By Gabriel Frayne Jr.
It’s been over half a century since the U.S. Department of Housing and Urban Development labeled the Buckman neighborhood a “pocket of poverty,” but apparently Governor Kate Brown hasn’t heard that things have changed there.
In February of 2018 the governor’s office conferred the designation of “opportunity zone” on Buckman and the neighboring Central Eastside Industrial district in accordance with a special provision in the Republican tax reform law enacted at the end of 2017. This provision creates a capital gains tax break for (mostly wealthy) investors who sell assets and invest the money in designated opportunity zones, which are census tracts that—in order to be designated—must have a poverty rate above 20 percent or family incomes that are no more than 80 percent of the area median.
Nonetheless, any visitor to Portland interested in viewing one of the city’s up-and-coming neighborhoods need look no farther than these two census tracts [see “Booming Belmont,” September 2018]. So how did they come to be designated opportunity zones?
Nathan Buehler, a spokesperson for the Governor’s office, offers a detailed explanation of what he calls a “robust outreach process,” led by Business Oregon in partnership with the Governor. Among those consulted were “nine federally recognized tribes, House and Senate caucus offices, Association of Oregon Counties, and the League of Oregon Cities,” as well as various developers, housing organizations and economic development organizations, among others.
Apparently, neighborhood associations were not among those consulted: the Buckman Community Association minutes from the beginning of 2018 through March of this year indicate no meetings or presentations relating to opportunity zones.
The curious pattern of opportunity zone designation in the greater Portland area has prompted more than a few Portlanders to question whether the tax break program is truly aimed at providing jobs and housing to low-income residents or if it is just another avenue to gentrification. The issue only came to the attention of many residents this past February when Bloomberg Businessweek, a New York based publication, ran a story aptly titled “Welcome to Tax Breaklandia,” accompanied by a photo of downtown Portland.
The article tells of a wealthy Portland real estate investor who plans to draw on qualified opportunity zone funds to build a downtown luxury tower complete with “a swimming pool that cantilevers out of the eighth floor.” As it happens, both the downtown core and the Pearl have been designated opportunity zones. “In some cases, the law may boost returns on investments that would’ve happened anyway” the authors note.
“There is nothing in those tax shelters that tethers the benefits of opportunity zones to any sort of social responsibility at all,” says MK Hanson the co-director of the Coalition to Prioritize, Protect, and Preserve Affordable Housing and also a tenant advocate. “It’s a Trojan horse.”
Indeed, there is nothing on the IRS web site that indicates how the capital gains tax cut will benefit low-income residents in any tangible way. A FAQs page states that, “Opportunity Zones are an economic development tool—that is, they are designed to spur economic development and job creation in distressed communities,” but nothing on the page explain exactly how that will happen other than “by providing tax benefits to investors.”
In fact, how these new funds will affect the designated areas is anyone’s guess at this time. Though investors can direct the funds to enterprises other than real estate, the current surplus of high-end housing in the city may put a damper on the most obvious form of investment.
Sortis Holdings, a locally-based private investment firm, has begun advertising an Opportunity Zone Fund which it hopes to capitalize at 100 million dollars, though it is not known yet if any of that fund has been invested. However, when asked about investment in Southeast, Jef Baker, the company’s director, replied, “we’re very interested.”
The program has also caught the attention of local unreinforced masonry building (URM) owners. Angie Even, an activist with Save Portland Buildings, claims that “this is a feeding frenzy for developers, especially because there’s a sunset on the opportunity zones.” (These funds must be invested by 2021 in order to gain the full tax benefit.) “For URMs, the reality is that the City desires redevelopment of the inner city and central east side.”
With few visible results locally thus far, it remains to be seen whether a program designed and enacted by a Republican Congress in Washington will take shape as an opportunity for low-income families or high-income developers here in Tax Breaklandia.