Opportunity Zones mix potential and risk
Posted September 19, 2018 in Press Releases
New program could enhance poor communities or drive inequality
Depending on how it is implemented, a new program created under last year’s Trump tax bill could be a boon for Ohio’s poor communities or for wealthy investors and developers.
The federal tax bill allows states to identify up to 25 percent of low-income, high-poverty census tracts or tracts adjacent to them to be eligible for “Opportunity Funds.” The funds would provide federal tax incentives to those who invest in businesses and properties in designated poor neighborhoods in the hopes of reducing poverty and boosting local tax revenues. But by definition, tax reductions drain scarce resources from the public sector, resources that are often needed to help provide the basics in poor communities. In Ohio, 43 percent of all census tracts qualified for the program. State officials recommended the maximum number they could, 320 tracts, to the federal government. In a new report, Policy Matters Ohio Senior Project Director Wendy Patton examines which tracts were eligible, which were selected and which were not.
“Ohio prioritized many deeply distressed areas,” Patton said. “Virtually all census tracts selected were low-income. Two-thirds of the tracts selected are among the state’s poorest 25 percent.”
However, the state selected some fast-growing neighborhoods like Cleveland’s Ohio City and Cincinnati’s Over-the-Rhine, while passing-over deeply distressed tracts in places like Ohio’s poorest city, East Cleveland. Opportunity Zone tax incentives are designed to encourage investment of capital gains—64 percent of capital gains in Ohio are owned by the richest 1 percent of Ohio tax filers, who earn an average of $1.2 million a year according to the Institute for Taxation and Economic Development. The wealthiest people, as well as developers and businesses, will benefit greatly. Benefits to the low-income residents of the zone are less clear.
Policymakers can ensure the Opportunity Zone program works for the intended communities by protecting funding for programs that help struggling people, like food aid and Medicaid; being transparent and accountable; and providing community buy-in and oversight through advisory boards and community benefit agreements.
“The devil is in the details and the federal government has yet to write the final rules about implementing the Opportunity Funds,” Patton said. “Tax incentives often drain resources for things like food aid, health care and education. If funds aren’t set up with equity in mind, the program could simply benefit the wealthy, not the people who need help.”
The report includes details about the census tracts selected in Cleveland, Columbus, Cincinnati, Toledo, Athens and other Ohio communities.