By Gabe Frayne
The much-hyped but low-horsepower economic tool known as opportunity zones once promised a boon to low-income neighborhoods across the nation. It has little to show thus far for bringing opportunity to low-income residents here in Portland, among other cities.
Nearly two years after its passage by Congress, this capital gains tax break for deep-pocket investors is being widely criticized for creating a loophole for high-end development and shows little evidence of uplifting residents in struggling urban neighborhoods.
In a recent column in The New York Times, economist Paul Krugman noted that “It has made a handful of wealthy, well-connected investors – including the family of Jared Kushner, Donald Trump’s son-in-law – even wealthier.”
The opportunity zone tax break was written into the landmark Republican tax bill enacted at the end of 2017. The law gave states the authority to designate opportunity zones in census tracts where either the median household income is below average or where there exists a poverty rate of at least 20 percent.
In Oregon, Gov. Kate Brown saw fit to designate Portland’s downtown core, as well as The Pearl, Buckman neighborhood and the Central Eastside district, the site of a half dozen new luxury apartment buildings.
Also designated were the Rosewood and Rockwood neighborhoods, two low-income tracts on the Portland/Gresham border.
Jenny Glass, the executive director of the Rosewood Initiative, a local non-profit, reports:
“We are not pursuing any opportunity zone funds or projects at this time. It does not seem like a tool that would be very helpful for accomplishing our community’s vision and goals.”
About twenty blocks farther east, Rockwood Community Development Center has formed its own opportunity zone fund: Oregon Community Capital, Inc.
In April The Oregonian reported RCDC “is hoping to raise money for community benefit projects,” including an 84-unit apartment building for low- and moderate income residents. There has been no ground-breaking yet, however, and the RCDC did not return multiple calls and emails inquiring about the project.
At least one local investment company can claim some measure of success in putting the capital gains tax break to work as intended.
Sortis Holdings, Portland-based private investment firm, earlier this year announced the creation of a $100 million opportunity zone fund. In August, the company closed on a $59.8 million “mixed income senior living” project in Tukwila, Washington.
Time is running out for investors who want to take full advantage of the opportunity zone tax break.
A key provision of the law sunsets at the end of this year, after which investors would need to keep their new investment for at least ten years in order to realize un-taxed capital gains.
Even if opportunity funds manage to keep cash flowing, it is unlikely to flow into affordable housing or start-up enterprises in depressed areas that offer limited profit potential.
Some members of Congress are taking notice. In November Senator Ron Wyden introduced the Opportunity Zone Reporting and Reform Act.
A key provision of the bill would sunset designations of all “contiguous zones” that are not low-income, but rather, adjacent to low-income zones. Moreover, it would immediately sunset any zone with a median family income that is more than 120 percent of US median family income (as opposed to Portland median family income) unless the zone has a poverty rate above twenty percent.
Introducing the bill, Wyden said, “The Opportunity Zone program has been troubled from the start. [T]here are no safeguards to ensure taxpayers are not simply subsidizing handouts for billionaires with no benefit to the low-income communities this program was supposed to help.
“Republicans who support the program should work with Democrats to ensure it does not become a boondoggle.”
Two years after the passage of the Republican-sponsored “Tax Cuts and Jobs Act,” it is far from clear how Portland’s low-income residents will benefit from opportunity zones.
Even if the act were to spur a boom in construction, developers and contractors don’t generally scour local neighborhoods to hire workers, and for high-rolling investors, “affordable housing” is a fool’s errand.