Reinvent Albany, a nonprofit that advocates for transparent, accountable, effective New York government, recently celebrated a major victory when the State Assembly voted to decouple from federal Opportunity Zone tax breaks.
Opportunity Zones, you might recall, were created as part of the 2017 Tax Cuts and Jobs Act (a.k.a. Trump tax cuts). As a supposed incentive for investing in low-income census tracts , wealthy developers receive lucrative capital gains tax breaks through the program. Sounds positive until you read the fine print: no requirements of any kind for job creation, affordable housing or living wages, for starters – so projects favor upscale housing in gentrifying communities (new research drills into available data).
Reinvent Albany’s Tom Speaker, a policy analyst, talked to me about what decoupling means, why it matters and what comes next.
(Disclosure: Good Jobs First signed onto a letter urging the action).
Q. What does decoupling mean, and why is it such a big deal that New York did it?
A: To “decouple” means to be separated from something – and New York has separated from the Opportunity Zones (“OZ”) tax break. Under the program, New York state, NYC and the federal government all offered tax breaks for those investing in federal Opportunity Zones. In other words, a New York state resident investing in an Opportunity Zone anywhere in the U.S. could receive three tax breaks. That’s because our state and NYC used to use the federal definition of “Adjusted Gross Income,” so the capital gains tax break flowed through automatically. Now that we have decoupled from the program, the state and NYC will no longer offer the OZ tax break. OZ investors can continue to receive a tax break from the federal government.
It’s a big deal because the Opportunity Zone program is a boondoggle giving well-connected real estate developers billions of dollars – money that should be going to schools, clean water, and public services.
Q. Talk to me about the “dirty little secret” of Opportunity Zones.
A: The “dirty little secret” of Opportunity Zones – though it’s an open secret at this point – is that the program is a real estate handout masquerading as a New Deal. The tax break is supposedly intended to boost lower-income or high-poverty neighborhoods, when in fact high earners are the ones who are benefiting the most. OZ projects have included an apartment complex with a dog park and a superyacht marina in Florida , and beneficiaries have included Trump allies Jared Kushner and Richard LeFrak.
Q. President Biden has made it pretty clear he doesn’t intend to repeal OZs. So how can the administration improve them?
A: President Biden should look at Empowerment Zones, the only OZ-style program that might have worked. Empowerment Zones also offered tax breaks for investments in struggling neighborhoods, but the original Zones also received block grants – funds from the federal government that could be used to build infrastructure and develop the local workforce. This type of direct investment seems to work far better than tax breaks – in fact, there’s not much evidence that the tax breaks themselves did anything to help local economies.
Q. Have you seen an OZ project you liked? And if the answer’s no, what would components of a good OZ project include?
A: I haven’t seen an OZ project that I liked , although I have seen OZ developers that impressed me with their brazen behavior, like when a developer tried – successfully – to have his business included in the OZ program without actually being eligible.
A good OZ project would benefit people who need help the most – rather than deep-pocketed investors.
Q: Where are you setting your sights on next?
A: Ending bad business subsidies wherever we find them! Recently we’ve been advocating for ending NY’s fossil fuel subsidies, and establishing a state database of subsidy deals, since there’s a lot we don’t know about New York’s economic development programs. What companies are getting tax breaks? Are those companies creating jobs? Often, we have no clue! I encourage everyone to subscribe to our newsletter, Subsidy Sheet, to hear about what we’ll be tackling soon.
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