Carson Says 'Opportunity Zones' Could Serve as CDBG Substitute

WASHINGTON — Housing and Urban Development Secretary Ben Carson suggested to House lawmakers Tuesday that a new federal initiative meant to lure private investment to poor and economically struggling communities could serve as a substitute for a longstanding federal block grant program.

Carson touted an initiative known as Opportunity Zones, formed as part of last year's Republican-led tax overhaul, as he fielded questions about Community Development Block Grants.

The secretary made his comments before a House Appropriations subcommittee on transportation, housing and urban development. He was testifying about the Trump administration's budget proposal for the upcoming 2019 fiscal year.

President Trump in his budget requests has called for sharp cuts to programs that provide grants and other support to state and local governments. But these proposals have largely flopped in Congress.

And as Carson was offering his testimony on Tuesday, lawmakers elsewhere on Capitol Hill were trying to nail down a spending bill for the current 2018 fiscal year that includes significant increases in spending over levels previously established by budget caps.

Rep. Nita Lowey, of New York, who is the top Democrat on the full House Appropriations Committee, pressed Carson on the Trump administration's proposed elimination of the Community Development Block Grant program, or CDBG, a flexible source of federal funding favored by many local governments around the U.S.

This proposal by the administration has so far been a nonstarter in both chambers of Congress. House and Senate appropriators drafted legislation last year that called for about $3 billion of CDBG funding in the current budget cycle, on par with prior-year levels.

Rep. Mario Diaz-Balart, a Florida Republican who chairs the "T-HUD" subcommittee, told Route Fifty after Tuesday's hearing that CDBG funding slated to be in the fiscal 2018 spending bill lawmakers are working to finalize this week is going to be a "healthy number."

Lowey rattled off facts and figures to explain the program's benefits and noted that "every $1 that we spend on CDBG leverages an additional $4 and nine cents in non-CDBG funding."

"Could you tell me why you propose to eliminate this program?" Lowey asked Carson.

“I don’t disagree with you that it has done some very good things," the secretary replied. But he then pointed to an argument he'd made earlier about the need for the federal government to rein in spending in order to control debt, saying that in three decades time "every penny" the government collects in revenues will be used to service the nation's debt and "there will be no money for any programs."

"Except for the tax cut," Lowey interjected, referring to last year's tax code rewrite, which was backed by Trump and is expected to erode federal revenues by upwards of $1 trillion over the coming decade.

Carson, however, made a case that "we do have a way to take care of the good things that CDBG does, and that again is through the Opportunity Zone program." He estimated that the fledgling initiative would bring in as much as $2.2 trillion, which could be used "to substitute" for CDBG and to put toward infrastructure.

"I suspect we may be asking ourselves: 'How can we use all this money?'" he added.

Some Background on Opportunity Zones

The Opportunity Zones program provides a tax incentive for investors to reinvest unrealized capital gains—such as profit from a stock position that has not been closed to make a profit—into special funds that will channel money to investments in low-income communities.

Sens. Cory Booker, a New Jersey Democrat, and Tim Scott, a South Carolina Republican, have been two of the more vocal proponents of the program in Congress.

Governors are tasked with nominating areas within their states as Opportunity Zones. They face a Wednesday deadline to submit their nominations to the U.S. Department of Treasury. (They can also request more time to select the zones.)

"If you have a thousand dollars of Google capital gains in your stock portfolio, previously there was never a connection point between that type of capital and investment capital in the productive economies of struggling communities," said John Lettieri, president of Economic Innovation Group, a think tank that has advocated for the zones.

He emphasized that the program is not a tax credit. It's therefore not limited, Lettieri noted, by credit allocations that the federal government extends to the private sector.

Comparable incentive programs targeting economically depressed areas have previously come under scrutiny in some quarters, with questions raised about how effective they've been, as the The Intercept chronicled earlier this year.

Adam Looney, a senior fellow at the Urban-Brookings Tax Policy Center, published an article last month titled: "Will Opportunity Zones help distressed residents or be a tax cut for gentrification?" Looney wrote: "There is a risk that instead of helping residents of poor neighborhoods, the tax break will end up displacing them or simply provide benefits to developers investing in already-gentrifying areas."

"Unfortunately, the evidence on the benefits of existing place-based policies is inconclusive," he added.

Lettieri acknowledged past research has identified shortcomings with initiatives akin to Opportunity Zones and said that EIG has actually commissioned research to underscore that point.

"We don't take that as an implicit critique of this program though," he said.

Features of the Opportunity Zone program that have to do with scalability, flexibility and deference given to state and local decision makers are "truly novel," according to Lettieri.

"There's nothing of this type that's been attempted before," he added.