Speaker Johnson, the author, at a construction site (photo: John McCarten/City Council)
Opportunity Zones, which were part of the 2017 federal tax package, have the potential to improve low-income communities. But the way they are currently structured, they will only benefit neighborhoods already in the midst of building booms and gentrification.
Here is how they are supposed to work: Investors get tax breaks if they invest in businesses and property development in low-income communities. In New York City, investors are eligible to save on state and local taxes in addition to their federal taxes.
Unfortunately, in a city like New York that already has substantial incentive programs across the city and has enjoyed relative economic success in recent years, these new incentives could end up mostly going to projects that would have happened anyway.
Opportunity Zone neighborhoods like Long Island City, Downtown Brooklyn, and Gowanus are communities where private investment has already poured in, and seems poised to continue doing so even without the extra tax incentive - and as a result, they are expected to attract the majority of any Opportunity Zone investment that does happen. Our city does have neighborhoods that would benefit from the additional investment right now, but these aren’t them.
Displacement is a concern, too.
The expected concentration of investment in a small handful of already-affluent (and often rapidly-changing) communities, and in high-end real estate, could accelerate many of the elements of gentrification that we are already struggling to keep up with.
Fiscally, the program could be a huge loser for New Yorkers.
With investors looking for the optimal combinations of high-profit and low-risk investments, and no requirements that investments deliver any public benefit, capital is likely to flow toward large, low-risk companies and high-end residential, commercial, or hotel development. In other words, not the intended targets, and not the people or businesses who could use help from the government.
New York City taxpayers will bear a huge chunk of the cost. The city’s loss of tax revenue shares from Opportunity Zone tax breaks at the federal, state, and local levels could amount to $715 million just over the next five years – and much more over the following decades as investors continue to cash in on tax-free capital gains.
In New York, officials must make sure these Opportunity Zones help the right targets in the most vulnerable communities.
First, lawmakers in Albany must add localized criteria to the incentives. In order to be eligible for state- or city-level Opportunity Zone breaks, I am proposing that a project must be receiving substantial state or city government discretionary assistance, such as direct subsidy, land acquisition, or subsidized loans. This would help because local government agencies consider public benefit as a factor in dispensing discretionary assistance, so this change would enshrine a requirement of at least some benefit for local communities.
Second, we need to right-size other, complementary subsidies for projects. State and city agencies should consider Opportunity Zone equity sources as part of their due diligence process and allocation calculations when disbursing subsidy. This could prevent the unnecessary over-subsidizing of projects receiving both government assistance and Opportunity Zone tax breaks.
Third, we need robust monitoring at all levels. Federally, and at the state level, administrators must mandate transparency, monitor compliance, and evaluate results to ensure that Opportunity Zone incentives are used appropriately, fairly, and to the benefit of the public.
In cities like New York, this program could be a windfall for wealthy investors to little community benefit. But with action from state legislators, there is still a chance to salvage at least some benefit for New Yorkers who actually need it.
Corey Johnson is the Speaker of the New York City Council. On Twitter @NYCSpeakerCoJo.