On the last episode for 2018, we take a closer look at what political scientists call "Opportunity Zones," or economically-distressed communities. Our guest for this episode is Timothy Weaver, an assistant professor of political science at Rockefeller College. His research focuses on urban policy and the role of race, class and culture in American politics. Weaver is the author of 'Blazing the Neoliberal Trail: Urban Political Development in the United States and the United Kingdom' (University of Pennsylvania Press, 2016).
On the last episode for 2018, we take a closer look at what political scientists call "Opportunity Zones," or economically-distressed communities. Our guest for this episode is Timothy Weaver, an assistant professor of political science at UAlbany's Rockefeller College.
His research focuses on urban policy and the role of race, class and culture in American politics. Weaver is the author of 'Blazing the Neoliberal Trail: Urban Political Development in the United States and the United Kingdom' (University of Pennsylvania Press, 2016).
The UAlbany News Podcast is hosted and produced by Sarah O'Carroll, a Communications Specialist at the University at Albany, State University of New York, with production assistance by Patrick Dodson and Scott Freedman.
Have a comment or question about one of our episodes? You can email us at mediarelations@albany.edu, and you can find us on Twitter @UAlbanyNews.
Sarah O'Carroll:
Welcome to the UAlbany News Podcast. I'm your host, Sarah O'Carroll. Today marks the last episode for 2018. In our first season, we've looked at deep fake video detection to weather predictions and forensic science techniques. Today, we take a closer look at what political scientists call opportunity zones, or economically distressed communities. With me is Timothy Weaver, an assistant professor of political science at Rockefeller College. His research focuses on urban policy and the role of race, class, and culture in American politics.
Speaker 2:
And now to another top read story of the week, the Kushner real estate company snapping up property in quote opportunities zones with tax breaks.
Speaker 3:
The opportunity zone initiative was created under the 2017 Tax Cuts And Jobs Act. That program provides federal tax incentives for investment in distressed communities over the next 10 years.
Speaker 4:
25% of the poorest census tracts in America are now eligible for an opportunity zone to bring back jobs, to bring education, to bring revitalization into these neighborhoods.
Sarah O'Carroll:
Tim, before we get into the overhaul of the tax code and what that's meant, tell us what opportunity zones are, where they came from, and why they were included in the tax reform law now about a year old.
Tim Weaver:
Sure. So opportunity zones are a provision of the 2017 Tax Cuts And Jobs Act, and the idea for opportunities zones is that the government will give tax incentives to investors that place investments into poor or disadvantaged areas of cities and also rural areas. The idea, really, is to encourage investment in these poor areas through tax incentives of various kinds.
Sarah O'Carroll:
Okay. Now can you give us a basic understanding of the historical context behind the tax reform law that put this federal program into motion?
Tim Weaver:
Sure. It really has its roots in the enterprise zone idea, which goes all the way back to the 1970s. In the 1970s the people in the U.S. and also in the U.K. were trying to work out what to do with urban decline, which had been going on for some time. Some people described an urban crisis occurring in both countries. A number of people, particularly those on the right, conservatives, argued that the real problem was that there was too much tax, too much regulation that was preventing investment from occurring in the inner cities.
Tim Weaver:
The enterprise zone idea, which was developed by somebody called Geoffrey Howe, who was the Chancellor of the Exchequer under Margaret Thatcher, came up with this idea that what we should do is to create zones in the city in which taxes would be reduced or eliminated and regulations would be stripped back. The hope was that this would unleash a great deal of investment in the inner city. This idea traveled across the Atlantic and was then part of a U.S. enterprise zone idea. There were efforts by Republicans to pass legislation in Congress, but Democrats hadn't quite become keen on this tax cutting approach to investment.
Sarah O'Carroll:
Why is that?
Tim Weaver:
Well, I think initially they were skeptical that it would actually help, and it was a big contrast to the traditional urban policies of the '60s and the '70s, which were much more about direct investment in the inner city rather than trying to use tax incentives to encourage businesses to invest. So this really represented a bit of a shift, and I think the Democrats were initially reluctant to go along with that shift.
Tim Weaver:
But over the course of the 1980s, as enterprise zones spread at the state level throughout the country, and as Democrats increasingly signed on to enterprise zone bills in Congress, even though they didn't pass, they ultimately did pass in the form of empowerment zones under Bill Clinton.
Sarah O'Carroll:
So another name change?
Tim Weaver:
Another name change. And the empowerment zones were a kind of a third wave version of the enterprise zone idea. So they did do tax incentives, but they also combined it with some more traditional direct investment. So what you had then, I think over the course of the '80s and the '90s, was in urban policy, as in economic policy in general and social policy, you see the Democrats shifting towards the Republican position, but adding a little bit of their third way approach in as well. And with the opportunity zones, we're really going back to the original version, which was about primarily trying to increase access to market forces into the inner cities. And that's really what opportunities zones are all about.
Sarah O'Carroll:
Now, I think most people would say that they want to help people facing poverty and do something to bring relief to impoverished areas, but what's the downside, and what is the other arguments against opportunity zones? Some of the true costs of the program?
Tim Weaver:
Well, it's probably worth just saying a couple of things about exactly how the opportunities zones work. So the way that they work is to allow investors who have made capital gains in the last year or so to, rather than paying tax on those capital gains, to invest them in opportunity funds. And if they do that, they don't have to pay any tax on those gains, or at least they can defer the tax paid on those gains for a number of years. Then, with that new money and these opportunity funds, if new investment yields new profits, new capital gains, then so long as people keep invested in that fund for 10 years, they can avoid paying capital gains on that new revenue or those new profits entirely.
Tim Weaver:
So then the question becomes, to what extent will this help people in poverty that live in these areas? The claim is that it will help, that there'll be some sort of trickled down mechanism by which people on low incomes will benefit. I'm skeptical about this, because essentially what we're being asked to believe, is that investors, who will be the primary beneficiaries of this will do things with their investment that will help the poor. It's not clear to me, though, exactly what those things will be.
Tim Weaver:
The most likely outcome of the opportunity zones is more investment in real estate, and it's not probably going to be real estate for the very poor, because they can't afford the rents that would make such an investment profitable. It's more likely to be in market based rents, or perhaps even rents for the slightly below market, but this will tend to benefit maybe upper middle class people in the city. It will certainly benefit the investors themselves. There may be some temporary benefits for people, let's say working in construction, but it's very unlikely indeed in my view that it will actually help ameliorate poverty, will help people on low incomes. Precisely because the kinds of things that this policy encourages aren't going to be the things that those very poor people are going to benefit from.
Sarah O'Carroll:
So my enthusiasm for this sort of program is waning. What would someone really promoting opportunity zones say to counter your critiques, and you know, what's the argument on the other side that says, "No, it's not just investors that are the beneficiaries, that it will help these communities that it's designed to help?"
Tim Weaver:
Well, I think they would say that there are some opportunities in cities for investment, which given the likely tax costs of doing it, are just not worth it, and that these new incentives will encourage people to invest in slightly less profitable ventures that will now become more profitable because they won't have to pay tax. So maybe they could say that there might be some maybe more affordable housing than there would otherwise have been.
Tim Weaver:
So I think, to be generous to them, perhaps that's possible. Again, I think that's unlikely, and if we look at where the major activity is happening right now with respect to opportunity zones, it's investment houses which are getting very excited about raising money for it. It's real estate developers who are see this as a bonanza. It's been described by Forbes as the ultimate tax break. I don't think they're describing the kind of people that are going to benefit from that tax break as the kind of people that want to build affordable housing for the poor. So I don't quite see how we can connect the dots.
Tim Weaver:
And indeed, if the government wanted to do something, let's say to build affordable housing for the poor, he could have come up with that policy. Or if it wanted to do something to provide employment for people in areas of high unemployment, then it could have done a different policy designed specifically at that. But what they've done is to create a policy that applies very broadly, nearly 12,000 census tracts, which have very few conditions on them. So it doesn't say, for example, the opportunity funds have to be used to employ local people or have to be used for certain uses. The only thing that it says that it can't be used for is to do sinful activities like to pay for the construction of bars or casinos. And those are sort of the only real regulations.
Tim Weaver:
And so again, I think that it's very unlikely that the poor, or poor people, or poor areas, will benefit. Instead, what we're going to see is those areas that are undergoing gentrification or are primed for gentrification, those are going to be the areas that attract most of the investment. And as a result, those kinds of pressures tend to push poor people out rather than helping them. Or they make their costs, let's say, of rent or of services go up. And so if anything, I think the effects on the poor is going to make things worse rather than better.
Sarah O'Carroll:
Now as you've been sharing and talking about how the legislation seems a bit broad, and then even what constitutes an opportunity zone seems a bit broad, can you speak to any other characteristics that would comprise a designation as an opportunity zone?
Tim Weaver:
So the federal government plays limits on what census tracts would qualify for opportunity zone status. These were places with relatively high rates of poverty and low median wages. However, there were some exceptions to that. It was possible for some of the census tracts to be contiguous to very poor places.
Sarah O'Carroll:
What do you mean by continuous?
Tim Weaver:
Directly next door to.
Sarah O'Carroll:
Okay.
Tim Weaver:
So what we're seeing, for example, in places in Manhattan or in Brooklyn, are the places that have been designated opportunities zones are right next door to extremely wealthy areas. So there's one example in Brooklyn where there's an opportunity zone census tract, and the next door census tract has a median income of about $250,000.
Sarah O'Carroll:
Just a block or so over.
Tim Weaver:
Exactly. And so we're not talking about a very, very poor area at all. In place after place, certainly in New York, in L.A., In Philadelphia, even in places like Louisville, Kentucky, we see many of the census tracts that have been designated are places that are already attracting a great deal of investment. And so the argument that these new opportunity zones are creating new investment that wouldn't have happened I don't think holds water. Instead, what's likely to happen is that we're going to end up giving tax breaks to activities that were going to occur anyway, which means there'll be a net loss to government revenue. So it means the government now has less money to spend.
Sarah O'Carroll:
[crosstalk 00:12:54] On the things that might help.
Tim Weaver:
Exactly.
Sarah O'Carroll:
[crosstalk 00:12:57] Serious.
Tim Weaver:
Yeah.
Sarah O'Carroll:
Knowing it's been more than a year since this tax code overhaul has passed, and I've heard you refer to, "Well we might see this happen," but what has the first year told us about opportunity zones? Is it the contiguous wealthy neighborhoods and we're seeing investment there? Are there other takeaways that you could speak to about what this year has shown?
Tim Weaver:
Sure. It's still very much early days, and the reason we don't have systematic evidence on this is because we won't know where people have been making investments using these qualified opportunity funds until they file their taxes. But that's the only way, I think, that the treasury is going to monitor these opportunity zones. So I can't give you a systematic answer.
Tim Weaver:
What I do understand, however, from reading the press, is that there are particular areas which are attracting a great deal of accelerated investment over the past few months, and those have been the places like certain census tracts in New Jersey, in Manhattan, in L.A., which are, as I was sort of referring to earlier, the places which are really primed for investment or undergoing a great deal of investment anyway. So there seems to have been an acceleration in those places.
Tim Weaver:
What I don't think we've seen, but again, we have to wait for the evidence to come in fully. I don't think we've seen a great deal of investment change in poorer areas, small towns, the places where arguably you really need to see investment. But we'll have to wait until people file their taxes for us to know exactly who ha who has been making these investments and exactly where the vast majority of them have been being made.
Sarah O'Carroll:
And is it feasible that the public will be able to have this new knowledge distilled in a way that makes sense about, you know, making sense of the numbers?
Tim Weaver:
Well, that's really the challenge for us academics, and there are some institutions that are involved in trying to track these enterprise zone, opportunity zones, and to to try and get a sense of where the investment's been going, what kind of effect it's been having. But again, that will take quite a long time for evidence to accumulate. So in many respects, the media is playing an important role in trying to see what's going on in their local communities, to see what kind of deals are being made, who's making the deals. And there was just a story in Bloomberg yesterday about Jared Kushner being a direct beneficiary of the opportunity zone in a particular New Jersey investment that he is involved in.
Sarah O'Carroll:
It has been good to see that there has been some coverage already, that there are reporters tracking this.
Tim Weaver:
Absolutely.
Sarah O'Carroll:
Now, you referred to this kind of program as a zombie idea. What do you mean by this?
Tim Weaver:
Well, I have been studying enterprise zones and empowerment zones, promise zones under the Obama administration, and various forms of place based tax incentive targets to try and improve investment outcomes with respect to poverty, median wages and so on. And time after time, the evidence is showing that these have either very limited effects or that they end up encouraging investment, which doesn't actually help people that live in those areas. And so as a result, I think that it's a zombie idea in that it's the idea that should be really dead, but it keeps staggering on and haunting policymaking. For me, it's time to really read the last rites and get rid of it once and for all. It's unfortunate in my view that Democrats have been signing on to the opportunity zone idea, because that helps to keep it going, because it gives it the veneer of progressivity, of bipartisanship, when I think it's probably time for the Democrats to reject this whole approach.
Sarah O'Carroll:
That's interesting. Now I'd like to ask you what guidance you might have for policymakers besides scrapping the whole idea? Or it sounds like that should be an option, but what kind of urban policy you envision that would have the right components to help revitalize the community.
Tim Weaver:
Well, in terms of this policy, I do think that it's fundamentally flawed because it's only about tax incentives for capital gains, and I really don't think that that is the key mechanism that we should be focused on. One thing though, that policy makers should insist on, and perhaps the new democratic majority in the House can start addressing this, is that we need proper oversight.
Tim Weaver:
At the moment, the only regulatory oversight for this program, as far as I'm aware, is the treasury using the IRS in tax reporting, but I think there needs to be much greater oversight of this program. So that's one thing I think policy makers could do about this to make it at least more accountable. In terms of other kinds of urban policies, there are a whole range of things that could really help people's lives in poor areas. The first is to focus less on things that are profitable, that can be exchanged for profit.
Sarah O'Carroll:
Like real estate?
Tim Weaver:
Like real estate, and more about things that people need in their day to day lives, which aren't about profit making. So what do people really need, right? They need decent housing, and they might not be able to pay market rents for decent housing. So therefore, we need to think about creative ways of creating housing which people can afford. Maybe it's about just building decent, high quality public housing.
Tim Weaver:
It's very much out of fashion, but I think the big secret about public housing is that it's provided decent housing for millions of people who would otherwise be living in slum conditions. So that would be one thing. But maybe you're worried about the state building housing and owning it, and we want other systems of ownership. In that case, you could come up with cooperative housing for example, that would be nonprofit and that could have people that own a share of a housing unit themselves, or maybe a community at the community wide level.
Tim Weaver:
So that's housing. You need to do something about housing, clearly. You need to do something about things that people need in particular places like childcare, access to decent public infrastructure. You know, the people of Flint don't have clean water still. So we need to have real investment in public infrastructure. Decent childcare, right? Decent education. People in rural areas in particular are struggling with well qualified teachers, well qualified nurses, things like that. So those kinds of investments, in my view, should be receiving priority above giving tax breaks to wealthy investors in the hope that the benefits will trickle down. Rather than doing trickled down, let's flood these local areas with investment in things that people need today rather than hoping that they might get crumbs from the table in the future.
Tim Weaver:
Other things that you could think about doing is coming up with direct forms of cash assistance. You know, there's been talk about a guaranteed minimum income, for example. If we wanted to get rid of poverty, we could do it. It wouldn't be difficult and it wouldn't actually be all that expensive. So that would be one thing. But some people don't like the idea of giving people something for nothing. So maybe we could do something else, like a jobs guarantee, or we could create a workforce to do all the infrastructure repairs around the country that need to be done on an ongoing basis. The roads are falling apart, America's bridges are falling into rivers. America's infrastructure is in very bad shape. Why not create a wealth in local communities by employing people to fix the roof, right? To fix the schools, to fix the roads, to insulate people's houses. That would cut down on carbon emissions and people's heating bills.
Tim Weaver:
So I think there are so many needs in the U.S. There's such vast amounts of poverty that we could focus on doing really socially useful things that would genuinely benefit people living in poor communities today. That would make those communities much better, that didn't do this convoluted approach of giving tax breaks to the very wealthy in the hope that in the end, poor people will benefit. We can benefit poor people today by doing things that will help communities in very concrete ways.
Sarah O'Carroll:
All of these things that you've been mentioning are symbiotic. Or conversely, if you don't have health care and you don't have solid housing, then how can you provide for your child and all of these things are so interrelated, and that by tackling them all together, they would also assist in bringing up the community as a whole.
Tim Weaver:
That's right. I mean, I think that there are so many social problems that we see. Crime, kids not doing very well in school, that are connected to what's going on at home. And what's going on at home as often connected to people's connection to work, or to income of various forms. So if you've got a single parent who's being forced to take a job that's miles and miles away, that then doesn't pay very good wages, that means that she's not in a position to do homework with her kid when they come home from school. Right? Or if there isn't investment in afterschool programming, then it makes family life very difficult for people on low incomes who are working jobs, getting paid at an hourly rate. Or if people have bad health situations, then they might need to be paying lots of money on prescriptions or other things.
Tim Weaver:
So if people that have all these various stresses in their lives, which are just down to misfortune often not down to anything that they deserve, then this compounds throughout the whole community, you know. Through crime, through poor health, difficulties in school. I think we should be ambitious about being able to tackle these problems by various interventions, which would do a number of things at the same time. It would improve outcomes. It would give people in employment. You know, in the case of doing something about insulation or investing in public transportation, it would reduce carbon emissions.
Tim Weaver:
So it would be possible to address things on multiple fronts that could really have a very big payoff. Whereas what I feel is happening with this opportunity zone policy, is that we are paying money in lost tax revenue on the kinds of activities that will not result in local communities getting wealthier. Instead, I think what will happen is a lot of that wealth will be siphoned off into profits that will then be shielded from taxation, which is not going to do anyone any good except for the investors.
Sarah O'Carroll:
Well, Tim, very meaningful work and thought provoking questions. Thank you so much for your time today and for sharing your work with us.
Tim Weaver:
Thanks very much.
Sarah O'Carroll:
Thank you for listening to the UAlbany News Podcast. I'm your host, Sarah O'Carroll. We'd like to again thank Timothy Weaver, an assistant professor of urban policy and politics, for joining us today for our last episode of 2018. We'd love to get your feedback from our first season. You can email us your thoughts, suggestions, and ideas for the year ahead at mediarelations@albany.Edu, and you can find us on Twitter at UAlbanyNews.