Subsidy Sheet: NY Ends Wasteful Opportunity Zone Tax Break, Potentially Saving Billions
One of the worst tax abatement policies to emerge in the last few years was undoubtedly Opportunity Zones.
Under the Trump-touted program, investors could receive a tax break by investing in “Opportunity Funds” which developed real estate in “Opportunity Zones.” These “OZs” were theoretically lower-income or high-poverty census tracts nominated by state governments and approved by Trump’s Treasury Department. OZ supporters claimed new capital would trickle down to the underprivileged and revitalize neighborhoods – but numerous studies and articles have shown that the program did nothing for local economies and mainly benefitted real estate barons such as Trump allies Jared Kushner and Richard LeFrak. Notoriously, OZ properties included high-rise apartments with a dog park, and a superyacht marina.
Finally, after years of bad press, states and cities are starting to turn against OZs – and last week, New York became the fifth state in the country to end its tax break for the program.
The campaign against NY’s OZ subsidy began with the Opportunity Zone Tax Break Elimination Act, which was introduced by Senator Michael Gianaris in 2019 after the revelation that Amazon’s proposed HQ2 in Queens could benefit from the program. In the State Assembly, the bill was championed by Assemblymember Jeffrey Dinowitz of the Bronx.
Reinvent Albany led the public campaign for the bill, writing a Memo of Support signed by 20 organizations and six unions, and helping bring nearly 40 legislators on board as co-sponsors.
According to the Citizens Budget Commission, the program was costing New York State and City $63 million and $31 million a year respectively, with those costs expected to rise to $284 million and $140 million a year by 2029. Based on the CBC estimate, enactment of NY’s new law ending the OZ tax break could save New York billions over the next decade.
Where Is Opportunity Zone Tax Break Repeal in Other States?
In 2019, the Institute on Tax and Economic Policy (ITEP), which signed our memo of support, released a report detailing which state tax codes are “decoupled” from Opportunity Zones. The four states were Massachusetts, North Carolina, Mississippi, and California (Good Jobs First’s list excludes Massachusetts, and adds New Hampshire and Pennsylvania). Of those, North Carolina was the only one to pass legislation specifically ending its tax break – the other states simply didn’t conform their tax codes to the program.
Since ITEP’s report, a new category has appeared – “partial decoupling.” One of Opportunity Zones’s dirty secrets is that the program effectively makes governments subsidize other states’ Opportunity Zones. For example, if I invest my NY-based capital gain in Columbus, then New York is the state that gives me a tax break for that investment – not Ohio.
For that reason, Arkansas and Hawaii have revised their OZ programs so that the state tax break only goes to investments for in-state Opportunity Zones. Maryland is considering reforming its tax break as well.
NY’s victory is significant. If it worked as intended, the OZ program would have cost New York State government billions in the decades to come. Unfortunately, OZs are already costing the federal government $2 billion a year, a number that will surely skyrocket if more Opportunity Funds are created. Here’s hoping that the end of NY’s tax break reverberates nationwide.
Other subsidy news
- Samsung is asking Texas for $1.4 billion in incentives. Fortunately, New York was knocked out of the subsidy bidding war early and owes Samsung nothing.
- Senator Schumer is lobbying for a $520m loan guarantee for Plug Power’s Genesee County plant. Apparently $4 million per job wasn’t enough.
- Yet another study shows that OZ investments skew toward real estate and communities that are already on the upswing.
What we’re reading
- NYC Mayoral candidate Andrew Yang wants tax incentives for companies that have employees work in the office. Ross Barkan writes about why that’s a terrible idea (City and State).
- Last week in Boondoggle, Pat Garofalo wrote about state subsidy ceasefires. High-five to Pat for a truly groovy leading image (credited to Nicolas Raymond).
- This week, Garofalo wrote about how Amazon’s support for increasing the corporate tax rate is a distraction. (Spoiler: Since Amazon hides revenue in a way that allows it to pay little or no taxes, a higher federal corporate tax rate won’t cost the company anything.)
- A good thread on Florida corporate tax breaks from a Sunshine State legislator.
If you got this from a friend, sign up here. Subsidy Sheet is written by Tom Speaker, Policy Analyst at Reinvent Albany. Please send questions and tips to tom@reinventalbany.org. We look forward to hearing from you!