At the center of our economic agenda are Opportunity Zones … Jobs and money are pouring into these areas that have never seen investment. I mean, they haven’t seen them in decades and decades and decades … And there’s never been anything like it.
-Former President Donald Trump, 2/10/2020
Donald Trump clearly loved the federal Opportunity Zone tax break, which is also mirrored in New York’s tax code. But top independent economists and fiscal experts have presented a mountain of evidence that Opportunity Zones overwhelmingly benefit the wealthy, and in New York’s case will soon cost State and NYC taxpayers up to $420 million a year – funding that could go to schools, clean water and other basic government services.
The program gives New Yorkers a tax break on capital gains for investing in “Opportunity Zones” (OZs), which are high-poverty/low-income areas around the country. The theory offered by the Trump administration is that tax-deductible cash will flow into real estate or businesses and then “trickle down” to poor residents. However, the bulk of independent research shows the Opportunity Zone program is a wasteful use of public funds, politicized and vulnerable to corruption and conflict of interest.
Here’s what eight studies on Opportunity Zones have shown:
- OZs likely have no effect on poverty, earnings, or employment (Freedman, Khanna, Neumark, 2021).
- OZs have virtually no effect on housing prices, researchers say with “95% confidence” (Chen, Glaeser, Wessel, 2020).
- OZs have no increase in job vacancies and very limited salary increases (Atkins, Hernandez-Lagos, Jara-Figueroa, Seamans, 2021).
- Where OZs are leading to an increase in prices, it’s usually “driven by the higher end of the OZ market” – in other words: luxury real estate. This means that lower-income residents receive few benefits (Bekkerman, Cohen, Liu, Maiden, Mitrofanov, 2021).
- Opportunity Zone investments are overwhelmingly concentrated in a few areas, mostly going to higher-income neighborhoods in the Zones, and largely benefit the extremely wealthy (Kennedy and Wheeler, 2022).
- Data from Mastercard shows “no evidence of increased business activity nor consumer spending” in OZs (Feldman and Corinth, 2022).
- Low-income OZ tracts “did not experience any increase in startup investment following OZ designation” (Eldar and Garber, 2022).
- Opportunity Zones “have had no statistically significant effects on business or residential loan growth” (Snidal and Li, 2022).
Additional research shows that Opportunity Zones create a risk for corruption and favoritism: Two studies found that governors are more likely to designate a census tract as an OZ if the tract’s state representative is part of their political party (Frank, Hoopes, Lester, 2020; Alm, Dronyk-Trosper, Larkin, 2021), and governors are more likely to designate tracts in areas where they have more donations from executives or firms (Eldar and Garber, 2021).
This scholarship is consistent with what economists have known about OZ-style programs for years – they are a bad investment of public funds. After the Trump administration floated OZs in 2017, Timothy Weaver wrote in Urban Affairs about how the proposal was a “zombie policy.” The UK’s Enterprise Zone program, which also gave tax breaks for investments in low-income areas, was shown by study after study to be an ineffective use of taxpayer dollars, but policymakers revived the idea anyway as “Opportunity Zones.”
As expected, a government subsidy often has a stimulative effect and a few studies have shown increases in property values and development from OZs: A November 2022 working paper found OZs increased new development in urban census tracts by 20% (Wheeler, 2022). Another showed OZs increase “non-vacant residential property values” (Alm, Dronyk-Trosper, Larkin, 2021), and another that OZs boost employment in urban areas (Arafeva, Davis, Ghent, Park, 2021).
But none of these studies have shown that Opportunity Zones are a cost-effective use of public funds. Any tax break is bound to generate some kind of economic activity eventually, but the fact is that there are simply far more effective ways to boost the economy – like building a bridge, improving education, or boosting public transit. The Governor, State Senate, and Assembly should pass S543 (Gianaris) / A2170 (Dinowitz) to end the OZ tax break and focus instead on public investment that actually works.
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Resources
- Reinvent Albany’s report on Opportunity Zones: “Guns, Oil, and Crypto” (February 2023)