Although Opportunity Zones ostensibly are designed to benefit low-income areas, there are questions about whether they will better serve residents or investors. Policymakers must establish rules to properly guide investments and evaluate their success.
As a recent article in The Columbian detailed, Opportunity Zones can play a role in revitalizing depressed census tracts in Clark County. Five zones in the Vancouver area and two in Washougal are among 139 statewide that were chosen under a program created by the 2017 Tax Cuts and Jobs Act. The Opportunity Zones portion of the legislation allows for investors to receive large breaks on capital gains taxes for investing in designated areas.
But critics warn that the structure of the law encourages investment in areas that already are gentrifying rather than those most in need of help. As Hilar Gelfond and Adam Looney wrote last year for the nonpartisan Brookings Institution: “The new archipelago of domestic tax havens will surely attract investment from those investors who do hold substantial sums of unrealized gains. Few federal policies feature such large, uncapped tax subsidies with so few limits on how those subsidies can be used.”
The Opportunity Zones provision is one example of how the 2017 tax bill mostly benefits the wealthy. It encourages renovation in areas that already are attracting investment, providing incentives that might not be necessary.
“The fundamental problem with Opportunity Zones is the disconnect between the size of the potential tax costs, which are uncapped, and the social benefits from the investments, which will be hard to measure,” Steven M. Rosenthal wrote last year for the nonpartisan Tax Policy Center.
Much analysis of Opportunity Zones is speculative; the Internal Revenue Service is still finalizing rules for the program, with guidelines expected in the next few months. The focus should be on development that provides jobs for low-income areas rather than profit for investors from outside the area. “In contrast to the new Opportunity Zones, the policy with the best proven record — Empowerment Zones — focused on people and local services, not just capital investments,” Looney wrote last year. “They encouraged hiring … offered loan guarantees … and large grants to local government authorities for local services and infrastructure.”
Within the city limits of Vancouver, the most obvious area for investment is along Fourth Plain Boulevard. Local leaders wisely selected two tracts at either end of the Fourth Plain corridor for Opportunity Zone designation, noting that areas in between are more residential than commercial.
That choice pays heed to concerns that Opportunity Zones can lead to gentrification that increases residential property values, leads to hikes in rent and taxes, and makes areas unaffordable for longtime residents.
Opportunity Zones are being hailed as a boon for investors, and attracting commitments to depressed areas can create benefits throughout the region’s economy. As Richard Keller, president of the Vancouver Downtown Redevelopment Authority, said, “It’s an absolute no-brainer, and a real gift from the federal government and will give a real shot in the arm in these areas.”
We hope that is the case. But it will be essential for policymakers from the federal level to the local level to ensure the program works as promised. As the Brookings Institution wrote: “If we don’t evaluate programs rigorously, clearly they are going to look like they work — even if they don’t.”