holders and not all of them have the same goals. For instance, are we targeting the right areas? The New York Times has reported that the Long Island City census tract considered by Amazon is actually doing pretty well. Residents there have a median annual income of $138,000. “Unlike some other economic development incentives, however, this tax break does not include rules or tests requiring its direct beneficiaries to make specific invest- ments that actually produce public benefits or requiring that opportunity zone businesses hire workers from, or provide services to, the local community,” says the Center on Budget and Policy Priorities. “If anything, its incentives push in the opposite direction: the tax break is worth the most with respect to investments whose value rises the fastest. As a result, investors will likely select investments, such as luxury hotels rather than affordable housing, based mainly on their expected

losses, it may be cheaper to pay the tax. Each Qualified Opportunity Fund will represent a different investment profile. As with stocks and bonds, investment results will vary. No doubt there will be services and online sites to rank QOF results. Besides investors, who or what else could be impact- ed – and should therefore be considered? Local Residents – Census tract residents could be major O-Zone beneficiaries if investments result in more local employment. But, who will get the new jobs? It’s very possible that newly funded Opportunity Zone investments will create jobs that are actually held by residents from other census tracts. Think of Long Island City. Lots of job seekers could be residents from other areas, individuals who live just a few minutes away by subway. The assumption is that local residents will welcome outside investment. But, they portunity Zone benefits. Then, in February, the company decided to end the project in the face of local opposition. City and state officials had offered huge subsidies to capture the widely desired Amazon project and those subsidies themselves became a matter of dispute. “Amazon is a billion-dollar company,” tweeted newly elected Representative Alexandria Ocasio-Cor- tez. “The idea that it will receive hundreds of millions of dollars in tax breaks at a time when our subway is crumbling and our communities need MORE investment, not less, is extremely concerning to resi- dents here.” (emphasis hers) Census Tracts – The Superfund program has helped some once-undeveloped sites evolve into valuable com- mercial and residential properties, but not all of them. The same is likely to be true with census tracts. It’s very possible that a relatively-small number of census tracts will absorb a majority of all fund activity – and cash. Tax Collections – The federal government estimates that tax collections will drop by $1.6 billion per year might not. Amazon was prepared to spend several billion dollars to build out the HQ2 project in Long Island City and prom- ised to do so without Op-

because of the Opportunity Zone program. Given that many jurisdictions base their tax collections on income reported to the IRS, it can be expected that state tax collections will also fall as a result of the OZ program. This may or may not be a bad result, depending on how the money furthers development and job growth within a jurisdiction. Gentrification – One goal of the Opportunity Zone effort should be to improve the financial standing of residents in given census tracts. This can be tricky because economic growth leads to more real estate de- mand, meaning that home prices go up, property taxes increase, and residents are often displaced, especially those with fixed incomes. In Irion County, TX, with a population of 1,516, The Pew Charitable Trusts report that “the county’s en- ergy jobs tripled to 187 between 2010 and 2016, the latest federal data available, at average annual wages of more than $63,000. Unemployment in the county dropped from 5.3 percent to 3.2 percent in that time, and typical monthly rents rose 44 percent to $858.” Is a 44 percent increase over six years unreasonable? That’s an average gain of roughly six percent com- pounded annually. According to the Institute on Taxation and Economic Policy (ITEP), “the idea behind the new tax break is to provide an incentive for wealthy individuals to invest in the economies of struggling communities. Despite al- leged intentions, it appears opportunity zones are turn- ing into yet another windfall for wealthy investors and may encourage displacement of people in low-income areas, working against the provision’s intended goal.” And yet, better economic times in small areas do not necessarily lead to gentrification. Writing in The Wash- ington Post, Jesse Van Tol, chief executive officer of the National Community Reinvestment Coalition, argues that localities can have both increased investment and minimal gentrification by adopting protections for long-time resi- dents. Such strategies can include homestead exemptions to offset rising property taxes, homestead tax credits for elderly or disabled homeowners, more density for devel- opers in exchange for more affordable housing units, and funding to help local businesses buy their buildings. Opportunity zones are here, they’re real, and they have begun to attract big money. Whatever problems growth represents in selected census tracts, such expansion will likely be seen as better than the popu- lation declines, falling home prices, and underfunded government services that now plague thousands of local communities. •

financial return, not their social impact.” Additional risk factors include, but are not limited to:

• What is the fee structure for an individual fund?

• Where will the money be invested? Is it better to invest in a few census tracts or to broadly diversify? Each ap- proach has risks.

• What types of projects will be undertaken?

• How and when will investors recover their money?

•Must investors have a minimum net worth? How much?

Steve Rosenthal, with the Urban-Brookings Tax Policy Center and a tax attorney, tells the Housing News Report that investors should have three central concerns: “(1) Loss of their investment; (2) failure to make a profit on their investment in the funds, and (3) a change in the tax laws. For example, tax rates may increase in the future, so an investor may defer gains, but face a higher tax rate on those gains later.” Investors are interested in capital gains tax relief. But, if their investments have weak returns or actual

58 | think realty magazine :: july / august 2019

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