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Member Spotlight: NACCED’s Economic Development Chair on Navigating the New Territory of Opportunity Zones

Posted By Administration, Wednesday, July 11, 2018
Updated: Tuesday, July 10, 2018
By Cheryl Markham, Strategic Policy Advisor, Department of Community & Human Services, King County, WA

I have to admit I was initially surprised to hear that a provision of the new tax act (Public Law 115-97, Tax Cuts and Jobs Act of 2017), commonly referred to as “Opportunity Zones Program” could potentially be a benefit to distressed communities in the United States. And I was not alone – as I started talking to local colleagues and national NACCED colleagues about the news – most people responded with “Say what?”

I was further surprised – and not alone here either - to learn that there had been some pretty impressive bi-partisan cooperation beginning in 2015 to develop the Opportunity Zone concept and to advance bi-partisan legislation called the “Investing in Opportunity Act” (IIOA) during the 114th Congress. Lead sponsors included Cory Booker (D-N.J.), Time Scott (R-S.C.), Ron Kind (D-Wis.) and Pat Tiberi (R-Ohio). A number of the elements of the IIOA are present in the Opportunity Zones Program adopted in the Tax Cuts and Jobs Act, however a number of strong protective provisions were not included. A number of colleagues have expressed concerns regarding the potential for negative consequences without protective program elements.

What are the concerns for potential negative consequences you may ask? In a nutshell the Opportunity Zone Program provides a tax relief incentive to persons and corporations who have enough wealth to be required to pay capital gains taxes. In exchange for making investments in Opportunity Zones (OZs), capital gains tax payments may be deferred or reduced for up to ten years and the investor is allowed to keep any returns made on their investments in OZs over the investment period. Therein lies the conundrum – there is potential for investments to provide benefits and opportunities for both current community residents and future residents, and there is also potential for investments to maximize investor return, leave existing community residents and businesses behind and cause displacement. Finally, there is potential for little effect if investors decide that the risks of investment are too great in some areas and/or zones.

In King County, the potential for negative consequences weighed heavily on the minds of one our community partners, and we did not include their community in the OZ designation because they were strongly opposed to it.  The community is very vulnerable to displacement near a new high capacity transit station, had not yet made progress on securing property and were concerned that the OZ benefit to investors would fuel the snapping up of properties in the vicinity of the station. We will continue to support this particular community’s strategy for inclusive development outside the OZ program, while we work to support other communities that desired to be an OZ to make the best of the program.

NACCED’s Economic Development Committee (EDC) is helping our members share and understand OZ information and resources so that we may realize as many positive benefits for communities in our OZs as possible, and mitigate potential negative consequences. In late May the EDC took up the issue of providing a NACCED comment letter to Treasury regarding the rules for “Opportunity Funds”, which are the private investment vehicles that will aggregate and deploy capital in OZs for eligible investments. The letter encouraged the development of: 1) rules that define “abuse” of vulnerable communities; 2) rules that require protections in the form of community benefits for existing residents of the zones, including community and local jurisdiction engagement; and 3) rules that require annual reporting of specific metrics by each Fund. The letter further encouraged that the recommended rules be required for continued certification of all Opportunity Funds. The Committee also created a template comment letter for counties and others to add local context information and send to Treasury (see template letter at the end of this post.)

In the Seattle/King County region (King County, Washington) we have begun coordinating across jurisdictions, with our Economic Development Council, with our regional Enterprise Community Partners’ office and other CDFI’s and with our state to employ a number of strategies that support our existing residents and community partners in OZs to thrive in place. Strategies include acquiring and land banking properties for future community benefit and affordable housing projects to the extent possible, and actively encouraging the adoption of inclusionary zoning in jurisdictions with OZs that don’t currently have it. We are considering other strategies for local and state partnership such as certification and incentives for the creation of local and socially responsible Opportunity Funds that can be aligned with our other funding sources.

I am excited to be chairing the NACCED Economic Development Committee this year as we collaborate in a national partnership to learn from each other and help to steer this program towards the production of outcomes that are inclusive of direct and sustained benefits for existing residents of OZs. Please feel welcome to join NACCED and our monthly Economic Development Committee calls focused on the Opportunity Zone Program this year.

For more information on Opportunity Zones, visit NACCED's Advocacy Toolkit page here. You can also access NACCED's template comment letter to Treasury here. 

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