Subsidy Sheet: Expanded Trump OZ Tax Breaks for Investors Unlikely to Help Rural New Yorkers
Since Congress passed and Trump signed legislation that will have New York subsidizing out-of-state luxury condos forever, the press has given much attention to sweeteners for Opportunity Zones in rural areas, including extensive tracts in rural New York State (see map below for NY’s OZs). But as Bloomberg writes this week, those might not actually do much.
Under the new law, if investors invest previous capital gains into rural OZs for five years, they only need to pay 70% of the taxes on their original gains (compared with 90% for non-rural areas). This new bonus is intended to spur more investment in rural areas, but it’s unlikely to work, as even the five-year tax break for rural OZs is only a fraction of the benefits investors ultimately receive if they hold their investment for ten years or more: no taxes on new gains from their investments. The Citizens Budget Commission’s analysis found that the original OZ bill would have cost New York City and State up to about $90 million a year for the first 5-7 years, then up to $420 million a year after 10 years.
Bloomberg notes that most investment firms have concluded that the most profitable investments are not in rural areas, but in metropolitan multifamily housing – a finding supported by a wide body of research. Because New York State has not fully decoupled from OZs, only a few years remain before we start paying for luxury housing out of state (not to mention guns, oil, and crypto). It’s long past time for Assembly Speaker Heastie to pass S3340 (Gianaris) / A3246 (Dinowitz) and end the state’s Opportunity Zone tax break, especially with a $34 billion budget hole on the horizon.
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More NY corporate giveaway news from this week:
- Speaking of Opportunity Zones, the New York Business Journal reports that new criteria for determining which regions will be eligible for federal OZ tax breaks could spark “intense lobbying efforts to determine which census tracts qualify” in New York State. The old law considered census tracts to be eligible if their median income was under 90% of the surrounding region’s, or if they were “contiguous” to an eligible tract; the revisions require tracts to be below 70% of regional median income, and disallow contiguous tracts. With fewer tracts eligible, the maximum number of tracts that states can designate could fall by about 26%, to 1,649 — and fewer slots could result in heightened pressure from developers to pick certain locations.
- Boondoggle notes that one thing preventing taxpayers from learning about how much of their government dollars go to support large data centers is that many states, counties, and cities sign nondisclosure agreements preventing the public from finding out who’s getting subsidized for what. Sen. Michael Gianaris has introduced a bill in the state legislature to prohibit the practice, but it’s not clear to what degree NDAs are a problem in New York State: Local governments don’t have to report them, so residents don’t even know what they aren’t allowed to know.
- And speaking of that state budget hole, among the findings in state comptroller Thomas DiNapoli’s report on it is a recommendation that the state analyze “performance, service and economic data to assess which programs – both those that provide services and those that provide tax credits – are most effective and identifying those which are duplicative, ineffective or cost-inefficient.” (Greg LeRoy at Good Jobs First has a similar suggestion for states, in a bit more detail.) If New York State officials are wondering where to start looking, we can think of some ideas…
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