American Idea Foundation

Measuring Results, Expanding Opportunity, Improving Lives.

Validating Reforms that Expand Opportunity

On “The Strategerist” Podcast, Ryan talks about leadership, finding common ground, and reflects on his time as Speaker of the House

by

By: AIF Staff

Washington, DC – Earlier this Spring, American Idea Foundation President and former Speaker of the House Paul Ryan was featured on the President George W. Bush Center’s The Strategerist podcast. During the wide-ranging conversation, Ryan reflected on President Bush’s time in office, shared his advice for the next generation of American leaders, and offered perspectives on his time in Congress.

Ryan also touched on the work being done by the American Idea Foundation to promote evidence-based public policies that expand economic opportunities and alleviate poverty. On the podcast, whose name comes from a 2000 Saturday Night Live skit featuring Will Ferrell, Ryan elaborated on some of the solutions he outlined in an interview entitled: Keeping the American Dream Alive, which was featured in the most recent edition of the Bush Center’s online magazine, The Catalyst.

Listen to Ryan’s interview on The Strategerist by clicking here.

On the styles of a successful leader:

“I think there are two styles: There’s intimidation or motivation. There’s inspiration or fear. I’m a big believer in motivating through inspiration and motivation and I have always sort of felt this way….

The best way to organize and motivate people is to get people to pre-agree to a course of action, to agree to an agenda, to agree on a policy course that we are going to implement and run on. And then, if people elect us, we will hold ourselves accountable for doing it. That’s what we did [when I was Speaker of the House] and that made it so much easier to run Congress because I could hold people accountable for keeping their own word that they had made to their constituents. So, when it came time to pass tough legislation and to do difficult things in the majority, we were able to point to the fact that you ran on this and we all agreed we were going to support this agenda and now is the time to execute this piece of this agenda.

It’s the best way to organize and motivate people: Make them a participant. Make people participate in the formation of the idea so they have a stake in it. Stakeholder-legislating, common vision, and getting people to agree to a common vision at the beginning of the process so that the process actually occurs when there is demand for the process, that’s basically my whole theory.”

On what being Speaker of the House really entails:
“It’s a combination between school principal, warden, and traffic cop. It’s very much a management job and it has a great policy meaning. I mean, you decide what goes to the [House] floor and how the floor works and what Congress works on. You’re also basically like a conductor of the symphony because you’re sitting at the rostrum telling these committees to get those bills going through those committees and to get these bills going on the track and then you’re building the pipeline to the floor.

You want to choreograph, over a two-year period, all the various legislation that’s going to happen and you have to choreograph every committee and all the members who are moving that process through based on your timeline. Then events and circumstances blow it up and you have to adapt to things like a terrorist attack or some natural disaster and you have to just bob and weave.

And then, you have to go deal with the other governments. And then you deal with the enemy, which is the Senate! The Democrats are adversaries!  That’s the joke we always say, and sorry, it just had to be told because you told me you were Senate staff. We always say that the Democrats are our adversary and the enemy are those guys in the Senate but you just have to deal with the Senate and have to get Congress working to get things done.

You also manage a lot of people. Everybody, basically, has their hopes and their aspirations and their ambitions in Congress whether it be the bill that they want to champion or the amendment they want made in order or the committee they want to get on. It all goes to the Speaker’s office and you have to do all that so you can basically manage people. If somebody does something wrong, you’re the enforcer. I regrettably had to ask four or five people to leave Congress and on a day’s notice. You have to discipline. You basically have to guard the institution and preserve the institution and run the institution and keep the institution’s prerogatives going.

And so, when I took over from John Boehner, we knew each other very well. I didn’t really need a policy brief from John but what he basically said was: “You’ve been a Committee Chair of two committees. You just think about getting your legislation passed and that’s what a Committee Chair thinks like. Now your job is to preserve this institution and most times you want to advance your party’s goals and you want to advance the legislation that your party cares about and you want to keep your majority but at all times, your job is to preserve this institution and you have got to start thinking like that.” It was literally the last thing he said to me as he left the office and then I had to get the office repainted to get the smell of smoke out.”

On serving as Speaker under Democrat and Republican Presidents:

“I think if I went from a conventional Democratic President to a conventional Republican President, it would have been much more similar, but it was just radically different, dramatically different. With President Obama, I ran against the guy in the last election so he felt like I definitely had reasons for not liking his program but we actually had a pretty good relationship. We had mutual respect for one another. We personally liked each other but I pretty much disagreed with him on about 80% of what he was trying to do and we had very big conversations about what those were. We would try to quickly figure out what is it that we could do and [identify] what we agree on and then we did those things.

I actually tried to do criminal justice reform with [President Obama] at the end but it was just too tight and trade was the other thing. He just started too late on trade but I really tried to get that through. There are a couple things that we really agreed on and that we worked very well together on. He just started the effort too late on trade and we couldn’t get over the finish line, but there were things that I passed with him like Puerto Rico legislation and the CURES Act, which is the cancer research legislation. And then, when we disagreed, we just sort of fought it out and then negotiated and got agreements like on omnibus appropriations. I got the ban on crude oil exports lifted and I had to give him something to get
that and it was fairly run of the mill adversarial….

With Trump, it was like four times the job because in his particular case, he was short-staffed and under-manned and then the staff that he brought on were so new and so green. He didn’t bring a lot of people who had been around or who had done these things, so we were the most experienced people in
government at the time….

We felt, and I felt, the deep obligation and this is one of the reasons why the day after the election, I felt obligated to do a press conference just showing that the government was still here and it had three branches. People didn’t expect the 2016 election to turn out the way it did, I personally didn’t either but we’re just going to  work it out and we wanted to kind of calm the country down. And so, we sent some staffers over there…. and we tried to get them help right away to get the government up and running. And so, we were much more involved in day-to-day things with the Trump Administration on policy and planning and execution in addition to running the legislature.

We had a pathway to executing our agenda which we called “The Better Way” and I produced this giant Gantt chart that was almost the size of this table. I figured President Trump has been in the construction business and has been building skyscrapers so he knows what a Gantt chart is, which is a workflow chart with the entire agenda that we ran on. And so, we brought it over there at the White House…. and it’s the only time I think I had [President Trump’s] undivided attention for three hours. Knowing now what I know, I’m amazed…

And so, with President Trump, the exciting activity was the ability to get our agenda passed. We passed around 1,172 bills, which is double what we typically pass and half of them made it into law through the Senate… Obviously, the President drove me nuts sometimes with just the things he does, but nevertheless it was a remarkably productive time.”

On how America can positively respond to a globalized economy & why the Biden infrastructure plan would hurt economic competitiveness:

“It’s technology, it’s education, it’s lifelong learning and it’s getting an economy that continues to produce good, high-growth jobs in cutting-edge industries, which we’re working on [in Janesville] and we’re doing in Wisconsin. We have got to stay ahead of it. Globalization is here: It’s bringing like a billion people out of poverty and done right, we can still have the best jobs [in America]. We can still have high school educated people work in manufacturing and get great jobs. And frankly, we were starting to see those policies that were put in place in 2018 and 2019, before the pandemic hit. take hold. I think we had some really good policies put in place. More are needed, but our agenda [under President Trump] was working….

We fixed job training a lot. We consolidated and streamlined job training, giving it back to the states so they could focus on their economic development strategies and allowed states to build those programs out. I think there needs to be another wave of job training reforms. I think there are tech-enabled reforms that can occur and make our economy work much better.

[I think you] shouldn’t pass the Biden infrastructure tax. It’s horrendous and what I mean is that President Biden will take us back to being the worst tax code in the industrialized world for businesses. We were the worst and in 2017, the Tax Cuts and Jobs Act made us one of the best and this will literally, technically, economically, and statutorily bring us back to the worst and that will just drive more inversions. It will drive businesses overseas and it will slow down wages and productivity. So, I think you need to make sure you don’t do that.

I think there are some things that you need to make permanent in the tax code, like full expensing for plant and equipment that will increase productivity, increase wages, and increase living standards. We were beginning to see that for the Janesville-type person and for the blue-collar industrial worker, they were starting to see true living standard increases, where wages increase faster than inflation. And then we got hit with the pandemic so I think we had a good plan in place and I would go back and accelerate that.”

On the state of the Republican Party:

“The state of the party is good. We had a great election down-ballot in 2020 but we lost the presidency. I mean, we also should’ve won the Georgia [Senate elections]. We didn’t. I think Trump blew that one for us, but we did far better in the Senate than we expected. We did really well in the House, which we didn’t expect. I think we’ll get the House majority in 2022 partly because of history and partly because of Biden’s overreach and the progressive agenda, so I think we’ll get the majority because of that. On paper, we’re strong but philosophically, I am greatly worried. We cannot be a cult of personality or a party built around any personality — let alone Donald Trump, but any personality. We’ve got to be an ideas party and the problem is we’re sort of a reactionary party right now.We’re basically playing cultural war, reactionary politics which is kind of like cotton candy and it gives people the sugar high for the moment. It gives immediate satisfaction but it’s not a coherent vision and agenda. It’s not based on a moral code or a coherent philosophy. Now having said that, there are lots of Republicans who have that coherent philosophy but it’s not what we’re really identified with as a party and we’re just going to have to go through some growing pains to get there.”

Policy Discussion on the future of the Earned Income Tax Credit & Child Tax Credit

by

By: AIF Staff

On Friday, former Speaker Paul Ryan’s American Idea Foundation hosted a virtual policy panel on the future of the Earned Income Tax Credit (EITC) and the Child Tax Credit (CTC). The conversation featured a bipartisan group of experts for a timely and informative discussion about how legislators can make sure that our nation’s tax code is oriented toward expanding economic opportunities for those who need it most.

Spectrum News’ Anthony Dabruzzi covered the event and summarized its aims succinctly:

“Amid the pandemic, there has been lots of talk about tax credits, leaving many people wondering about what they really mean and how they can help Americans.

Former House Speaker Paul Ryan hopes two of those reforms can reduce poverty and grow the economy. He moderated a virtual conversation about the Earned Income and Child Tax credits on Friday. Ryan, who once led the House Ways and Means Committee, still has a lot of ideas about how to improve tax credits.

The American Idea Foundation hosted a bipartisan discussion to talk about ways to improve policies like the Earned Income Tax Credit (EITC), which helps low- to moderate-income workers and families get a tax break….

Regardless of a possible solution, the whole point of bouncing ideas around Friday was about finding ways to improve anti-poverty tools for policymakers.”

The wide-ranging conversation, featuring AEI’s Scott Winship and Katharine Stevens and Northwestern University’s Diane Schanzenbach, covered a lot of ground and some key excerpts follow.

Former Speaker Ryan frames the timeliness of this conversation coming out of the COVID-19 pandemic and in light of recent Congressional reforms:

“As we recover from this [COVID-19] pandemic, policymakers are facing a number of choices on ways to reduce poverty while continuing to encourage work. And, two of the most important poverty fighting tools the federal government has are the EITC and the CTC. These programs have long been key ways that the federal government both incentivizes work as well as reduces poverty.

Over the last several months, Congress has enacted changes to these programs. For example, the CTC received a large increase and was made refundable in the most recent COVID-19 relief bill. And numerous proposals have been made recently to either expand the EITC or CTC, as well as to create brand new programs, such as a child allowance….

These issues are front and center in a way that they rarely are, which is why I’m so looking forward to discussing the possibilities of improving the EITC and CTC, and taking a look at tradeoffs as we look towards reforming our social benefit programs.”

Northwestern University’s Diane Schanzenbach on how these credits impact families and children and how to address a gap during economic downturns:

“I want to start off by reaffirming that the Earned Income Tax Credit and Child Tax Credit are the cornerstones of our anti-poverty policies for families with kids. They boost the incomes of 28 million Americans, many of whom are low-income, and they lift 10.5 million people out of poverty, including 5.5 million children out of poverty. It truly is our most effective anti-poverty policy for families with kids….

There is strong evidence that the benefits conveyed by the EITC have lasting impacts on kids. There is better infant health, better school performance, higher college enrollment, and higher earnings in young adulthood. This is an investment that pays off over a lifetime for kids.

On the employment effects, this is joint work with Michael Strain of the American Enterprise Institute, it’s not surprising that the EITC improves employment. The EITC includes strong incentives for non-workers to get jobs. For example, with the EITC, for every $1 that you earn, we say: If you’re going to earn that $1, we’re going to give you an extra $.40 right. This is sort of Economics 101 so we shouldn’t be surprised that it works.

So, what we did was look at employment and how employment responded after the five major expansions in Earned Income Tax Credit…. Now, the EITC is primarily targeted at unmarried mothers who are going to earn low wages and so we studied those people in particular and across three decades, the EITC expansions led to increases in employment. People got jobs and these were large 3%, 7% or even 10% point increases, so it’s worth it.

It shouldn’t surprise us that subsidizing something like employment means we have more but this truly is a program that works. It works at its best when the economy is thriving, so unfortunately the EITC does not pay off, of course, when workers lose their jobs. And over time, we’ve shifted a lot our safety net spending to promote and encourage work and there’s great merit in that, but what it has done is left us exposed without enough insurance when the economy turns down just because there is just not enough of safety net.”

Scott Winship from the American Enterprise Institute on the debate over these credits among conservatives and the trade-offs involved between workforce participation and family formation:

“I don’t think there’s necessarily tension in the sense that originally the Child Tax Credit was targeted as a way to both reward work and to make the costs of raising families easier and as an anti-poverty tool for low-income workers who did work.

Under the current CTC before the recent temporary expansion, there is a phase-in area for lower-income workers. It is the same as with the EITC where it clearly pays to work more and where you get a bigger Child Tax Credit from additional income and additional hours. And the benefits of the CTC, most of them do actually go to non-poor workers. It extends up the income scale a ways and phases out at a fairly high-income scale into families that make over six figures can still generally get some Child Tax Credits. And so, you know, in that sense I think it’s fairly well-designed to both support work and to support family formation and reduce poverty.

I think the more recent debates really do divide the center-right between those who are most concerned about family formation and declining fertility and those who are more concerned about anti-poverty efforts and not taking steps backwards where we might be able to reduce child-poverty in the short term by giving non-working parents a more generous child allowance, whereas the current Child Tax Credit generally requires at least some work.

That crowd is very concerned about expanding benefits for non-workers versus I think where Senator Romney comes at this — and where a lot of social conservatives come at this, which is that they would like there to be more children and they think that it’s become too expensive to raise a family. I think that declining fertility is just something that we see across the world. As countries get richer, they shift. If you look at a trend and what happened in the 1970’s, the same decade when professional opportunities for women opened up, and I just think there is no going back to that sort of pre-1970’s world. So, I do think policies like the Child Tax Credit and reforms to it can encourage more family formation and more children on the margin, but we’re talking about pushing against some pretty big societal forces that are going to keep us from getting back to a baseline where everybody has 3 or 4 more kids.”

Katharine Stevens on reforming the Child Tax Credit so it could be a “borrowable benefit” targeted to when parents and child need it most:

“Matt Weidinger at AEI and I recently published paper proposing that parents be allowed to borrow from future child tax credits. So, assuming it’s an actual credit and assuming the parent has sufficient work earnings over the life of a child, it totals $34,000 over the life of the child.

Our thought was that [the credit] kind of dribbles out over these years where by the time the child is 16, you’re earning more money, your child is not in childcare and you may not even notice the credit. So, what we propose was allowing parents to borrow up to $30,000 from their lifetime of their Child Tax Credit in the first five years of the child’s life.

So, it could be all in the first two years, so they could have $15,000 in year one plus $15,000 in year two. Added to that is the $2,000 Child Tax Credit that you were getting those years anyways, so it is $17,000. $17,000 is actually enough for a two-earner family to allow one earner to step out of the workplace for a year or for two years.

Our idea was that these dollars given upfront in the child’s life, when the development is most important, gives parents a lot more choice in how and who is going to be raising their kids.

Another alternative would be if a single woman was working full-time, she could use it for higher-quality childcare. This is a problem I see with poor families: You’re working, but child development doesn’t depend exactly on your work. it doesn’t depend on your money either. It depends on the environment that your child is developing in and so, it’s very painful for many poor parents to know that their infant or their toddler isn’t in an environment that is good for their baby. So, the idea on the lower-end of the income scale is that it would empower women, empower families to make sure that their child, whether at home with a parent or at a high-quality childcare situation, is able to be put somewhere that is good for that kid.”

Diane Schanzenbach on how a strong safety net and tax policies can supplement the efforts of community organizations to better fight poverty:

“I agree with you broadly that a lot of these community organizations that can walk beside people and do the hard work of getting the job or getting the job training can really do a lot of good. They can do more good when they don’t also have to meet the basic needs of people. So, for example, you’ll see here that at the Greater Chicago Food Depository, we have got a fantastic job-training program. We can be really creative and meet their needs and help solve the underlying causes of poverty, but not when there is a line one-mile long outside of the food bank.

So, we do need income support and that’s why a thriving safety net is important, so that others who are better equipped for the one-on-one, “let’s walk through this together and sort of get you on track” efforts can do their jobs more effectively.”

Katharine Stevens on how potential reforms would impact distinct populations like childless adults and working parents:

“Let’s start with childless adults. We know that the EITC has been fantastically successful especially for those working-moms, but it has historically been smaller for childless adults. And as we’ve seen rates of employment drop for those populations, I think it makes a lot of sense that if we want those people to come back [to the workforce], perhaps we should start subsidizing that more.

“I think the Romney people made a good point when they put out their version of the child allowance proposal. They said: Why do we separate the EITC from subsidizing work just for people with children? Why don’t we subsidize work just period for [all] workers and then think about a different mechanism for children? And there’s a lot of merit to that. But I didn’t love how they did it because there were sort-of going to pull the rug out from under too many single moms and I think that would lead to worse work incentives but in any case, I do think that if we’re worried about single men and their employment rates or single women and childless women and their employment rates then in this era, then subsidizing them makes a lot of sense.”

Diane Schanzenbach and Scott Winship on the EITC’s effect on rates of marriage and whether it creates disincentives to marry:

Schanzenbach: “It’s a great question. The studies agree with you and find that the EITC makes women less likely to marry, but it’s a pretty small effect. The simulations seem to say that if she gets married, she would lose about half of her expected EITC benefit. Certainly, we could do more to reduce the marriage penalty of the EITC. The model that we use in economics to think about marriages is that if women are earning more, they’re less likely to choose to get married because they are in less need of a partner. And so, this is just the one of those things that are hard to break.”

Winship: “I think there are a few basic ways that you can reform the EITC to promote marriage more. The biggest reform would be to make the EITC tied to individual earnings rather than to the amount of earnings or income on the tax form, as that way you get the same benefit whether you are single or married. Another way is to sort of expand the plateau and phase-out regions of the EITC so that you can get the maximum amount even with higher income and you can get something, at least, even at higher incomes versus what you get now. And then the third way, which would be more radical, would be to explicitly increase the generosity methods for married couples or reduce them for single-earners. I’ve proposed something before [like this] that remarkably, didn’t catch on. It was to increase the generosity of the EITC but just for married couples. It would promote marriage and it wouldn’t actually hurt single-parent workers, but it seemed to be a bridge too far.”

Former Speaker Paul Ryan on Democrats recent tax proposals to pay for an infrastructure proposal:  

“I think they made a huge mistake on this one. I think the Biden Administration and [Senator] Ron [Wyden], who is a friend of mine, is going in the wrong direction on this one. I think he’s going exactly backwards. We were the worst corporate tax system in the world. We were number one with the highest corporate rates. We fixed that with the Tax Cuts and Jobs Act and went to a territorial tax system, which stopped inversions.

As a result of that reform, we had impressive wage-growth, especially among the bottom two quintiles of earners. So, we had great wage growth, productivity increases, living standard increases and then obviously, we had a pandemic but the worst thing you could do right now is launch America into this uncompetitive area yet again. This bill will make us, again, the worst business tax system in the world.

We would go to worst from the middle of the pack. We would go from very competitive back to worse again with this. Most importantly, it is not going to work. You’re going to create more inversions of these American companies where they are going to leave American again if this were to pass…

[Democrats] are acknowledging that they’re making American businesses less competitive. We’re going to encourage them to go overseas and we’re going to ask all the rest of the world to do this to their own companies.

It’s this whole theory of tax harmonization versus tax competition. The jury is in: The current competition works, harmonization doesn’t.

The last point I’ll make, as I want to get back on topic here, is that if you want to design a perfect system to not compete well against China, this is it. This is conceding to China, big time..

They made infrastructure, which is really kind of a bipartisan issue, partisan by seemingly undoing the great success and progress that was done on getting our tax system in a competitive environment with the rest of the world…. I think they missed the boat on this and it’s now two times that they have walked away from what could have been a bipartisan success.”

This panel conversation was the latest hosted by the American Idea Foundation, following informative dialogues on criminal justice reform and Opportunity Zones. Consistent with its mission, the American Idea Foundation believes that policymakers should look for solutions that empower individuals and communities to reach their full potential and though Speaker Ryan’s leadership on the Tax Cuts and Jobs Act improved the tax system for the first time in a generation, this conversation made clear that there is still more work to be done. 

Coalition recommends Federal Reserve detail eligibility for Opportunity Zone & Community Reinvestment Act credits

by

BY: AIF STAFF

Created as part of the 2017 Tax Cuts and Jobs Act, Opportunity Zones are a poverty-fighting tool designed to stimulate job creation, investment, and economic development in distressed neighborhoods. These nearly 8,800 census “zones” are found in all 50 states, ranging from very rural to very urban areas, and the law provides tax incentives for long-term investments that will ultimately benefit these communities and those residing there.

The American Idea Foundation has convened panel discussions with legislators, investors, and academics to discuss how Opportunity Zones can spur community development and help fight poverty as these projects begin to get off the ground. The Foundation has also profiled successful initiatives underway in Opportunity Zones like Erie, Pennsylvania, where private-sector investors have teamed with local leaders and businesses to reinvigorate some of the city’s poorest Zip Codes. Similar promise has been seen in communities as diverse from Provo, Utah to Baltimore, Maryland.

While the tax incentives provided through Opportunity Zones have started to bear fruit, former Speaker of the House Paul Ryan and the American Idea Foundation believe that additional reforms and changes should be made so the program meets legislators’ original intent.

As Speaker Ryan has said, because of reconciliation rules related to the consideration of the Tax Cuts and Jobs Act, lawmakers were unable to get all of the desired accountability and transparency tools, among other things, in the 2017 legislation. Thus, for Opportunity Zones to reach their full potential, it is imperative that the federal government continue to make modifications. As the Foundation works with policymakers to make legislative improvements to rules around Opportunity Zones, there are also regulations being promulgated of great importance to these areas and those interested in investing in these communities.

This is why the American Idea Foundation joined a diverse coalition of stakeholders in sending a letter to Ann Misback, the Secretary to the Board of Governors of the Federal Reserve, focused on expanding the access and eligibility of Community Reinvestment Act tax credits for those working in Opportunity Zones. 

The letter offers a series of comments in the hope that regulators will provide additional clarity and transparency about the activities and projects in low-and-moderate income communities that are potentially eligible for tax credits from both Opportunity Zone legislation and the Community Reinvestment Act. With greater clarity and information, more investors and financial institutions will hopefully be comfortable in providing capital to these areas of the country that badly need it.

The entire letter is available here and some of the comments are summarized below.

Natural Overlap between Community Reinvestment Act & Opportunity Zone Goals

As the letter notes, both the Opportunity Zone legislation and the Community Reinvestment Act are designed to benefit low-income communities and their residents. Both are intended to tackle persistent poverty, and as such, the impact of the Community Reinvestment Act and Opportunity Zones would be “maximized by providing eligibility for investments in both programs.”

Because of the similarities in how low-income communities are defined in Opportunity Zone legislation and the Community Reinvestment Act — not to mention that both are aimed at providing long-term, patient capital, the letter requests that regulators consider providing Community Reinvestment Act credits for additional Opportunity Zone investments that benefit low- and moderate-income communities.

Further, the letter calls for the Federal Reserve to explicitly include “examples of activities in low- and moderate-income communities that would qualify for credits under the revitalization and stabilization component of community development.” Given the logical overlap between Community Reinvestment Act and Opportunity Zones, the Federal Reserve should strive to identify activities that would allow investors, institutions, and community organizations to be eligible for both credits.

To Maximize Community Reinvestment Act & Opportunity Zone Activities, Provide Illustrative Examples

To ensure that only deserving investments in Opportunity Zones are eligible for potential Community Reinvestment Act credits, the Opportunity Zone Coalition letter calls on the Federal Reserve to provide an illustrative list of qualifying Opportunity Zone activities that may be eligible for the Community Reinvestment Act credits. Because there is uncertainty over what community development activities may qualify for Community Reinvestment Act credits, financial institutions and investors may be hesitant to engage in Opportunity Zone projects.

The letter suggests that when the Federal Reserve approves an activity for Community Reinvestment Act purposes for one institution, it should make this information public so other institutions and investors can determine (with full information) whether to undertake similar investment activities in other Opportunity Zones. The letter outlines a few examples of activities that could be presumed to benefit low- and moderate-income communities and also comply with Community Reinvestment Act requirements:

  • Qualified opportunity fund investment that finances construction of a grocery store in an LMI Opportunity Zone.
  • Qualified opportunity fund investment that finances construction of a new manufacturing facility that creates jobs for local residents in an Opportunity Zone that is also an LMI census tract.
  • Qualified opportunity fund investment that finances the construction or renovation of facilities oriented toward serving low-income children, such as charter schools, day care centers, and early childhood centers in LMI Opportunity Zones.
  • Qualified opportunity fund investment that finances the construction of affordable residential apartments in an Opportunity Zone that is an LMI census tract in which at least 20 percent of the units will be offered at median rents that do not exceed 30 percent of 100 percent of the area median income.

Providing examples that are eligible for additional credits, like the ones above, would provide investors and financial institutions with the certainty and confidence necessary to lend capital to projects in these low- and moderate-income areas that are hungry for economic growth.

The letter also calls for the Federal Reserve to develop a mechanism by which interested stakeholders can submit examples of potential activities that could qualify for Community Reinvestment Act credits in Opportunity Zones. This is a simple but important suggestion to ensure that those interested in investing in these areas are able to determine their eligibility for credits at the outset.  

Maintain Incentives for Community Development Investments

The final comments in the letter raise a concern with the proposed idea to “combine community development loans and investments under one subtest.” The Opportunity Zone Coalition believes this might decrease, not increase community development levels going forward. The letter notes that by “measuring loans and equity investments together, banks would be disincentivized to engage in equity investments to meet their Community Reinvestment Act requirements.” Because equity investments have higher capital requirements, banks may opt to just make loans.

This letter, which details the natural overlap between the aims of the Community Reinvestment Act and Opportunity Zone legislation, suggests a few common-sense ways that the Federal Reserve can provide clarity, transparency, and additional information to potential investors, community leaders, and financial institutions. These simple steps — of outlining examples of activities that would qualify for Community Reinvestment Act and Opportunity Zone credits, of providing illustrative examples, and of maintaining incentives for banks to pursue community development projects – will hopefully attract additional interest and investment in these areas. This increased interest and investment will then benefit the residents of these areas over the long-term.

This letter is just the latest example of stakeholders raising awareness and working to expand the potential impact of the tax benefits available through Opportunity Zones. At  a June 2020 event in Columbia, South Carolina, Senator Tim Scott and HUD Secretary Ben Carson met with local bankers and community leaders to discuss how some activities in Opportunity Zones may be eligible for credit under the Office of the Comptroller of the Currency’s (OCC) new Community Reinvestment Act (CRA) rule.

These types of events and the correspondence from the Opportunity Zone Coalition to the Federal Reserve will hopefully ensure that individuals in Opportunity Zones, particularly those who are low- and moderate- income, realize the benefits of this law and that it expands economic opportunities in areas that need it most.