WASHINGTON—Passed into law in December 2017, opportunity zones have attracted tens of billions of dollars to low-income communities by offering tax breaks to private funds. Early results of the opportunity zones program are promising, and the policy improvements are necessary to maximize its contribution to the economic recovery from the pandemic, according to an advocacy group.
A wide range of investments is currently taking advantage of the incentives provided by opportunity zones, a bipartisan initiative created by the 2017 Tax Cuts and Jobs Act.
Nearly 210 high-impact investments across 41 states and the District of Columbia were directed to these zones, according to a new report by the Economic Innovation Group (EIG), an advocacy organization co-founded by Sean Parker, a Silicon Valley entrepreneur.
Notable projects in the zones include investments into low-income, affordable housing, clean technologies, healthcare facilities, historical buildings, and brownfield redevelopments (revitalizing contaminated and abandoned lands or structures).
The program is “producing a hugely diverse range of investment types in communities of all sizes,” Kenan Fikri, director of research at the EIG told The Epoch Times. “And it’s proving itself as a concept and as a model.”
The program was enacted at the end of 2017, but capital only started to flow to these zones at scale in 2020 after the Treasury Department finalized its regulations in December 2019.
The investment community has just started to understand how the opportunity zones work, but much remains to be done to educate investors and local leaders on this tax incentive, according to the report. In addition, further tweaks to the policy are necessary to make sure that the program can better fulfill its promise.
Affordable housing developments, for example, are some of the hardest deals to get done. The EIG believes that the new administration could take some steps to promote affordable housing developments in opportunity zones by making it easier for the opportunity zone incentives to work with other tools of affordable housing finance such as low-income housing tax credits.
Last year, the Trump administration estimated that through 2019, nearly $75 billion in private capital flowed into opportunity zones, and 70 percent of this capital likely represented new investment that would not have otherwise been directed to the distressed communities.
According to a survey of opportunity fund managers conducted by Novogradac, the volume of investment dollars on the fund managers’ radar more than tripled between December 2019 and December 2020.
The true scale of investments in opportunity zones will remain a mystery until the Internal Revenue Service releases summary statistics from opportunity fund tax filings, according to the report.
In addition, concerns over taxpayer privacy will likely limit the available data about transactions and investors, which will make it difficult for policymakers and researchers to evaluate the policy’s results over time.
“This is Congress’ task to complete the unfinished business of opportunity zones,” Fikri said. “Everyone on both sides of the aisle has recognized that this is a really open-ended policy experiment and we have to collect the data to know what works and how to improve it.”
The pandemic created a lot of uncertainty for opportunity zone investors particularly during the early months of the health crisis last year. But concerns have since been dispelled with strong market recovery.
Investors can defer taxes on capital gains by investing in opportunity zones. Hence, the market rally has created a steady pipeline of potential capital for opportunity zones, Fikri said.
Regulators also extended some investment deadlines to ensure investors remain engaged in the program.
So far, real estate investments have comprised the largest part of projects. According to the EIG, lawmakers and the new administration should look for solutions to boost investments into manufacturing facilities and startup companies in these zones, which has been the main objective of the program from the start.
The idea of opportunity zones was first coined by the EIG. It was originally introduced in a 2015 paper, “Unlocking Private Capital to Facilitate Economic Growth in Distressed Areas,” to help address the persistent poverty and uneven recovery in American communities.
The idea was championed by Sens. Tim Scott (R-S.C.) and Cory Booker (D-N.J.) and Reps. Pat Tiberi (R-Ohio) and Ron Kind (D-Wis.) in 2017, and was later included in President Donald Trump’s tax-reform plan.