By: AIF Staff
As the American Idea Foundation has previously detailed, Opportunity Zones are economically distressed census tracts that are eligible for preferential tax treatment. They were created as part of the 2017 Tax Cuts and Jobs Act and are designed to incentivize long-term investment in low-income and economically disadvantaged communities by offering a deferral of capital gains taxes for investors.
Last month, a handful of House Democrats attempted to amend an annual appropriations bill to prevent the Internal Revenue Service from using funds to oversee the development of the nearly 8,800 Opportunity Zones around the United States. This stunt, if successful, would have been a mistake – one that would have had real consequences for the people living in these zones.
To be clear, since Opportunity Zones became law, legislators from both parties have attempted to improve the oversight over these areas to ensure they meet their intended purpose of truly helping individuals and communities in need. Debates about how to refine and improve Opportunity Zones are welcomed, as many reforms are well-intentioned. However, attempts to end the Opportunity Zone program outright or to defund them are not only short-sighted, but also would harm the very individuals that legislators claim to want to help.
Rather than attempt to score partisan, political points, legislators should be united in making Opportunity Zones work. Opportunity Zones hold the potential to revitalize economically distressed areas and bring good-paying jobs, additional housing, better educational opportunities, much-needed infrastructure improvements, and critical investments to areas that need it. There are many good ideas – from both Democrats and Republicans – about how to expand economic opportunities and fight poverty, but Opportunity Zones should be given the chance to succeed. This critical tool for revitalization should not be reduced to a political football.
The main reason that policymakers should give Opportunity Zones the chance to germinate? They’re working. Communities are beginning to see real results from public and private partnerships. Investment is flowing into communities and meaningful improvements are beginning to occur. One promising example is found in Erie County, Pennsylvania.
Nestled on a Great Lake near the U.S.-Canada border, Erie, Pennsylvania is the epidemy of a small, Midwestern city. Erie has a rich industrial and manufacturing history and is currently attempting to modernize, transform, and diversify itself to meet the demands of the 21st century economy while also holding tight to the values that make it so unique.
As Forbes noted: “Battling outsourcing, automation, and seismic shifts in global supply chains, the once-thriving industrial city became a parable for the socioeconomic decline of America’s manufacturing heartland. A 2017 report described Erie in stark terms, concluding that nearly half of all Black residents live in poverty, and that the median Black worker in Erie makes a mere 43% of median white worker’s earnings.” Further, in 5 of Erie’s 8 Opportunity Zones, “more than 35 percent of families had income below the federal poverty level. In the other three, the poverty rate for families was above 20 percent.”
But now, thanks to its use of Opportunity Zones, Erie is on the rise. A video produced by the local Chamber of Commerce, “Erie Amazes,” highlights how the city is primed for revitalization.
Erie is turning itself around one building, one block, and one neighborhood at a time. It is a prime example of how innovative, local leadership, when combined with sound, federal policies can make a difference and improve people’s lives.
In February 2020, the Erie Regional Chamber and Growth Partnership presented their “Reinvestment Roadmap” at the White House. The presentation makes clear that by effectively utilizing Opportunity Zones and partnering with relevant federal government agencies, Erie is massively accelerating its revitalization.
The White House Opportunity and Revitalization Council succinctly defined the mission of Opportunity Zones, saying: “Private capital and public investment will stimulate economic opportunity, encourage entrepreneurship, expand educational opportunities, develop and rehabilitate quality housing stock, promote workforce development, and promote safety and prevent crime in economically distressed communities.”
And as the presentation by Erie’s Chamber makes clear, the city has big plans to leverage the benefits provided to investors via the Tax Cuts and Jobs Act to improve their infrastructure, transportation systems, educational offerings, business development pipelines, and make the community cleaner and safer. All of these will enhance resident’s quality of life.
To be sure, Erie’s plans are ambitious, but they are already beginning to come to fruition thanks to the city’s belief in its people and its citizens. As the Washington Examiner’s Salena Zito recently wrote: “To anyone who has said it would be impossible to transform one of the poorest ZIP codes in the country into a role model for achieving economic prosperity…. They have definitely underestimated the determination of Erie’s local civic, foundation, and business leaders to not give up the ship.”
In 2019, according to the Economic Innovation Group:
“Fortune 500 company Erie Insurance, the city’s largest employer, announced its new $50 million Opportunity Fund. The first investment will support the creation of a food hall for nine local vendors…The food hall will anchor a broader $30 million transformation of the city’s North Park Row into a culinary arts district, which project sponsors Erie Downtown Development Corporation anticipate will create approximately 240 jobs.”
And because of this local commitment to rejuvenation, at the end of June 2020, Boston-based Actaris Impact Investors announced a $40 million investment in Erie’s Opportunity Zone. The hope is other capital will soon follow as investors see the potential of Erie’s workforce and the comradery of the community to improve itself. As Forbes explained:
“Erie is currently home to some $750 million in ongoing investment. The EDDC and Erie Regional Chamber and Growth Partnership are working to get even more capital into the areas where it will have the biggest impact. The first phase of EDDC’s plan will add more than $100 million in investment into downtown Erie through 2022. In that time EDDC hopes to triple the number of businesses within the development, raise job numbers from 90 to over 425, and multiply the number of residential units by more than ten.”
To be clear, the goal of Opportunity Zones is not to gentrify Erie or displace the very people that are so connected to the city’s history. The hope is to build Erie up from within, with a rising tide lifting all boats. As John Persinger, the head of the Erie Downtown Development Corporation, told the Wall Street Wall Street Journal: “When people raise fears of gentrification, I say we can’t afford to lose one more person. We don’t want to push anyone out. We want to bring more people in and raise the quality of life for everyone.”
The story of Erie makes clear that Opportunity Zones will take time to develop. They will require significant buy-in from local leaders, community organizations, and federal officials. But the promise and the potential to rejuvenate these 8,700 areas in our country is too important to be derailed by partisan fighting in Washington, DC.
Thanks to Opportunity Zones, Erie has the ability to amaze and become a model for the rest of the nation. Policymakers just need to focus on supporting these local efforts, not undercutting them.