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Conservative-Leaning Tax Think Tank Questions Opportunity Zones

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The conservative-leaning Tax Foundation has joined the ranks of organizations skeptical about the impact of opportunity zones on the neighborhoods they purport to help.

In a new report, the Tax Foundation raises some of the same questions that other, more liberal groups or individuals have:

  • Will opportunity zones improve the lives of low-income residents living in those distressed communities?
  • Or will they displace current residents, driving up housing prices as they attract capital and jobs requiring skills that current residents don’t possess?
  • Will this subsidized capital drive out nonsubsidized firms currently operating in the zones?
  • Will adequate, comprehensive data be collected that can measure the effects of the program?

“Without data, it is impossible to judge the merits of place-based incentive programs relative to other economic development approaches,” notes the report, referring to programs like opportunity zones that are based on particular geographic locations.

(Related: Opportunity Zone Funds: Will They Provide the Impact Investors Expect?)

Data is needed to gauge the impact on job creation for lower-income people living in opportunity zones and on housing prices and to gauge whether this program is more effective than other programs.

Under the law that create opportunity funds, for example, “investors are not required to jobs that fit the skills of zone residents,” according to the Tax Foundation.

The bipartisan bill, sponsored by Sens. Cory Booker, D-N.J., and Tim Scott, R-S.C., originally required annual data collection beginning five years after the bill was passed, but those provisions were dropped in the final version.

“With opportunity zones, and any other place-based incentive program, it’s important to consider what we know, as well as what we don’t,” concludes the Tax Foundation report. “We know the program will attract at least some investment to low-income census tracts designated as zones. We also know that this investment will come at both a budgetary and economic cost. But we don’t know how effective opportunity zones will be at improving the lives of low-income people in economically distressed communities.”

The Tax Foundation says it’s likely that future rounds of opportunity regulations will include reporting requirements that would help economists evaluate program impacts.

In the meantime the IRS had issued a first set of guidelines for opportunity zones that would allow investors to take advantage of their tax-preferred treatment but questions remain.

(Related: Tax-Advantaged Opportunity Zone Funds Are Coming to Market)

The agency had scheduled a hearing for January 10 to provide clarification about some of the opportunity zone regulations already proposed, including the definitions of “substantial improvement” and “original use” which are among the requirements for zone developments  to qualify for favorable tax treatment. But the hearing was canceled due to the government shutdown and won’t be rescheduled until the government reopens.


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