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Some American neighborhoods are struggling, even in a strong economy. How much can a new tax break help them? NPR's Ayesha Rascoe reports.
AYESHA RASCOE, BYLINE: Standing in front of a massive crowd in Orlando last week, President Trump made this promise to help poor neighborhoods.
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PRESIDENT DONALD TRUMP: We will expand opportunity zones so that no community is ever left behind.
RASCOE: Passed as a part of the 2017 tax cut law, the Opportunity Zones program allows governors to make some low-income areas in their state eligible for a federal tax incentive. Trump often refers to the program when talking about what his administration has done for struggling rural and urban communities and as a part of his outreach to black Americans. The policy has also been championed by lawmakers such as Senator Tim Scott, a Republican, and Senator Cory Booker, a Democrat running for president. Projects are underway throughout the country.
On an empty lot in Tempe, Ariz., private equity investors and officials gathered in a white tent for a groundbreaking of a planned 90-unit affordable housing complex. Former Arizona Governor Jan Brewer spoke.
JAN BREWER: I'm just really thrilled to see all of you. Thank you so much for allowing me to be here.
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RASCOE: There were shovels and symbolic tossing of dirt.
QUINN PALOMINO: This particular property, if you look around here, is pretty blighted. You've got some dilapidated buildings.
RASCOE: That's Quinn Palomino, CEO of Virtua Partners, the private equity firm that's building the project with Opportunity Zone fund.
PALOMINO: And you have investors who would not have normally invested in this project, so Opportunity Zones has really been an incredible tool.
RASCOE: This is an old idea that's been supercharged by the 2017 tax law. Stuart Butler is one of the conservative scholars credited with bringing the original idea of so-called enterprise zones to the U.S. in the 1980s. Butler, who's now with Brookings Institution, said the vision was to make it easier for people living in poor areas to be able to start businesses in their own neighborhoods.
STUART BUTLER: The second piece of it was to say, let's look at tax relief. And let's relieve taxes, reduce taxes on people who take the risk of investing in a poor and difficult neighborhood.
RASCOE: States introduced their own versions of these zones, and the federal government followed suit, launching the Empowerment Zones program in the early '90s. Backers of the new Opportunity Zones say they are totally different. The old program required states to compete for tax breaks and grants. Butler agrees this latest program is different, and that worries him.
BUTLER: Maybe they went too far in this current version.
RASCOE: There are more than 8,700 opportunity zones covering nearly 35 million Americans. Investors can defer their capital gains taxes through 2026 by putting their profits in Opportunity Zone funds that invest in these communities. The longer the investors keep their money in the fund, the more tax benefits they receive. The concern is that wealthy people will pour money into these multimillion-dollar funds, but Butler says the development may not help low-income residents.
BUTLER: It's attracting the wrong kind of investment - large-scale investment, which may lead to far greater gentrification and removal of people rather than the original intent of the enterprise zone idea.
RASCOE: But these critiques are off base, says Ja'Ron Smith. He's deputy director of the White House Office of American Innovation. Smith says local governments can work to protect their residents.
JA'RON SMITH: Gentrification is not something that's happening in every city. It's not happening in, like, the Mississippi Delta. Right? Housing's very affordable down there. So for us to create an economic development tool that tries to fix a problem that only hurts some urban areas, that's not smart.
RASCOE: The White House has also set up a council to help target federal housing grants and other funds specifically for the zones. But it's unclear whether these zones will truly spur new investments, especially in places that were already on the upswing, says Timothy Weaver, a professor at SUNY Albany who has studied these types of programs.
TIMOTHY WEAVER: People who were going to invest anyway are now getting a tax break. And two, maybe you're going to get shifting of investment from outside of the zones to inside of the zones. And in either case, what you're likely to see are rents going up for everybody.
RASCOE: Even some of the earliest Opportunity Zones supporters say there needs to be more information about where the money is going. There are bipartisan bills in Congress that would require the government to track whether benefits are actually flowing to the communities that are in need.
Ayesha Rascoe, NPR News, the White House. Transcript provided by NPR, Copyright NPR.
