UAlbany News Podcast

The Opportunity Zone Program: What 2019 Has Taught Us, with Timothy Weaver

Episode Summary

Rep. Rashida Tlaib introduced a bill on Nov. 22 to repeal the now controversial Opportunity Zone Program. Other politicians, including presidential candidate Bernie Sanders and Rep. Alexandria Ocasio Cortez, have begun criticizing the tax incentive following reports from The New York Times and other media outlets on the high-profile beneficiaries of the program. We first spoke with political scientist Timothy Weaver last winter on the program and his major concerns with its potential repercussions. We’ve invited Weaver back to the series to share his insights on what 2019 revealed about the provision's effects on American cities and which of his predictions have already come true.

Episode Notes

Rep. Rashida Tlaib introduced a bill on Nov. 22 to repeal the now controversial Opportunity Zone Program. Other politicians, including presidential candidate Bernie Sanders and Rep. Alexandria Ocasio Cortez, have begun criticizing the tax incentive following reports from The New York Times and other media outlets on the high-profile beneficiaries of the program.

We first spoke with political scientist Timothy Weaver last winter on the program and his major concerns with its potential repercussions. We’ve invited Weaver back to the series to share his insights on what 2019 revealed about the provision's effects on American cities and which of his predictions have already come true.

Weaver is an assistant professor at the Rockefeller College of Public Affairs & Policy, where his studies place-based tax incentives and their investment outcomes. He is the author of ‘Blazing the Neoliberal Trail: Urban Political Development in the United States and the United Kingdom’ (University of Pennsylvania Press, 2016).

We'll also be releasing a second episode featuring Weaver next week ahead of the UK's General Election on Dec. 12. We spoke with Weaver about the most contentious issues on the political agenda as well as the sticking points preventing a final deal on Brexit.

You can tune in to that conversation on Monday. We'll see you next week.

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.

Episode Transcription

Sarah O'Carroll:            

Welcome to the UAlbany News Podcast. I'm your host Sarah O'Carroll. Returning to the series is Timothy Weaver, an assistant professor of political science at Rockefeller College. His research focuses on place-based tax incentives and their investment outcomes. A year ago, we spoke with Weaver on the Opportunity Zone program, a provision of President Trump's 2017 Tax Cuts and Jobs Act. We have Weaver back on the show to discuss what 2019 revealed about the program and the effects it's had on cities across the country.

NEWS ANCHOR 1:         

Investors have been pouring billions of dollars into a federal program that promises big tax breaks for putting money into lower income communities, but the program is now facing congressional scrutiny and even some of its original backers are raising red flags.

RASHIDA TLAIB:           

I fully support, obviously, opportunities to develop in communities that deserve it, especially representing the third poorest congressional district in the country. However, we cannot allow those political donors, like the billionaire Dan Gilbert, to pick and choose where those Opportunity Zones are designated.

NEWS ANCHOR 2:         

Take this Opportunity Zone investment fund founded by Anthony Scaramucci. The first project is in a trendy neighborhood in New Orleans. The new Virgin Hotel is an experiential lifestyle property with a premium room product. The minimum investment? $100,000.

Sarah O'Carroll: Tim, thank you for being here.

Timothy Weaver: Sure thing.

Sarah O'Carroll: It's great to have you back in studio, even though we've just had one of the biggest snow storms in history, I believe.

Timothy Weaver: Good to be here.

Sarah O'Carroll:            

All right, so the last time we had you on the show, you shared a number of concerns about the Opportunity Zone Program as well as what past versions, how they've played out in the UK and later on in the United States. So just to get us up to speed, can you share briefly how this federal tax break was supposed to work in serving lower income areas?

Timothy Weaver:          

Yeah, so in principle the Opportunity Zone was going to use a tax incentive to encourage investors who were sitting on capital gains to use those capital gains by investing in Opportunity Zone funds that would then be spent on projects within designated Opportunity Zones which primarily were in poorer parts of the country. And the stated goal was that this would unleash a wave of investment that would be of benefit to poorer neighborhoods and to poorer people that live in them.

Sarah O'Carroll:            

Got it. So can you walk me through some of the more contentious issues of the program? When I spoke to you last, you cited a number of problematic consequences that could result, such as investors and real estate developers becoming the primary beneficiaries of the provision. What other kinds of concerns did you have?

Timothy Weaver:          

Yeah, so the key one was the kind of investments that would be encouraged by the Opportunity Zone regulations would be the kinds of investments that wouldn't ultimately help poorer people, and that they might end up pushing neighborhoods down a road of gentrification that actually harms poorer people in those neighborhoods by pushing up their rents or by making other things in the neighborhood more expensive. I was also worried that the law would end up benefiting investors who were investing in projects that were going to happen anyway that are now subject to the benefits of the Opportunity Zone law. And in that case you would have a series of developments that were going to happen anyway that now people aren't paying capital gains tax on, and as a result the treasury loses money for projects which would have happened anyway. So there's been, in that case, no social benefit gained and just finances into the public purse lost.

Sarah O'Carroll:            

So what kinds of systematic evidence have we or the US Treasury, rather, combined with media coverage disclosed in the past year? I remember you saying it's a little bit early to be able to tell because we'd have to wait for April and tax returns to come in to be able to see what kinds of investments were taking place.

Timothy Weaver:          

Well one of the real problems with the Opportunity Zone bill was that there aren't strict reporting requirements. And so therefore it's very difficult to get a global sense of where all the projects are and what's happening in a comprehensive way. And therefore what we're left with is an incomplete picture, which is being filled in by various news organizations and think tanks and things like that. From that picture, what we are seeing is consistent with some of the concerns that I raised before. Which is to say lots of investments happening across the country in areas that are already doing very well economically and which really didn't need extra help in the form of a capital gains tax break.

Timothy Weaver:          

And that as a result, the investors are benefiting, and it's not clear that they're benefiting as a result of doing something new that will be of benefit to the broader community. So some examples, there are developments in New Orleans for example, where there's a hotel being built with a nice restaurant, rooftop pool in a sort of trendy warehouse district.

Sarah O'Carroll: Was that with SkyBridge Capital by chance?

Timothy Weaver: Yeah. Which I think has the involvement of Anthony Scaramucci who was briefly in the Trump administration.

Sarah O'Carroll: Very briefly.

Timothy Weaver:          

Yeah, very briefly. And has since gone on to be a key beneficiary of one of the Trump administration's big elements of the tax law. And a number of news organizations, The New York Times, ProPublica, The Intercept, have identified a series of examples of major investments which are happening in Opportunity Zones, which are already booming, they're already doing well, and now they're just benefiting from tax breaks. We see the same things happening, for example, in Miami; in Houston, Texas; Portland, Oregon. There's even been a Opportunity Zone in which there's the development of a super yacht marina in Florida. So we're seeing lots of investments which are not helping poor people in poor neighborhoods, but are disproportionately benefiting wealthy investors, in some cases billionaires.

Sarah O'Carroll:            

It seems clear from these examples you've been sharing that there have been some of these negative repercussions and even perhaps intentional effects of the program. Could the lack of accountability be used as an argument of, "Well, you can't prove that this is not working, because perhaps it's just taken a while for these types of investments to help the neighborhoods and what we're seeing is too early [too tell]?"

Timothy Weaver:          

So certainly some defenders of the Opportunity Zone have said, "Well, it's true that you're likely to see the big developers, real estate firms, hedge funds, big banks investing first and being the big beneficiaries at the front end. And so later on what we'll see is much more low level developments, which will help to build, let's say, more affordable housing. And that we should be focused on those kinds of projects, not the big ones." And I guess I'd have two responses to that, which is the law should have not encouraged the kind of investment in luxury condos or hotels or things like that to begin with. And so to try and say, "Well, we should just ignore all of the billions and billions of dollars which are now not subject to capital gains tax and focus on the few affordable housing units that are being built." I don't think that's a very good argument because I think that helps to reveal the fact that the law is at best a very blunt instrument, which is helping some people that don't need any help. So really that I don't think is a great argument.

Timothy Weaver:          

Also, it's true that we won't know for sure, but surely that's a weakness of the program that we won't know for sure. And if we don't know for sure, then people that are defending it on the basis of not having concrete knowledge I don't think have really a leg to stand on. And so fortunately there are efforts to try and improve the bill, force reporting requirements to be a part of any any beneficiary of the program. Although it doesn't look like those changes to the bill will likely be forthcoming.

Sarah O'Carroll:            

I've seen some politicians including Cory Booker and Kamala Harris promoting the program, but then it also seems that because of these revelations and likely due to the reporting by The New York Times and other media outlets that there is more scrutiny and criticism. Are any of the politicians who are now looking at this issue, do any of their arguments seem persuasive to you? Or are they picking the right things to be pointing out as problems?

Timothy Weaver:          

Yeah, I think that there have been sort of three kinds of responses to a lot of the stories which have showed that there are quite a few egregious things going on with respect to the Opportunity Zones. One response is, "Don't worry about it. These are a few exceptional cases, but most of what's happening is all very good. So no need to make any changes." The second response is, "Well, we need to make some reforms to the law to make it better." So it runs from Cory Booker that wants to insert better reporting standards to Ron Wyden the Democrat from Oregon that recently introduced a bill that includes reporting requirements but also forbids use of Opportunity Zone funds to be deployed for luxury development. And that's the second group, the sort of reformers.

Timothy Weaver:          

And then the third group are the radicals, if you like, and they want to abolish it. So that's the position of people like Bernie Sanders, Alexandria Ocasio-Cortez, and also Rashida Tlaib who just introduced a bill in the house to abolish Opportunity Zones. However, I don't think that many of the reforms are likely to get either through the Senate or being signed by the president if it were to get to his desk. So unfortunately, I think we're stuck with this tax giveaway to the very wealthy, which is of course on top of all the other tax giveaways in the 2017 tax bill.

Sarah O'Carroll:            

And why do you think that those responses will largely be unsuccessful? Perhaps beyond just having a very polarized Congress right now and the fact that this did seem to be a program that Trump very much wanted to carry out and implement?

Timothy Weaver:          

I mean, I think one of the challenges is that the support from people like Cory Booker, who notably also opposes a wealth tax, help to give the program the imprimatur of bipartisanship, bipartisan support. And so the waters had been muddied as this law was being passed through because some Democrats were giving the signal that this would actually be good for poorer people in poor communities, where others were less sure. And so I think that had the Democrats been a bit more united on this that might have helped. Although the Republican Congress were clearly hell bent on passing a tax bill that would help the very wealthy and Trump was very keen to sign it. So perhaps the Democrats didn't make much difference in that sense except to give ideological cover.

Sarah O'Carroll:            

And it seemed that that ambiguity also made it so that it was hard to find a counter argument to Opportunity Zones. I remember you explaining that because there wasn't really a solidified stance it made it difficult to choose a side which has its consequences when battling it out in the legal sense.

Timothy Weaver:          

Yeah, I mean I think that the big, big problem with respect to the Opportunity Zone idea is that it is an articulation or a place-based articulation of ideas that have been quite central to thinking about economic development for the last 30 or 40 years. Namely a kind of belief in trickle down economics. Because even if the law went exactly is that its proponents propose, the only way that people on the ground actually benefit is via wealthy investors. So the front end beneficiaries are people that have made capital gains, that's only about 7% of people by the way, and want to use that money to make future capital gains and invest in programs that in the end might help others. And it's this commitment to sort of trickle down economics now applied to the urban or a place-based policy framework, which is still very strong throughout the Republican party and in big parts of the Democratic party. And I think that only when we can break free of this particularly narrow view about how best to promote economic development, can we really see the Opportunity Zone in its correct light. And then begin to think about fundamental alternatives.

Sarah O'Carroll:            

It seems impossible to be able to say that there is a clear pathway for reversing some of these problems, because as you had explained previously that this is only the newest iteration of what has been a sort of older idea that traveled from the UK to the States. And so to be able to change that way of thinking would require, sounds like, a sort of ideological change in how we're even thinking about these types of policies.

Timothy Weaver:          

Yes, yes. So, I think that there needs to be, and I think there are some signs of it, a whole ideological reorientation about how best to promote economic development that reaches beyond just tinkering with the tax code, or at least tinkering with the tax code in the form of tax relief. There are all sorts of other things you could do to the tax code to encourage different forms of activity that could be beneficial to local areas. But I think that we need to really think much more broadly about what kind of investments are likely to benefit the whole community. Not just wealthy investors or people in the home owning middle class because there are a whole bunch of people that aren't in that group. And that is going to mean different kinds of economic policies. Economic policies that perhaps transform ownership, put ownership, put wealth in the hands of ordinary people that transform the way in which we think about investment.

Timothy Weaver:          

So rather than using investment to build buildings to enhance the value of land, we can think about different sorts of investment in the social fabric that improves lives for people that live in neighborhoods just as they are. And that means doing things which won't necessarily make a profit down the road. It means investing in the public infrastructure, in libraries, in schools, in transportation, building perhaps housing which isn't on the market, maybe it's part of a co op, or public housing for people that need it. And this really requires a reorientation in economic and urban policy making, which would mean breaking clear of this whole approach which began in the 1970s.

Sarah O'Carroll:            

So maybe the answer is not trying to reform the Opportunity Zone Program, because that sounds a bit like a disappointing task, but by using some of the policy ideas that you mentioned, do you have any guidance that you might give to a politician who also is disillusioned with the program and wants to direct attention towards these types of economic policies that could help lower income communities in a much more direct and immediate tangible sense?

Timothy Weaver:          

Yeah so I think that what we need to be doing, just as you imply with the question, is to forget about this whole zone tax, tax incentives in zones to try and improve areas. I think we should move away from that whole approach because just as this one is having all of these effects, which were either unintended or just not helpful for poor places, which is consistent with all of the other versions of this running back to the enterprise zones of the 1980s. If we move away from this and think in terms of local alternative economic development policies, then it opens up a whole array of alternatives, which are actually, I think quite exciting, quite empowering. There were some examples of it happening both in the UK and then the US.

Timothy Weaver:          

There's something called the Preston Model, which has recently garnered some attention and this was something developed in the city of Preston that was undergoing austerity and since there wasn't going to be any money to spend, any new money coming from central government, the Labor council there had to try and think creatively about what the local government could do to try and invest locally in a way that could help ordinary people. And so what they started to do was to use the money that the council spent, for example, on its pension fund to promoting cooperatively owned businesses, to use money that the council was having to spend, for example, on services that it provided to the local community to have locally owned businesses provide those services. And so in that case money that was being spent anyway was being circulated around the city rather than being siphoned off to outside interests. And that was based on actually something in Cleveland called the Cleveland Model where the city there tried to develop relationships with so-called anchor institutions like the Cleveland Clinic and universities to try and provide services to those universities, to the hospitals, that could actually make money for a cooperatively owned set of enterprises.

Timothy Weaver:          

And so in all of these ways, there are all sorts of alternatives available which aren't about traditional real estate led, property led development, but are instead about trying to change the nature of economic control, of ownership and thinking about how to make sure that wealth that is generated doesn't just trickle down, but it starts at the level of ordinary people in the city rather than in the hands of wealthy investors that we have to hope will then one day trickled down.

Sarah O'Carroll:            

And the idea of ownership to have a bit more autonomy in your options as a city or as one who makes decisions on behalf of a city and not waiting for a federal program to change or for something else to become more available from the central government side.

Timothy Weaver:          

Right. So, one hope would be, well we just need a bigger federal government, more generous urban spending and I think all of those things would probably be welcome. However, there are all sorts of things that can and should be happening at the local level that can promote growth locally and the kind of growth and economic well-being that will recirculate around the local community, rather than disappearing. And then you will be less sensitive to the whims of Washington as it expands or retracts government support depending on which way the wind's blowing. So ideally one would do both, big investment from the top, but also from the bottom up as well.

Sarah O'Carroll:            

Well, this has been really insightful. Thank you so much for sharing your thoughts. Is there anything that I didn't ask that you'd want to share?

Timothy Weaver: No, that was great. Thanks so much for having me.

Sarah O'Carroll: Okay, well thank you.

Sarah O'Carroll:

Thank you for listening to the UAlbany News Podcast, I'm your host Sarah O'Carroll. And that was Timothy Weaver. We'll be releasing a second episode featuring Weaver next week ahead of the UK's general election on December 12th. I spoke with him on the most contentious issues on the political agenda as well as the sticking points preventing a final deal on Brexit. You can tune into that conversation on Monday. We'll see you next week.