Main Street in Fitchburg, one of the state's 26 Gateway Cities. Photo by Michael Jonas | CommonWealth Beacon Staff / CC BY-ND 4.0

The days since President Trump signed the massive tax and spending bill have seen an avalanche of stories about its cuts to programs aimed at supporting low-income Americans – food stamps, Medicaid, and educational aid, to name a few. Buried in the bill, however, was a provision that builds on one of the few initiatives of Trump’s first term that was aimed at lifting up poor communities.

“Opportunity Zones” offered major breaks to investors who pursued projects in low-income communities. The new tax and spending bill makes permanent those opportunity zone tax breaks, which were due to sunset next year. But in Massachusetts and across the country, whether the program delivered much on its promise is still up for debate – a question made even harder to answer by the lack of solid data on projects it has aided.

Under the initial bipartisan Opportunity Zone legislation, in exchange for investing funds to boost projects in low-income census tracts, investors could postpone or reduce taxes on their capital gains or, if they held onto the investment property for at least a decade, not have to pay taxes on those gains at all.

After the Tax Cuts and Jobs Act passed in December 2017, states across the country jumped at the chance to bring investment interest to their poorest census tracts. State officials were tasked with submitting potential Opportunity Zones to the federal government, limited to 25 percent of their state’s eligible tracts. To be eligible, a census tract had to have median income below a certain threshold or, in some cases, be next door to one than did.

“We looked at it as an opportunity to direct more investment into communities that were in need of that investment,” said Jay Ash, the housing and economic development chief during Gov. Charlie Baker’s administration at the time. “We prioritized and spent a lot of time on it around the state.”

Concerns also soon appeared that the policy might provide a tax windfall for deep-pocketed investors on projects that they would have pursued anyway, but not do much to improve communities.

The state, however, energetically took up the role of middleman between interested communities and the feds. The state housing and economic development office set up a system to deal with the “robust competition” for a limited number of Opportunity Zones spots, Ash said, inviting communities to submit census tract applications, and developing a matrix for deciding the best fits.

Ash said US Sen. Tim Scott, a Republican co-sponsor of the original legislation, even called the governor to compliment Massachusetts on its approach.

In 2018, the US Department of the Treasury designated 8,764 census tracts as qualified Opportunity Zones. As Bay State cities and towns scrambled to have their census tracts qualified, certain zones being ignored sparked some local dust-ups. Attorney General Andrea Campbell, at the time a Boston city councilor, complained that the district she represented had been left  out.

The state landed on 138 Opportunity Zones in Massachusetts, located in 79 communities. So did anything come from them?

“I don’t know,” Ash said.

Data Deficit

That uncertainty stems largely from the difficulty tracking the record of Opportunity Zone projects.

Communities, landowners, and investors can file directly with the federal government to access the tax benefit, leaving the state without a reliable way to know which groups used the tax credit or its results. Plus, most project backers don’t broadcast their financing structures.

In his current role, as president and CEO of the business-backed Massachusetts Competitive Partnership, Ash has tried, without success, to get localized data on the success of the program from the federal government as well as from the Washington-based think tank, the Economic Innovation Group, credited with advancing the model.

“I went to conferences and asked people to tell me more, and I can’t tell you with any certainty what projects in Massachusetts have been advanced with Opportunity Zone money,” said Ash.

A flurry of excitement in the years between the 2017 legislation passing and the start of the Covid-19 pandemic involved state conferences dedicated to Opportunity Zone promotion, workshops from smart growth groups touting the tool, some initial burbles of investor interest, and wholehearted embrace from eager municipalities.

Cities like Fitchburg rolled out prospectuses specifically on how best to attract Opportunity Zone development.

SmartGrowth America, a national advocacy group, highlighted Salem in 2020 as an interesting prospect for its Opportunity Zones near the commuter rail station. “The first time it came through, Salem was trying to let developers know about it,” said Amanda Chiancola, the city’s deputy director of planning and community development. “We try to use every tool available to us.”

To her knowledge, however, “nothing in Salem happened,” Chiancola said. “We would love it if it had.”

The smart growth group also pointed to potential in Greenfield and Montague, highlighting the upside of bringing local governments and developers together by pointing to a seeming success story: Toward the end of an Opportunity Zones-focused conference, the town of Montague accepted a proposal from a local developer in attendance for a mixed-use development on a long-vacant site.

But that project, which had struggled to bring in private funding and had fallen through several times, evaporated again, said Chris Nolan-Zeller, Montague’s assistant town administrator. After about 20 years of the site sitting vacant, he said, the town “decided to move on” and pursue turning it into a library with public money instead.

While parts of the once-bustling mill town in Western Massachusetts are seeing revitalization, particularly around the arts and tourism, Nolan-Zeller said there are challenges and hurdles in attracting private investment for rural communities. Montague approached the zones with enthusiasm in 2018, he said, only to be disappointed by what transpired.

“We’d love a private developer to come in,” he said, to clean up the dilapidated mill sites and reduce hazards. “Locally, there’s not much hope. Public investment is the most reliable thing to strive for,” he said, citing a $10 million federal grant the town received to help transform former mill sites into a park.

For Ted Carman, president of the Concord Square Planning and Development Group, the Opportunity Zones have been a project-saver in areas deeply in need of new housing to ease the state-wide crunch.

He says three Brockton housing projects his company developed turned on being able to pitch investors on the tax incentives. One looking to transform a vacant building into 55 apartment units was already in progress for two years before the program took hold, but Carman said the financing finally locked in after the OZ change.

The next two, he said, needed to be in Opportunity Zones from the jump. He said he worked with the City of Brockton to redraw the zone around a current project site to put the tax incentive on the table.

The objection that “‘investors are making a lot of money on this’ is the wrong way to look at it,” Carman said. “This program is pulling millions of dollars into projects that otherwise would not get them. It’s been a terrific program for these communities.”

Of the 138 Massachusetts census tracts to become qualified Opportunity Zones, 18 percent are rural and 48 percent are in Gateway Cities.

The Economic Innovation Group asserts that early results from the first batch of Opportunity Zones, which they released as the new tax bill came through, “largely validated the policy’s fundamental design.” Through the end of 2022, the group wrote, $89 billion in qualifying Opportunity Zones equity investments had been made across over 5,600 low-income neighborhoods.

Other studies of the policy said the initiative had mixed results.

A 2022 review of the program, based on tax filings, by the US Treasury’s Office of Tax Analysis found little data to support the conclusion that employment rates, start-up investments, new businesses, new business loan growth, or commercial investment are positively affected by OZ designation.

Beyond that, zones “that had a higher median household income, higher measures of educational attainment, higher house prices, and lower unemployment were more likely to receive investment,” the review found. Those areas also broadly saw a drop in poverty rates and unemployment – plus experienced stronger increases in educational attainment, income, and housing values – in the five years before the policy took effect than zones that did not receive investments.

In other words, investors across the country are putting their money into areas on the upswing but still considered low-income, while largely skipping over communities that seem to be economically stagnant.

Whether the program spurred new projects was also a toss-up, wrote authors of a 2020 Urban Institute study. “The OZ incentives have had mixed effects in terms of making projects work that would not otherwise happen,” it said. “Some developers reported that the incentives did make a decisive difference in allowing a project to go forward, while others were clear that their project would have proceeded with or without OZ equity.”

Zone Updates

The new law, which takes effect after the current policy expires at the end of 2026, does include adjustments responding to complaints about too much focus on urban areas, transparency, and community impact.

One much-maligned aspect of the first Opportunity Zone policy turned on more well-off districts receiving funding because they were adjacent to a low-income tract. That provision has been removed in the new law. Meanwhile, the standards for income levels have been tightened so that the tracts generally can only qualify if median family income does not exceed 70 percent (rather than the prior 80 percent) of the applicable state or metropolitan area median family income.

The program will also now offer more generous tax benefits for investors if the zone receiving investment is entirely within a rural area. All Opportunity Zone funds would also face stricter tax and investor reporting requirements on projects funded and their operations, though there is no regulation in place that would make those reports publicly available or accessible to lawmakers.

Unlike the first round, there is no sunset to the new law. Governors will propose new census tracts for their state each decade, and the certified tracts will be considered qualified Opportunity Zones for another 10 years.

Gov. Maura Healey’s administration, asked about the success of the law in Massachusetts, responded only that the state had a limited role in the selection process and no access to the federal data to determine whether the program was effective. As for whether the state would encourage cities and towns to participate in the future, “we are currently reviewing recent federal legislation regarding changes to the Opportunity Zones program,” the state Economic Development office said in a comment to CommonWealth Beacon this week.

At its core, Opportunity Zone policy remains focused on a narrow pitch – make it easy and profitable for private investment to boost low-income areas. But for municipalities that have not already started becoming more attractive to investors, capital could flow past them toward the easier prospects.

“I am confident that we created the environment in which an investor and community could mutually benefit from the Opportunity Zones,” Ash said. “But until I see what the benefits of the first rounds of Opportunity Zone funding was, I can’t testify as to their efficacy.”

This article first appeared on CommonWealth Beacon and is republished here under a Creative Commons Attribution-NoDerivatives 4.0 International License.