also tear it down [how] to preserve it and, if at all possible, raise funds to renovate the property, “she said.
The goal must be “to keep subsidized families in these communities effective so that they can benefit from the new investment”.
This is a key priority for Baltimore with 42 opportunity zones, said Ben Seigel, opportunity zone coordinator at Baltimore Development Corp, a city office.
“We have succeeded in attracting a large number of investors to Baltimore who have not previously operated in Baltimore or in certain parts of the city.”
– Ben Seigel, Opportunity Zone Coordinator for Baltimore Development Corp.
“We have succeeded in attracting a large number of investors to Baltimore who have not previously worked in Baltimore or in certain parts of the city,” he said.
A project to convert abandoned townhouses into workforce accommodation would not have been possible without the new incentives, he said.
Still, Seigel said he has only seen “mixed results” in opportunity zones so far.
He and his colleagues hope for various changes under the Biden administration, including requiring public reporting of investments and ensuring projects have documented the impact on the community.
These changes would “add teeth,” said Seigel, to what Baltimore wants to achieve.
“The next two years will really show the impact Opportunity Zones can have, and I think the policy changes that Inbound Management can make will be an important step in realizing that potential,” he said.