BTC REPORT: ​Harnessing the Capital From Opportunity Zones Toward Equitable Development Goals

A preliminary overview of the challenges and planning needed for opportunity zones to make a positive impact
 
By Melissa Roark, BTC Intern; with Alexandra Sirota, BTC Director
November 2018
 
The Tax Cuts and Job Creation Act (HR 1) passed in December 2017 includes provisions that establish Opportunity Zones.  The goal of these zones is to drive private, long-term capital to distressed census tracts by providing investors with tax breaks on capital gains. The tax breaks would depend on the length of time that taxpayers are willing to hold their capital gains in specially created Opportunity Funds, which target these chosen Opportunity Zones.
 
The temporary deferral of capital gains — and even permanent exclusion from taxation — is a tax break that erodes the federal tax base; therefore, it should be highly monitored to ensure that a public return is achieved. An estimated $2.2 trillion in unrealized capital gains are currently held by individuals and companies. Estimates of the potential dollars at play from North Carolina taxpayers alone are roughly $936.6 million each year.   
 
Given the lack of conclusive evidence around the connection with tax-based incentives and improved economic outcomes and the real trade-offs that are required with public investments in education, housing and community infrastructure with the loss of revenue, the ultimate outcomes of these policies remain unclear.
 
There have been various other public policies that have sought to drive private capital to communities with low incomes or to revitalize these communities, and experience shows that the design of the program and the attention of communities to potential negative effects upfront is critical to minimize the harm and maximize the benefits. The process of implementing the Opportunity Zones program is primarily under the direction of the U.S. Treasury, which has certified census tracts selected by states and will establish rules for the program, including certification of the newly formed Opportunity Funds. States had the opportunity to intervene in the federal program only through selection of the census tracts and public comments to the Treasury, which will be issuing rules to guide the program’s implementation. 
 
This BTC report provides an overview of what is currently known about the Opportunity Zones and provides a preliminary analysis of the Opportunity Zones selected in North Carolina.  As well, directions for future work are identified to ensure that the benefits to existing residents in Opportunity Zones are realized.
 

Read the Report.

 

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