Ben Carson, the former Johns Hopkins-based neurosurgeon who served as housing secretary in the Trump administration, showed up recently on Larry Kudlow’s new show on the Fox Business Network. During his appearance, Carson asserted, without the slightest pushback from Kudlow, that the Trump administration had ushered in “highly effective Opportunity Zones” to bring investment to distressed neighborhoods across the country.
Carson claimed the program had inspired $75 billion in investments that produced 500,000 jobs and lifted a million people out of poverty.
It’s impossible to believe claims made by just about anyone who worked in the Trump administration, so we’ll have to wait for an objective assessment. In the meantime, the jury is out on Opportunity Zones.
The OZ program received bipartisan support in Congress and arrived with much hype as part of the Trump tax cuts of 2017. The idea was to incentivize private investment in communities considered “distressed,” with high levels of poverty or near-poverty. Think West Baltimore. Think East Baltimore. Think a lot of Baltimore.
In return, investors would get generous tax breaks. Anyone who puts capital gains in an “opportunity fund” can defer paying taxes on those profits until as late as 2026. And anyone who sticks with the program for at least 10 years pays no taxes on any gains from their OZ investments. It’s essentially a tax break for elite investors — the owners of capital — but a break intended to spur redevelopment and jobs in depressed places.
When it rolled out, I thought the OZ idea might help move things along in parts of Baltimore that needed investment in businesses and building projects. However, there’s a hard reality about people with money — they want more of it. Even those who express a desire to have “social impact” want a strong and relatively fast return on their investments. So it seemed likely that they would want to put their assets in places where they can see market appreciation — not in the most distressed areas.
In 2019, when ProPublica reported that the administration of Maryland Gov. Larry Hogan had designated Port Covington an Opportunity Zone, we faced this twist — that, in addition to targeting truly distressed areas, the tax policy would be used to send more capital to a future corporate campus (Under Armour) and an area with a massive, taxpayer-supported plan for redevelopment already in place.
While that looks like a perversion of OZ’s intent, it’s arguably the result of a design flaw.
A new report on Opportunity Zones in Baltimore says that, despite its good intentions, the policy is unlikely to spur development in distressed areas — particularly low-income, predominantly Black neighborhoods. If investors can get an OZ benefit by putting their money in Port Covington, the report asks, why would they go instead to distressed areas of West Baltimore?
“OZ is failing West Baltimore,” the report says, “because it is a weak incentive for capital gains investors who want market rate returns [and] because it does not sufficiently support investors and developers already active in distressed neighborhoods.”
The authors of the report are Michael Snidal, former director of West Baltimore development for the Baltimore Development Corporation and a doctoral candidate in urban planning at Columbia University, and Sandra Newman, a professor in the Johns Hopkins Bloomberg School of Public Health. Their 85-page report is based on 76 interviews with people involved in Opportunity Zones in Baltimore — developers, business owners, fund managers, government officials, community activists — and they offer candid assessments of the program.
Some take-aways: The program is overrated as a means of luring private equity to Baltimore. Several investors intrigued by OZ have considered locating or investing in a business here, but have been quickly turned off at the anticipated low and slow rate of return and the 10-year hold on their investment to reap maximum financial rewards. As good as the OZ deal sounds, some believe the tax incentive is insufficient to send investors into parts of the city desperate for new development.
The people Snidal interviewed say local banks simply don’t lend enough in the city and need to do more; they see futility in chasing investors from out of town. The irony of the OZ policy, the manager of housing nonprofit told Snidal, is that “once again the government is telling us that the solution to the problem is to compete for the same capital that ignored us in the first place.”
The report adds something I find particularly interesting: Developers believe that Marylanders with money and family roots in Baltimore have been overlooked in the efforts to attract capital to the city. Silicon Valley money is not coming to the rescue, says Snidal. Better to seek regional wealth. “This is not a poor state,” he says.
The report applauds Baltimore for taking Opportunity Zones seriously and having a full-time coordinator, Ben Seigel. While Port Covington encompasses about 65% of all OZ capital in the city so far, the report lists other places where the tax incentives are at work — in Pigtown, Broadway East, Greektown/Bayview, near Lexington Market, Penn Station, North Avenue, Madison Park North and, possibly, Northwood Plaza. And some of these efforts, says Snidal, represent the spirit of the OZ program. Still, he says, the program needs to be changed to reach its intended goal.
Among the report’s recommendations: Eliminate any “non-distressed” census tracts from eligibility for the tax breaks and move away from capital gains to refundable tax credits to attract more local “doctor and dentist dollars” to Opportunity Zones.
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“The city gets a good grade on OZ,” says Snidal. “We found some great businesses, developers and individuals fighting the good fight to turn things around in neighborhoods that have long been targets of racialized disinvestment. These people and projects are missed opportunities. OZ policy, and the next round of zones — whatever they decide to call it — must better support these folks, not just the owners of capital.”