It was supposed to be an economic lifeline for the nation’s poorest zip codes. Instead, critics say, it’s been a tax break for rich investors funding luxury sky-rise apartments, a hemp farm in the Virgin Islands, even a gold vault in Wyoming.
“Opportunity zones,” a program established in the GOP’s 2017 tax overhaul and championed by Republicans and Democrats, is quickly becoming a flash point in a new tax rewrite.
During a meeting last month to kick off negotiations on extending the 2017 tax cuts, House Ways and Means Chair Jason Smith, praised the opportunity zone program, which he said had provided $50 billion in investments “to revitalize the poorest neighborhoods in the country.”
The only problem, researchers say, is there’s no evidence of that revitalization. And, by design, investments only need to be in the area to qualify for the opportunity zone program. Real estate developers don’t, for instance, need to build affordable housing; they can — and often do — build luxury apartments.
“This wasn’t the original idea,” said David Wessel, a senior fellow at the Brookings Institution who published a book in 2021 on opportunity zones.
“This was not an affordable housing or luxury housing or real estate thing. It was supposed to provide capital to start a lot of businesses, and there doesn’t seem to be a lot of that,” Wessel said.
Despite the questionable outcomes, some members of Congress — as well as the new Housing and Urban Development Secretary Scott Turner — have their eyes set on an expansion to the program. Turner, a former professional football player and motivational speaker, oversaw the opportunity zones program as executive director of the Opportunity and Revitalization Council in the first Trump Administration.
“It gave Americans living in underserved communities an opportunity, a foundation, to start businesses, to live in better homes, to be self-sustaining and to be self-confident and to unleash that promise and potential that the Lord has given each of us in our country,” Turner said in his confirmation hearing last month.
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The concept started simply enough. Past efforts to boost the economy in low-income areas had been slow and stymied by red tape. By appealing directly to investors — in the form of deferred capital gains on an initial investment and tax exemptions on any new gains made for a decade — there was no limit on the investments that could be made in opportunity zones.
“In concept, it seems like a great idea — let’s provide tax incentives to get people who have a lot of money to put it in poor neighborhoods,” Wessel said. “How do we get private capital to poor neighborhoods?”
Enter Sean Parker. The entrepreneur and co-founder of Napster quietly formed a think tank in 2013 to pitch the program across Washington. He tapped then-Vice President Joe Biden’s chief economic adviser, John Berstein, and former GOP economic adviser, Kevin Hassett, to draft the plan.
But they needed allies on Capitol Hill. They found them in Democratic Sen. Cory Booker and Republican Sen. Tim Scott.
And then, of course, there was the timing.
Trump’s tax overhaul was a once-in-a-generation opportunity to rewrite the tax code, and Sen. Scott was part of the “core four” Republicans leading negotiations.
Scott also had Trump’s ear. He was the only Black Republican in the Senate — at the time and now — and Scott had some unexpected political capital with Trump. (The two sat down one month after the “Unite the Right” rally in Charlottesville, Virginia, when Trump defended white-nationalist protesters as “very fine people on both sides.”)
During that meeting, Scott recalled last year on Fox & Friends, the South Carolina senator took the chance to pitch Trump personally on opportunity zones.
“That’s how opportunity zones was born,” Scott said.
There were no hearings, no legislative reports. The program originally included reporting measures so the public could see exactly what areas, properties and investors were benefitting. But those requirements were ultimately removed after a so-called “Byrd bath” in the Senate, where certain provisions that don’t have a budgetary impact are subject to 60 votes in a reconciliation bill.
In the end, the opportunity zone program consisted of six pages in the 1,097-page Tax Cuts and Jobs Act.
The Department of Treasury says the program has generated over $66 billion in investments during the program’s seven years of existence.
It’s also created a cottage industry of millionaire investors looking to take advantage of the program.
“They wanted less bureaucracy, and they just went too far,” Wessel said.
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More than 42,000 areas were eligible to be designated as opportunity zones.
State governors then had 90 days to nominate areas to earn the designation, and about 20% of the areas that qualified ultimately got the distinction.
From the start, the program naturally rewarded zones with the greatest economic potential, not the most economically needy. An early report using 2019 tax records found that 84% of the zones received zero investment — and the top 1% of areas received nearly half of all opportunity zone investment.
A recent paper on opportunity zones published last month found no considerable difference in investment between opportunity zones and other tracts that barely failed to qualify.
“It seems to be going more towards areas that were already growing anyway, as opposed to helping those areas that are the most distressed and left behind,” said Kevin Corinth, one of the paper’s co-authors.
“A lot of the investment that’s happened probably would have happened on its own,” Corinth said.
The investments that have happened include highrises in Queens, New York, 15 acres of waterfront property in D.C.’s Navy Yard and luxury apartments in Sarasota, Florida, where a one-bedroom, one-bathroom apartment costs $2,932.
“The question is, which ones of those got the money, and is that what we wanted to happen, or did we end up basically financing gentrification in places that were already halfway to being gentrified already?” Wessel told NOTUS.
There’s no list of all the properties or investment firms benefiting from opportunity zones, nor is there a complete picture of exactly where the tax breaks go and to whom they benefit. But investment firms and other websites promote properties to drum up investments. They have slide decks, guides and conferences all with the goal of getting millionaire investors to buy into opportunity zones.
The hemp farm in Saint Croix and the gold vault in Casper, Wyoming, fall under the small minority of investments in businesses. The majority are in real estate, according to the Joint Committee on Taxation.
Developers have also used the tax break for construction on college campuses. As one real-estate-modeling company put it, “the student population is not actually in economic distress, but because the income levels are skewed downward by the large number of full-time students, they can present an interesting situation for developers of student housing properties.”
Hundreds of universities across the country fall into designated opportunity zones. That includes 56 historically Black colleges and universities and 14 tribal colleges, but also the University of Southern California, the University of Virginia and the University of California, Berkeley.
The zones have also been a boon to storage facilities. Researchers doubt that the facilities, with minimal employment opportunities or community impact, actually have a positive economic effect on the communities that opportunity zones are designed to serve. But it’s a great tax perk for investors.
“The goal was around increasing employment opportunities, growing wages and to get those types of outcomes, you would expect to see more in the industrial and retail sectors,” Corinth said. But he added that the program was really only encouraging investments that would have been made anyway.
“Starting a new business, that’s something that’s going to be more risky. And if basically the project fails, you get really, really no benefit from this policy,” he said.
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Since the program’s inception, lawmakers from both parties have tried to reform opportunity zones. But in the last six years, no bill addressing the low-income areas has made it past introduction.
During his 2020 campaign, Biden promised to “reform opportunity zones to fulfill their promise.” The program was untouched during his presidency.
Democrats are also divided on opportunity zones. Some see it as a program full of potential but in need of reform. Others think the program, by design, profits wealthy investors, not the communities who are supposed to benefit.
In 2019, Democratic Rep. Rashida Tlaib introduced a bill to repeal opportunity zones entirely.
“Opportunity Zones were supposed to help uplift low-income communities and those living in poverty, but instead we are seeing them benefit billionaires and their luxury projects,” Tlaib said at the time.
Sen. Ron Wyden, ranking member of the Finance Committee, said he’s opposed to the way the program has been run, and he’s waiting to see what his Republican counterparts introduce to address the program in an upcoming tax rewrite.
“The sponsors said that the heart of this program was to reach the vulnerable, people who have not been able to be part of a marketplace economy,” Wyden said.
“The ball is in their court,” he added.
Scott — now chairman of the Senate Committee on Banking, Housing and Urban Affairs — sits in a more powerful position than ever before to push the program’s expansion in the coming months.
And in the House, Democratic Rep. Mike Thompson — ranking member of the Ways and Means Subcommittee on Tax — said he supports opportunity zones. His old district included a military base that used the opportunity zone program, which he called “phenomenal.”
“I’m of the belief that, when used appropriately, it grows the economy, creates jobs and makes things great,” Thompson said.
But would Congress step in to guide what is appropriate?
“The environment in Washington today isn’t necessarily favoring transparency, as we’re watching. So I hope we can make that happen,” Thompson said.
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Katherine Swartz is a NOTUS reporter and an Allbritton Journalism Institute fellow.