“Douglas MacArthur famously told us that “old soldiers never die, they just fade away.” When it comes to urban reform schemes, that adage is about half right. They don’t die, but they don’t fade away either. They just change their names.
Well, maybe not all of them, but it’s certainly the case with opportunity zones (OZs), the urban improvement program that Congress this summer made into a permanent policyfixture. Opportunity zones are a repackaged successor to “empowerment zones,” a program from the Clinton years. Empowerment zones were themselves a refurbishing of “enterprise zones,” an urban revival idea conjured up by Republican congressman Jack Kemp and his conservative allies in the 1980s.
All these ideas have had one crucial thing in common: They are efforts to draw on market forces to stimulate investment and create jobs and prosperity in the corners of the country that need help the most. Enterprise zones were designated areas where corporations would be induced to locate by exempting them from certain local, state and federal taxes and restrictions. Empowerment zones kept most of the earlier provisions but added an employer tax credit for a portion of the wages paid to employees in the zone.
So the promoters of the current opportunity zone scheme had a lot of history to work with when they started a decade ago. For the most part, it wasn’t a very positive history. Neither enterprise zones nor empowerment zones improved the economic life of many zone residents by more than a token amount.
But in the past decade, a determined group of enthusiasts became convinced that the idea could work if they just tweaked it a little bit. The ringleaders were Republican Sen. Tim Scott of South Carolina, Democratic Sen. Cory Booker of New Jersey, a bipartisan coalition in the House and a cadre of outside activists led by philanthropist Sean Parker, the founder of Napster and first president of Facebook.
This coalition got an opportunity zone experiment through Congress and into law in 2017. It still focused on developing and improving impoverished communities, but it came up with a slightly different tool. It offered massive exemptions in capital gains taxes to investors who put money into projects in the designated zones, defined by income and poverty levels. Initially the investors would get an exemption for 15 percent of their capital gains. If they hung on for 10 years, they wouldn’t have to pay capital gains taxes at all.
This year’s fourth act in the poverty zone drama kept most of the 2017 rules but added a few new ones. The definition of an impoverished community was made tighter — it now has to be under 70 percent of its state’s median income, reduced from 80 percent. It would be subject to re-evaluation every 10 years, even though its existence would be permanent. It added a provision making it easier for rural areas to qualify. But it’s the same fundamental idea that Jack Kemp began promoting more than 40 years ago.
At a time when the two parties scarcely agree on anything, opportunity zones have attracted an unusual bipartisan constituency. The OZs and their predecessor ideas have managed to fit in with the ideological preconceptions of both left and right. For the right, they offer the reduction in regulation and taxation that has long been an article of conservative faith. For the left, they represent an investment in relief from poverty at a moment when no other element of government seems to be heading in that direction.
So, subsidized zone creation is that rare piece of policy that can bring opposite sides together. But does it work? What have we learned from the similar efforts launched in the past?”
Read more at Governing.