Over the past couple of years, President Donald Trump and his Republican colleagues have faced a firestorm of criticism in response to their policies. As real and pressing as these political controversies can feel, they can just as easily be perceived as distant: separated from us by the bureaucracy of Washington. But a walk two minutes down North Avenue, to Mercedes Benz Stadium, or to Edgewood would land you in one of thousands of specifically designated areas affected by Trump’s legislative agenda.
More specifically, this policy is the Federal Opportunity Zone (OZ) Initiative. It’s a shot at a campaign promise: a measure designed to improve infrastructure and alleviate urban poverty by encouraging investment in low income areas.
The thinking behind OZs has been championed by capitalist thinkers for generations, and more recently endorsed by people of the likes of Sean Parker (the first president of Facebook) and Jared Bernstein (Economic Advisor under the Obama Administration). Its neoliberalist, or market-based approach to solving social issues, received a fair amount of bipartisan support in Congress, and with Trump as its political cheerleader, the OZ initiative arrived in the White House and was signed into law as a part of the 2017 Tax Reform Bill.
Communities eligible for Opportunity Zone status must have over 20 percent of their population living under the poverty line. State governors then hand select up to a fourth of the eligible communities to be approved by the US Department of the Treasury for official Opportunity Zone status. Now enter the investors. They are people who have had a capital gains event, such as selling a business or a property, and would normally have to pay a twenty percent or higher tax on these gains. Now, these individuals can shield themselves from taxes by putting their money into “qualified opportunity funds” which include contributions to real estate, housing, business or infrastructure inside of one of the OZs. If they leave their money in these projects for seven years they only have to pay for 85 percent of the taxes owed initially. Leave it for ten years and they owe no taxes. Either way, a break of this magnitude represents a huge savings when applied to an investment of millions of dollars. Emanuel Friedman, a real estate mogul speaking through bouts of excited laughter said “I’m here to tell you this is the biggest program that anyone has ever seen in their lifetime.”
But a lucrative opportunity for an investor might not always translate to relief for those living in extreme poverty. Trump claims that OZ’s will “draw investment into neglected and underserved communities of America so that all Americans regardless of ZIP code have access to the American dream.”
Many are not so optimistic. Critics raise concerns that the policy will disproportionately serve investors by allowing them to invest in already gentrifying “trendy” areas while sidelining the communities that need the investment most. Amazon is under fire for allegedly trying to take advantage of Opportunity Zone incentives to build one of its headquarters in a zone in New York that houses wine bars and views of Manhattan. There is also speculation of a conflict of interest where the people close to Trump are profiting disproportionately. Jared Kushner, Michael Milken and Trump himself have all been publicly accused of gaming the system to put more money in their own pockets.
Even still, many people remain optimistic. Sacramento Kings owner Alex Bhathal asserts that “The increase in economic activity, the increase in tax base, does have a multiplier effect.”
With the worst income inequality in the US, twenty-four percent of residents living below the poverty line and serious problems related to public transportation and traffic, Atlanta has a lot to gain from a policy of this nature. The city has 26 federally designated zones. However, the jury remains out on how effective they will actually be.
One of the people who is trying to make the plan work is Dr. Ed Smith. Dr. Smith is the lead on Opportunity Zones for Invest Atlanta and previously taught economic development policy at Georgia State University. His job is to combine the OZ tax break with other local incentives to push investors to fund projects that align with Invest Atlanta’s social impact goals. These include job creation, mixed use development, and affordable housing and transit. He is optimistic about the potential that the OZ initiative has to affect Atlanta, but admits that “we are not an opportunity zones fund, and there is little local control that we can exert over where an institution invests its capital.”
There is also concern that these investments could have an unforeseen dark side of disenfranchising the communities that they seek to help. Atlanta is the United States’ fourth fastest gentrifying city, and the OZ policy has potential to accelerate the already quick rate at which it’s occurring.
Dr. Cliff Lipscomb is a professor in Georgia Tech’s School of Public Policy where he studies Opportunity Zones. In situations where investors have to choose one zone in a city of many, he says, “with capital preservation in mind I would probably be more likely to invest in that neighborhood where gentrification has already begun.”
Left unchecked quickening rates of development can serve to hurt the autonomy of people who have lived in an area for years by pushing them to leave because of a heightened cost of living. Lipscomb asserts that local governments need to be aware of this shift and legislate to prevent it. “Additionally, we need job and skills training to happen concurrently with investment, so that local people can become employed and complete their jobs well” Dr. Lipscomb says. “Otherwise, I’m not convinced that this policy is the best way to deal with urban poverty.”