President Trump claimed success for “opportunity zones” during Tuesday’s State of the Union address — the new tax program created by the 2017 tax bill meant to revitalize poor communities through investment. Yet, there is no metric for determining their success, and fixing that will take an act of Congress.
“There are no reporting requirements in the legislation to allow us to know the comprehensive client data assessment of what benefits are accruing to the communities,” said Brady Meixell, a research analyst at the Urban Institute.
Opportunity zones provide preferential tax treatment for investments in economically distressed communities. Since their inception, reports have surfaced that they are being designated in wealthier areas of the country and do not work as intended. The zones are expected to reduce federal revenues by $1.6 billion over a 10-year period, according to the Joint Committee on Taxation, Congress’s official scorekeeper.
Although the break was created to benefit poor neighborhoods, reports have shown that very wealthy people, such as financier Michael Milken, have taken advantage of opportunity zone designations. ProPublica reported last November that a “superyacht marina” qualified as an opportunity zone. Because there is no requirement to provide an overarching view of how the zones are working, the prevalence of such examples is unknown.
“We’re purely in the line of anecdotal so far,” said Meixell.
During Tuesday’s speech, Trump claimed that “wealthy people and companies are pouring money into poor neighborhoods or areas that haven’t seen investment in many decades.”
But without formal reporting, it will remain unclear whether the program is working as planned.
“We don’t have that transaction-level investment reporting that would be necessary to be able to state definitively … where the money is going,” Meixell said, adding that “is it going to the better-off opportunity zone like the zone in central Berkeley, California, or is it going to the zone in Youngstown, Ohio, that has a median house value of $14,000?”
Changing the reporting requirement will take an act of Congress. John Bailey, a visiting fellow at the American Enterprise Institute, said there is congressional support for expanding reporting and measurement requirements for opportunity zones.
“So, yes, I do see reporting coming,” he said by email.
Bailey pointed to legislation introduced last December by Sen. Tim Scott of South Carolina, a Republican who led the drafting of the provision that create the zones. The bill expands reporting requirements to determine the effects of the zones by requiring that reporting information be sent to the IRS that includes the location and value of the property that is in the zone.
“The IMPACT Act’s reporting requirements will help show communities and investors that the initiative is working — as well as help root out any fraud or abuse,” said the senator in prepared remarks when he introduced the bill.
Congressional action on Scott’s bill is not expected anytime soon — lawmakers are unlikely to focus on it before the 2020 elections.
“It doesn’t seem like we have any sort of chance to revisit [this problem] until probably next year,” Meixell said.
