A new Marriott hotel in the Phoenix area might seem a world apart from an affordable-housing complex in the Watts neighborhood of Los Angeles, or a low income neighborhood in Baton Rouge.
As The Wall Street Journal reports, all three are poised to potentially benefit from the new “opportunity zone” program created in last year’s federal tax overhaul, which gives tax breaks for investments in low-income neighborhoods.
Real-estate developers, wealthy investors, nonprofit groups and local officials are among those racing to put their mark on the program, which has few restrictions. The first ventures are likely to shape the direction the program takes and whether it has lasting political support.
“This is the biggest initiative of this type by the federal government with the least debate, the least staff support, the least research and still the least clarity,” said Eric Garcetti, the mayor of Los Angeles, who has been working on his own city’s zones and assisting governments in Louisville, Ky., Oklahoma City and South Bend, Ind. “It hasn’t really been fleshed out and that’s exciting for me.”
Unlike earlier federal efforts to spur economic development in poorer communities, the program takes a free-market approach and isn’t backed with federal spending. Being designated an “opportunity zone” doesn’t guarantee that a community will receive money for schools, health care or other services. Instead, private investors will decide whether to invest in designated areas and how to use those funds.
The Treasury Department hasn’t yet issued guidelines on how the program will operate and what rules investment funds must follow, but firms and investors are already positioning themselves to use the new benefit.
The program is expected to cost the government $7.7 billion between 2018 and 2022, and $1.6 billion over 10 years as deferred taxes are paid, according to the Joint Committee on Taxation. There is no limit on the potential tax benefits for investors and, unless the Trump administration decides otherwise, no requirement for measuring the program’s effectiveness, such as examining which investments in each area use the new incentive.
