The Opportunity zone program created by the 2017 tax cut legislation is coming under fire from a growing number of lawmakers, including two who were original sponsors of the program.
Sen. Ron Wyden, D-Ore., introduced a bill this week that would make it more difficult for developments already underway before the legislation took effect to qualify for the tax breaks afforded to investments in opportunity zones. The bill would also disqualify about 200 zones that are contiguous with opportunity zones but not low-income and add sports stadiums to the list of disqualifying businesses types.
Wyden, along with House Ways and Means Committee Chairman Richard Neal, D-Mass., also launched an investigation into the Treasury Department’s designation of Storey County, Nevada, as an opportunity zone following news reports that the county didn’t meet the criteria required by the tax code. The county includes a 700-acre site co-owned by former junk bond king Michael Milken who’s a friend of Treasury Secretary Steven Mnuchin, but Mnuchin has denied any knowledge of Milken’s investment in the zone.
Also this week, Reps. Ron Kind, D-Wis., an original sponsor of the opportunity zone legislation; Terri Sewell, D-Ala.; and Mike Kelly, R-Pa. — all members of the House Ways & Means Committee — introduced a bill that would require funds that invest in opportunity zones to file annual reports with the Treasury disclosing details of the funds and their projects, including investment returns. Funds failing to provide the required information would be fined $500 a day, up to a maximum of $200,000.
The bill would also require the Treasury to compile statistical data on opportunity zones and funds, including metrics on job creation, poverty reduction and community and economic development, and make the information public.
“Opportunity zones were created to bring capital to communities in rural and underserved areas, but in order to ensure that this program is used as it was intended, we need strong transparency and accountability measures in place,” said Rep. Ron Kind.
The information requirements in the bill are far more expansive than those required in a recent IRS proposal.
In order to bring capital to underserved areas, investments in opportunity zones receive several tax breaks on capital gains: deferral of taxes on previously earned capital gains if those gains are invested within six months of the sale and a reduction in taxes if the investment is held for at least five years, plus the elimination of taxes on the sale of that investment if held for 10 years.
Taking another tack to get at the social impact of opportunity zone investments, Sen. Cory Booker, D-N.J., also an original sponsor of the legislation; Wyden; Neal; and Rep. John Lewis, D-Ga., who chairs the Ways and Means Oversight Subcommittee, asked the Government Accountability Office this week to study the effectiveness of the program in spurring investment in low-income areas compared with other federal incentive programs.
Last week Booker, Kind and Rep. Emanuel Cleaver, D-Mo., asked the Treasury’s inspector general to review all certified opportunity zones for eligibility in the program.
All these recent moves by members of Congress concerning the opportunity zones and opportunity zone funds follow news reports about the preferential treatment that billionaires and politically connected investors have received from the program. In addition to Milken, they include Cleveland Cavaliers owner Dan Gilbert, involving a property in downtown Detroit, and Under Armour CEO Kevin Plank working with Goldman Sachs to develop a property in Port Covington, Maryland, near Baltimore.
In their letter to Mnuchin, Wyden and Neal request that the Treasury explain why designated opportunity zones that were not on the department’s initial list were later added and asked it to provide all records concerning the designation. They want answers to that and other questions about the program and the Storey County designation by no later than Nov. 25.
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