Op-ed: Opportunity Zone reforms on the horizon in Congress - Pueblo Chieftain

In 2017, Congress passed the Tax Cuts and Jobs Act, which established the framework for Opportunity Zones (OZs) – a federal designation that encourages investments in distressed communities across the country.

In short, investors can defer taxes on profits from investments that are applied toward opportunity funds if they commit to community revitalization efforts for a minimum of 10 years.

As a result of the bill’s passage, 126 census tracts were designated as Opportunity Zones in Colorado. This includes portions of Fremont, Chaffee, Lake, Alamosa and several other rural counties.

Looking at Colorado’s Congressional Delegation, support for the Tax Cuts and Jobs Act was a mixed bag.

In the House, Colorado Republicans Scott Tipton, Doug Lamborn, Mike Coffman and Ken Buck all voted in favor – while Democrats Diana Degette, Jared Polis and Ed Perlmutter opposed the bill.

In the Senate, Senator Michael Bennet joined fellow Democrats in opposition while Cory Gardner fell in line with his Republican colleagues in support of the measure.

Of course there has been several changes to the make-up of Colorado’s Congressional Delegation since the passage of the Tax Cuts and Jobs Act. Most notably, Jared Polis who represented Colorado’s 2nd Congressional District, won his bid for governor in 2018 and Republican Cory Gardner, who was elected to the Senate in 2014, lost his reelection to former Colorado Gov. John Hickenlooper.

Additionally, Mike Coffman who represented Colorado’s 6th Congressional District is now the Mayor of Aurora and Scott Tipton, who represented Colorado’s 3rd Congressional District, lost his reelection to political newcomer Lauren Boebert during the primaries.

Since the passage of the Tax Cuts and Jobs Act, several Democrats in key leadership positions have indicated there's a real appetite to overhaul Opportunity Zones – which they believe are designed to only benefit investors and drive gentrification.

During the 116th Congress, House Majority Whip Representative Jim Clyburn introduced H.R. 5042: the Opportunity Zone Reform Act, which would have expanded prohibitions on investments in certain luxury assets, including private planes, sports stadiums, self-storage facilities and luxury rental properties.

In the Senate, Senator Ron Wyden introduced S. 2787: the Opportunity Zone Reporting and Reform Act, which would have established reporting requirements for qualified opportunity funds and imposed penalties for failing to file reports or filing reports with incorrect information. Both measures failed.

Additionally, while on the campaign trail, then President-elect Joe Biden joined calls for new requirements for investors taking advantage of Opportunity Zones and indicated a renewed focus on diversity and inclusion within the program as outlined in his “Build Back Better” economic recovery plan.

“Biden initially hoped that Opportunity Zones would be structured and administered by the Trump Administration in a way that advanced racial equity, small business creation, and homeownership in low-income urban, rural, and tribal communities," an excerpt from Biden's Build Back Better economic plan reads. "It is now clear that the Trump Administration has failed to deliver on that promise in too many places around America.”

Echoing similar sentiments, Senator Michael Bennet (D-CO) joined Senator Chris Coons (D-DE) in co-authoring a letter that reads in-part, “we appreciate the work that has gone into drafting the regulations so far but are concerned that some of the regulations may open the door to abuse and waste, driving up the cost of the policy for taxpayers,” and urges the Treasury Department to adopt more robust and transparent reporting, higher standards for real estate investments, and including the Economic Development Administration (EDA) on the Opportunity Zone Interagency Working Group.

Meanwhile, freshman Senator Hickenlooper, who previously served as the state’s chief executive, and was an outspoken critic of the Tax Cuts and Jobs Act, seemingly had a change of heart after passage of the measure.

In a statement published by the Denver Business Journal, then Gov. Hickenlooper had this to say, “Opportunity Zones will help us attract investment in businesses, workforce, housing and infrastructure where it is needed most," – an obvious shift in his position toward the newly established program.

Regarding Democratic Representatives Jason Crow (D-CO-6) and Joe Neguse (D-CO-2), and newly elected Republican Rep. Boebert (R-CO-3), each of whom assumed office following the passage of the Tax Cuts and Jobs Act, have not indicated if they’re supportive of overhauling the program or not.

Forthcoming Reforms

The first true legislative test to the staying power of the Opportunity Zone program under the new Democratic-controlled Congress is H.R. 970: the Opportunity Zones Extension Act, which was recently introduced by Representative Tim Burrchett (R-TN-2) and Representative Henry Cuellar (D-TX-28).

If passed by Congress, the measure would extend taxpayer deferment on capital gains taxes invested in qualified opportunity funds until 2028 – a win-win for investors and economically distressed communities.

Furthermore, new legislation aimed at reforming the program, which is expected to be introduced during the 117th Congress, will largely mirror provisions that were included in H.R. 5042 and S. 2787.

Other considerations include incentives for Opportunity Zones to partner with nonprofit organizations to create jobs, exclusion of census tracts with a median family income exceeding 120% of the national average and more oversight by the US Department of Treasury.

Regardless of the positive impacts Opportunity Zones are having in places like Colorado and Maine where millions of investment dollars are being utilized to deploy high-speed internet to distressed communities or Connecticut where tax incentives are attracting massive data centers and good paying jobs, the future of the program remains unclear.

Kevin Mahmalji is the founder and principal of Two Rivers Consulting. He has more than 10 years of professional experience in public policy advocacy, nonprofit management and currently assists Fremont County Economic Development Corporation with strategic planning and communications.

Published On: Thu, 18 Mar 2021 21:07:47 GMT