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Former President Donald Trump's 2017 tax plan created Opportunity Zones — a program of tax incentives to encourage investment in low-income communities. But as Paul Solman reports, that program has not necessarily spurred economic growth and jobs in distressed communities the way it had been envisioned.
President Trump's 2017 tax plan created Opportunity Zones, a program of tax incentives to encourage investment in low-income communities.
But, as Paul Solman reports, that program has not necessarily spurred economic growth and jobs in these communities in the way that it had been envisioned.
It's part of our series Making Sense.
East Baltimore's Southern Baptist Church back in May 2015. The annual celebration of the church's ushers was jarring, given the loss that Pastor Donte Hickman's flock had suffered just the week before, in the violent protests after Freddie Gray's death.
The church's half-built senior housing complex and community center had been torched, a third of the $12 million project reduced to rubble within hours, so too the church bus. But just two years later, a seeming godsend was part of President Trump's Tax Cuts and Jobs Act, Opportunity Zones.
Pastor Donte Hickman, Southern Baptist Church:
I thought, God, you have opened up the windows of heaven.
So, what are Opportunity Zones? Supposedly low-income census tracts chosen by states that you get a capital gains tax break to invest in.
David Wessel, Author, "Only the Rich Can Play": First, you have to have a capital gain.
David Wessel has written a whole book about Opportunity Zones, or O.Z.s, "Only the Rich Can Play," since only if you're rich do you have an asset worth enough to invest or pay taxes on if you sell it.
But, says Wessel:
You sell that asset, and you get to defer capital gains taxes on that initial sale, and get a discount on the capital gains tax. Then you take those profits and put them into an Opportunity Zone fund, hold that for 10 years, and you don't have to pay any capital gains whatsoever.
So, the proverbial tax break for the rich. But if they're investing in a needy neighborhood, what's not to like?
O.Z. promoter Jill Homan:
Jill Homan, President, Javelin 19 Investments: If the question is, are people just in it to make money, then the answer is, sure, there are investors that all they're focused on is making money in Opportunity Zones.
But you know what? That's OK. And investors, as a result of it, are more inclined to look beyond traditional areas of investment.
To down-and-out areas craving investment like East Baltimore.
Donald Trump, Former President of the United States: Pastor, please.
Which is why Pastor Hickman agreed to a photo-op with the president in 2018.
Pastor Donte Hickman:
Mr. President. I am here today thanking you in advance for funding and resources that you will direct to the urban and distressed communities like Baltimore.
And, in fact:
So, this is exactly what Opportunity Zones were meant for.
A project in West Baltimore to convert a block of bombed-out row houses into retail on the first floor, housing above, the O.Z. dream.
So, what do you think about giving tax breaks to rich people to rebuild something like this?
Jasper Ross, Baltimore:
I think it'd be great.
Sidney Parker, Baltimore:
We need it. It's definitely needed here.
If all the Opportunity Zones in America was like this one, I wouldn't have any complaint, but only a small fraction of them are.
In fact, says Wessel:
There are 8, 764 Opportunity Zones across the country. In 2019, 84 percent of the Opportunity Zones got no money at all, and half the money went to the best-off 1 percent of zones.
Tens of billions invested so far. This project got about $1 million.
This is roughly the price of one condo in the Ritz-Carlton complex in downtown Portland.
And that is also an Opportunity Zone project.
So, the point is, Opportunity Zones can be used for their intended purpose, but there's no requirement that they do so. Unless the law or the regulations nudge investors, most of the money will go to projects that probably would have been done otherwise or in areas that are already drawing capital because they're gentrifying.
But what's so bad about gentrifying? The old Lexington Market neighborhood, for example, where O.Z. money has put up student housing for the University of Maryland campus nearby.
As promoter Jill Homan says:
It's in a low-income census tract that is defined with a certain poverty level. They're providing jobs. Many of them are bringing needed retail. Many of them are taking on blight in urban communities.
For many in these communities, the idea of bringing in well-constructed, well-designed buildings to improve the quality of life, I think it's fantastic.
What this is, is student housing. But it's not like the dorms that you and I went to. It's got granite countertops, and it's got a roof deck and everything.
Prosper on Fayette, with studio apartments starting at $1, 600 a month.
This is a $50 million project. About $20 million of it comes from Opportunity Zone money.
A project with a sweet potential payoff, as it so happens is the case with a lot of O.Z. investment for student housing around the country.
That student housing is in college towns, where there aren't any poor people, but they show up in the census as poor because college kids have no income.
Or consider this O.Z. project, says Wessel.
So this is Port Covington. It's an industrial area that's being turned into retail, office and hotels.
A $5.5 billion project on property owned by the CEO of Under Armour.
He got $600 million worth of subsidy from the city, a Brownfields tax credit from the state, and a quarter-of-a-billion dollars from Goldman Sachs, Goldman's own money, to start this project, before Opportunity Zones ever arrived on the horizon.
This is a project that is an example of people getting a tax break for investing in a project that was already under way and already had some big pocket investors.
And how did it qualify? Is this a poor area?
This site was not originally an Opportunity Zone. It wasn't even eligible to be an Opportunity Zone.
But it was next to an old so-called Empowerment Zone from the Clinton era.
And it turns out that, over there, under a highway, there's a sliver of land less than the size of a football field. This land overlapped with that old Empowerment Zone, and, voila, it qualified.
All perfectly legal.
There are very few rules about what you can use Opportunity Zone tax breaks for. And so there are quite a few hotels going up around the country with Opportunity Zone money because a developer sees this as a cheap way to get money.
An investor, following the law, gets a tax break. The Treasury loses the revenue, but the stated purpose, to help poor people in a poor community, is completely lost.
This is going to be 89 units of multifamily housing all on this strip of land.
OK, let's end back at Pastor Hickman's poor community, in which he is trying to work wonders.
We just purchased that building. We're going to completely gut it and renovate it and turn it into a work force center, where we will have a barber training school, we will have a demolition training school, CVS pharmaceutical training.
Just across the street, we purchased three liquor stores out of the community.
Where more housing will go. And on the next block, a laundry's been demolished to make way for a huge health and wellness center.
A $32 million project that an Opportunity Zone could have paid for.
And did it?
We have met with all kinds of investors. All came with the terminology, opportunity, mission-driven projects. But the mission was all about how much money they could make out of a project. Can we get our 10 percent to 12 percent?
But when it turned out that the project could not yield the kind of interest that they wanted, then there was no opportunity for us, and there was no interest from them.
So, how much Opportunity Zone money has actually come into the community?
Not one single dime.
But the church is forging ahead, with grants and other financing, just as they did with the senior housing center that rose from the ashes, which prompted one last question.
How much of a difference would it have really made to have Opportunity Zone money, since you're doing this anyway?
Communities like this don't have a lot of time to be on a respirator.
We have been working on this project for the last five years. Opportunity Zone moneys could have gotten it done within a year. And that's what communities like this need. We need change, observable, quickly, just as quickly as they're doing it in downtown sectors.
For the "PBS NewsHour," Paul Solman.
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Paul Solman has been a business, economics and occasional art correspondent for the PBS NewsHour since 1985.
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