Opportunity Zones
The “Opportunity Zones” program, introduced in the 2017 federal tax law and implemented throughout 2018, is a new, highly contested, and potentially important, federal initiative affecting cities and mayors. This program was based on the “2016 Investing in Opportunity” bill. Sponsored by bipartisan coalitions in the House and Senate including Senators Cory Booker (D, New Jersey) and Tim Scott (R, South Carolina), it reduces or eliminates capital gains taxes from proceeds on other investments that are reinvested in designated zones and on proceeds from investments in them. The program has generated a mix of optimism about its ability to serve as a bipartisan “plan to help distressed America”1 and skepticism about whether it would work or become “a windfall for the rich.”2
The program designated thousands of census tracts — geographic areas typically comprising 1,000-8,000 people — as eligible “low-income communities” based on poverty rates or low median income. Governors, via a variety of processes they established, were tasked with designating (subject to Treasury Department approval) up to 25 percent of their eligible tracts as opportunity zones. Over 40,000 tracts were eligible and nearly 9,000 were designated. Governors had additional flexibility to designate tracts that did not qualify based on their economic data, but were adjacent to designated zones that did.
Because the program offered so much discretion in the designation of zones, and was so new with potentially high stakes, there was great uncertainty about how it would unfold. Despite the enthusiasm that many proponents expressed, others feared that the designations would target areas that were already attracting investment or had particular properties already slated for redevelopment.
Early analysis, both quantitative and qualitative, is mixed on the potential efficacy of the program and on questions of its benefits and beneficiaries. Think tanks such as the Urban Institute and Brookings Institution systematically analyzed, for example, the traits of the designated zones compared to the eligible zones. The former found that those selected were even more distressed than those that were eligible, suggesting that governors likely targeted the neediest areas that had seen little prior investment.3 The latter, however, highlighted considerable state-by-state variation in the number of potentially questionable designations and in how the economics of the designated zones compared to the eligible tracts.4 Alongside these more systematic analyses, journalists have also investigated the program, often focusing on select opportunity zones that may be particularly controversial and consistent with the concern that the program is benefitting connected interests rather than low-income communities.5 Others have expressed more general concerns that, among other things, outside investors reap benefits while the communities get little or that residents are displaced by redevelopment.6 Citing a range of these reasons, members of Congress have begun questioning the program and calling for stricter reporting and oversight.7
Because of these ongoing concerns, questions, and uncertainties about opportunity zones, mayors’ views and expectations about the program are illuminating. For these reasons, we asked mayors a series of questions. Roughly three quarters of cities in our sample had eligible census tracts. Two thirds now have at least one designated opportunity zone with an average of six per city. We asked retrospective questions about the designation process and their zones. We also asked prospective questions about mayors’ expectations for the program and the ways their cities are attempting to maximize the program’s potential benefits and mitigate potential problems.
While there is broad consensus on some views and expectations for the Opportunity Zones program, there is broad divergence on others. This aggregate uncertainty is not the product of widespread neutrality. Rather, many mayors, across party lines and city attributes, have favorable impressions of the program and high hopes for its ultimate impacts on their cities. They are confident that they, at the local level, will play an important role in making it work for their cities. However, while majorities of mayors are sanguine about the program, this outlook is not universal. A meaningful minority of mayors have real concerns about its implementation and impacts.
OPPORTUNITY ZONES: SELECTION
Many mayors are quite pleased with the designated zones their cities received, and view the selection process favorably. Fifty-one percent of mayors agreed that, nationally, the program generally “targeted areas of true economic need.” However, one in five mayors disagreed that it was living up to its basic premise, and another 29 percent were not sure. Thus, while many mayors tend to see the program as targeting the types of places it promised to, others are not convinced.
Figure 28: Opportunity Zones and Need Do you agree or disagree with the follow statement: Nationally, the Opportunity Zones program effectively targeted areas of true economic need.
Most mayors are pleased with the designation decisions that affect their cities. They are happy with the eligible census tracts in their cities that became designated zones and they are not too upset about those that were passed over. A large proportion of mayors (65 percent) either said that their governors adopted the list of designated zones the mayor requested, or independently generated a list similar to what the mayors would have come up with. However, a substantial minority indicate disagreement between the city and the state concerning which tracts to designate; 35 percent would have designated at least a somewhat different set of zones.
Figure 29: Selection Process To what extent do the opportunity zones your governor designated in your city match those you would have selected if given the choice?
Consistent with these responses, roughly one-third of mayors said they were “extremely happy” with their governor’s designations and another third said they were “somewhat happy.” Overall, only 15 percent said they were either “somewhat unhappy” or “very unhappy.” Mayors also perceived their city and other cities in their states to be happier with their designated opportunity zones than suburban and rural areas.
Figure 30: Happiness with Opportunity Zone Designations In general, how happy should each of the following be with your governor’s designations?
Mayors’ happiness with the opportunity zone designations does not vary substantially with city size, property values, or partisanship. Seventy-two percent of mayors of bigger cities and 75 percent of mayors of smaller cities are either extremely happy or somewhat happy with the designations. Large majorities of mayors of cities with higher housing prices (67 percent happy) and lower prices (77 percent happy) are also similarly pleased. Finally mayors across party lines are happy with the zones designated in their cities. Democratic mayors are slightly happier with their city’s opportunity zones than Republican mayors (79 percent vs 65 percent).
Figure 31: Happiness with Opportunity Zone Designations in Their Cities, by City Size In general, how happy should each of the following be with your governor’s designations?
Figure 32: Happiness with Opportunity Zone Designations in Their Cities, by Housing Prices In general, how happy should each of the following be with your governor’s designations?
Figure 33: Happiness with Opportunity Zone Designations in Their Cities, by Party In general, how happy should each of the following be with your governor’s designations?
Mayors’ own descriptions of their opportunity zones reflect variation in both the types of places that were selected and their broader views about the program. Some described their zones in ways consistent with a sanguine view of the program. One described their zones as “blighted, underutilized, and underserviced,” another said “areas in need of reinvestment and poised for reinvestment.” Others expressed concerns that their zones would be good for developers, but not necessarily others. For example, one mayor whose downtown area was designated, called it the “lowest hanging fruit for developers” and said the city “didn’t really need it there.” Relatedly, other mayors emphasized missed opportunities. One said their zones were “residential areas that make zero sense” and that one was “across the street from places we wanted.” Another described them as places that “would not interest developers” and were not “well thought out.”
As a group, mayors believe the two biggest influences on their governors’ opportunity zone decisions were a desire to distribute them geographically and the mayors’ own input. Specifically, two-thirds of mayors believe that a “desire to spread them across the state” influenced designation decisions either a great deal or a lot. Additionally, more than half of mayors believe that “mayors and other local officials” influenced the governors at least a great deal. Sizable minorities selected options that suggest considerable cynicism about the selection process. Roughly one-third of mayors said that their governor’s political allies influenced the designations a great deal or a lot, and similar numbers said the same about business interests.
Figure 34: Influence on Opportunity Zone Designations How much influence do you think each of the following had on your governor’s opportunity zone designations?
OPPORTUNITY ZONES: EXPECTATIONS
Just as most mayors expressed positive sentiments about the designations — offset by a sizable minority that is skeptical — most, but certainly not all, mayors expressed positive expectations. Majorities of mayors believe that the program will have significant positive impacts and that the city government will have a strong say in how the program plays out.
Sixty percent of mayors agreed that the program would have a “large and positive impact” on their cities’ economies. Very few mayors disagreed with this proposition. Relatedly, few mayors (roughly 15 percent) expect that “little money will be invested in the end.” In short, on the essential question of impact on economic activity, most mayors believe that money will be spent in the opportunity zones and such investments will have a positive impact on their cities. Moreover, few mayors have concerns about one potential set of adverse effects — gentrification and displacement. Small fractions agree strongly that these are potential concerns in their cities. In some cases (as in one of the quotes mentioned earlier), mayors noted that opportunity zones comprised industrial areas with few, if any, existing residents. In others, they noted concerns about displacement and efforts to avoid it. One described his/her zones as “areas that still have affordable housing…which we need to protect,” and another emphasized the need to “make sure investment meets the spirit of what opportunity zones should be and not have people displaced in the neighborhood.”
Figure 35: Opportunity Zones Expectations: Investment and Impact Thinking about the designated Opportunity Zones program in relation to your city, how much do you agree or disagree with each of the following?
While majorities of bigger and smaller city mayors are optimistic about the programs’ impact, smaller city mayors may be more optimistic in some ways. In particular, they are less worried about potentially adverse impacts on neighborhoods. Virtually identical proportions (61 percent smaller cities and 58 percent bigger cities) reject concerns that little money will be invested in the end. However, 65 percent of smaller city mayors and 53 percent of bigger city mayors expect a large and positive impact from the program. Moreover, smaller city mayors are more likely to disagree that the program will create gentrification and displacement (66 percent and 51 percent, respectively). Almost no smaller city mayors (6 percent) worry about gentrification, but 25 percent of bigger city mayors do.
Figure 36: Opportunity Zones: Gentrification Concerns, by City Size and Housing Prices Thinking about the designated Opportunity Zones program in relation to your city, how much do you agree or disagree with each of the following? “It will lead to gentrification and residential displacement”
Given the obvious and intentional links to economic activity and development, differences by city wealth (housing prices) may be expected. However, mayors of cities with more and less expensive housing prices express optimism about the program’s impact in similar proportions (55 and 59 percent) and are equally unconcerned that little money will be invested (58 and 61 percent). Perhaps surprisingly, a city’s median housing prices appear to bear no relation to a mayor’s concerns about gentrification in opportunity zones (57 and 53 percent disagree with such potential concerns).
Optimism also crosses party lines. Majorities of both parties believe that opportunity zones will have a large and positive impact (57 percent of Democrats and 65 percent of Republicans), and downplay concerns about little money being invested (58 and 69 percent) and about gentrification (58 and 59 percent). However, more Democrats expressed concerns about gentrification (22 to 6 percent) while more Republicans took the neutral position.
Mayors not only expect positive outcomes, but they believe their governments are ready and able to bring them about. They do not see their cities as passive participants that may be affected by a federal financial incentive program. Rather, they see themselves as active institutions with agency over the success or failure of the program in their cities. Overall, three quarters reject the notion that they have little influence over eventual outcomes. A similar number of mayors are also confident that their cities have “the capacity to maximize their opportunity zones.” Only 15 percent of mayors believe that whatever happens with their opportunity zones is “largely out of my city’s control.” More than a quarter of mayors strongly disagreed with this proposition. These confident and optimistic views are notable given that, by design, the program relies on, sometimes, distant fund investors responding to federal tax incentives.
Figure 37: Opportunity Zones Expectations: Capacity and Agency Thinking about the designated Opportunity Zones program in relation to your city, how much do you agree or disagree with each of the following?
This sense of agency and influence also crosses city traits with minimal variation. Bigger and smaller city mayors (73 and 78 percent), mayors of cities with higher and lower housing prices (79 and 72 percent), and Democrats and Republicans (77 and 71 percent) all reject the idea that outcomes in opportunity zones are out of their control. The same widespread confidence also pertains to their beliefs about local capacity to take advantage of the Opportunity Zones program. Bigger and smaller city mayors (73 and 81 percent), mayors of cities with higher and lower housing prices (76 and 75 percent), and Democrats and Republicans (79 and 71 percent) believe their cities have the capacity they need.
Finally, in the most divisive question about expectations, mayors are split as to whether they believe that money would have been invested irrespective of the new tax incentives. Thirty-eight percent agree that “money would have been invested (in the areas that became opportunity zones) anyway,” while 45 percent disagree. Just as this issue divided the mayors more than the others in general, it also divided them based on their cities’ wealth. Fifty-six percent of mayors of cities with higher housing prices believe that money would have been invested anyway compared to only 31 percent of mayors who lead cities with lower housing prices. This 25 point difference stands out, as the gaps between Democrats and Republicans and bigger and smaller city mayors were much smaller.
Figure 38: Opportunity Zones: Money Would Have Been Invested Anyway, by Housing Prices Thinking about the designated Opportunity Zones program in relation to your city, how much do you agree or disagree with each of the following? “Money would have been invested anyway”
Consistent with their general level of optimism, many mayors think that local residents and businesses will benefit from the Opportunity Zones program. However, even more mayors, nearly all of them in fact, think that outside investors will benefit from it.
Over three quarters of mayors expect that residents and small businesses in opportunity zones will at least benefit some. Over a quarter believe local residents will benefit a great deal, and roughly 40 percent say the same about small businesses located inside the designated census tracts. Moreover, many mayors expect benefits beyond the zones themselves. Slimmer majorities believe that residents and small businesses outside of the designated zones will benefit at least some. While small fractions of mayors do not expect their residents and businesses to be affected either way, almost none expect them to be made worse off by the program.
While many mayors expect to see their communities benefit, nearly all expect outside investors to be made better off. In fact, half of mayors expect outside investors to be made much better off by the program. This is roughly 12 percentage points more than mayors’ expectations for small businesses in the zones and 20 percent more than local residents.
Figure 39: Beneficiaries of Opportunity Zones How much do you think each of the following will benefit or be made worse off from the opportunity zones program in your city?
OPPORTUNITY ZONES: IMPLEMENTATION
The fact that mayors most frequently believe that outside investors will benefit from the program speaks to broader concerns about the local community and opportunity zones. Organizing the local community could help cities make the most of the program and help avoid some potential downsides. Thus far, mayors overwhelmingly see city government itself as the leader of efforts to organize around the new program. Eighty-one percent of mayors say the city is taking the lead. Even though the question allowed them to select multiple organizing institutions, the second most commonly cited one (only 20 percent) was the local business chamber. Despite analysis arguing for partnerships between cities and non-profits around opportunity zones8, only four and three percent of mayors highlight local philanthropy and anchor institutions respectively.
Figure 40: Taking the Lead on Opportunity Zones Who, if anybody, has taken the lead in terms of organizing community around opportunity zones? (Mayors were able to select more than one answer.)
Mayors believe that a variety of factors are important to realizing the benefits they expect from the program, however two options stand out: mayors most frequently say that having “dedicated senior staff” and producing an “opportunity zones investment prospectus” are important contributors to their cities’ ability to benefit from the program. Fifty-four and 50 percent respectively selected these as keys to success in maximizing their opportunity zones. Roughly one-third of mayors believed that providing local monetary incentives to supplement the federal tax breaks will be an important contributor. A similar fraction emphasized direct mayoral involvement in recruiting investment. Other tactics and resources that mayors cited much less frequently include “community benefits agreements” (20 percent) and “non-profit support” (10 percent).
Figure 41: Contributors to Opportunity Zone Success Which of the following are, or will be, the most important contributors to your city’s ability to make the most of its opportunity zones? (Mayors were asked to select their top three choices.)
A second way to look forward is to understand how cities are organizing around opportunity zones. Responses to a question about keys to success highlight the pertinence of understanding internal organization. When asked which factors will be most important to making the most of opportunity zones, the most common answer was dedicated city staff (54 percent). Direct mayoral involvement was the fourth most common response. These answers point to the importance of looking at how cities are allocating responsibility over the implementation of the program.
In general, cities’ staffing decisions are consistent with emphasizing the economic development potential of opportunity zones. In a majority of cities, the person in charge of efforts around opportunity zones is either the Economic Development Director or a senior member of that department. Fifty-five percent of mayors provided job titles for the person in charge that fell into this general category. The next most common type of job position, named in 16 percent of cities, is the city manager/administrator or assistant city manager. In fewer than 10 percent of cities, the person in charge is associated with the community development or planning department. Only four percent of mayors say their cities have an employee with a role and title focused exclusively on opportunity zones.
Figure 42: Responsibility for Opportunity Zones What is the job title of the person in charge of your city’s efforts around opportunity zones?
Mayors’ perception of their own role around opportunity zones is similarly focused on bringing in investment. A plurality (by a wide margin) of mayors (43 percent) said their role is about selling their city and its opportunity zones to potential investors. For example, one mayor described his/her role as “identify[ing] projects that will work and advocate[ing] for them.” Many others simply used words like promotion, marketing, and recruiting (all in reference to investment). The next most common self-defined roles are matchmaking between investors and sites/communities (10 percent) and keeping the focus on communities (9 percent). For example, one mayor said “educating outside investors about the designated areas, talking to them about making sure they interact with the people who live there—[it’s] matchmaking and planning.” Another described the mayoral role, in reference to investors and developers as, “steering them toward economic mobility and encouraging utilization for broad based economic development.”
Figure 43: How Mayors See Their Own Roles When it comes to opportunity zones, my role as mayor is to…?
A third way to understand how cities’ activities around opportunity zones may evolve is by understanding which cities mayors see as early leaders in implementing the program. On the one hand, only one-third of mayors could name a city that “stood out as an early leader in maximizing opportunity zones.” The other two thirds gave responses such as “no city,” “I’m not sure,” or “it’s too soon to say.” On the other hand, of the one third that did name a particular city, Louisville, KY clearly stands out from the rest as a perceived leader. Thirty-one percent of those who named a city named Louisville. The second most mentioned cities were Los Angeles, CA, Birmingham, AL, and Columbia, SC: each was named by 8 percent of mayors. Louisville and Mayor Greg Fischer embraced opportunity zones early and have advocated for cities’ adoption of the investment prospectus (cited by many as a key to success) and provided guidance on best practices for doing so with partners such as Accelerator for America.9
- Tankersley, Jim. “Tucked into the Tax Bill, a Plan to Help Distressed America.” The New York Times. Jan. 29, 2018: available at https://www.nytimes.com/2018/01/29/business/tax-bill-economic-recovery-opportunity-zones.html [return]
- Carrns, Ann. “‘Opportunity Zones’ Offer Tax Breaks and, Maybe, Help for Communities.” The New York Times. Feb. 15, 2019: available at https://www.nytimes.com/2019/02/15/business/opportunity-zone-tax-break-controversy.html.Drucker, Jesse and Eric Lipton. “How a Trump Tax Break to Help Poor Communities Became a Windfall for the Rich.” The New York Times. Aug. 31, 2019: available at https://www.nytimes.com/2019/08/31/business/tax-opportunity-zones.html[return]
- Theodos, Brett, Brady Meixell, and Carl Hedman. “Did States Maximize Their Opportunity Zone Selections?” Urban Institute. May 21, 2018: available at https://www.urban.org/research/publication/did-states-maximize-their-opportunity-zone-selections [return]
- Gelfond, Hilary and Adam Looney. “Learning from Opportunity Zones: How to improve place-based policies.” Brookings. Oct. 19, 2018: available at https://www.brookings.edu/research/learning-from-opportunity-zones-how-to-improve-place-basedpolicies/ [return]
- Ernsthausen, Jeff and Justin Elliott. “How a Tax Break to Help the Poor Went to NBA Owner Dan Gilbert.” ProPublica. Oct. 24, 2019: available at https://www.propublica.org/article/how-a-tax-break-to-help-the-poor-went-to-nba-owner-dan-gilbertLipton, Eric and Jesse Drucker. “Symbol of ‘80s Greed Stands to Profit from Trump Tax Break for Poor Areas.” The New York Times. Oct. 26, 2019: available at https://www.nytimes.com/2019/10/26/business/michael-milken-trump-opportunity-zones.htmlWile, Rob. “This program is meant to revitalize neighborhoods. For now, it’s development as usual.” Miami Herald. Sept. 30, 2019: available at https://www.miamiherald.com/news/business/real-estate-news/article235462942.html[return]
- Rascoe, Ayesha. “White House Touts Help for Poor Areas—But Questions Endure Over Who’ll Benefit.” National Public Radio. Jul. 8, 2019: available at https://www.npr.org/2019/07/08/736546264/white-house-touts-help-for-poor-areas-but-questionsendure-over-wholl-benefit [return]
- Lipton, Eric and Jesse Drucker. “Lawmakers Increase Criticism of ‘Opportunity Zone’ Tax Break.” The New York Times. Nov. 6, 2019: available at https://www.nytimes.com/2019/11/06/business/opportunity-zones-congress-criticism.html [return]
- Katz, Bruce. “Opportunity Zones and Philanthropy.” The New Localism. May 2, 2019: available at https://www.thenewlocalism.com/newsletter/opportunity-zones-and-philanthropy/ [return]
- Accelerator for America. “Mayor Greg Fischer: Louisville, Kentucky’s Opportunity Zones.” Aug. 15, 2018: available at https://www.acceleratorforamerica.com/mayor-greg-fischer-louisville-kentuckys-opportunity-zones
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