California Governor on Opportunity Zones: ‘I hope it’s not just to make a quick buck.’
In this April 26, 2018, photo the facade of a former bank is seen behind steel beams holding it up during during construction in an Opportunity Zone in Newark, N.J. AP Photo
State and local leaders and investors gathered to discuss the economic development program on Monday.
STANFORD, Calif. — Some of the uncertainty over how much Opportunity Zones will end up revitalizing the nation’s most disadvantaged communities was on display here Monday.
Dozens of city leaders, investors and others gathered at a Stanford University conference center, in the heart of Silicon Valley, for a one-day summit focused on the nascent economic development program. The zones are designed to spur investment in low-income census tracts by offering people and businesses federal tax breaks on capital gains.
Many state and local leaders are optimistic about the program’s potential and are trying to position their jurisdictions to take advantage of it. Cities such as Erie, Pennsylvania and Louisville, Kentucky are well on their way to laying the groundwork to make an attempt at doing so.
But for some of those tracking the program there is a nagging concern: that Opportunity Zones could primarily provide a way for wealthy taxpayers to park money in relatively safe real estate investments, ones that may have attracted investment anyway, while greatly reducing the federal taxes that they would have otherwise owed.
“I hope it’s not just to make a quick buck. Let’s be honest. Because that’s the fear,” Gov. Gavin Newsom, a Democrat elected last year, said during the event. “We want to see historic investment, we want to see the right investment, in the right parts and places in the state.”
The administration of then-Gov. Jerry Brown, also a Democrat, last year oversaw the selection of 879 census tracts in California that were designated as zones and are eligible for investment through the program. There are over 8,700 such tracts spread across the entire U.S.
Newsom says he’s surprised by some of the zones in his state that made the cut. “They’re kind of doing alright,” he said. “The market’s kind of taking care of itself.”
“I’d imagine those are the most interesting to 98 percent of you,” he mused to a crowd that included investors. “It’s all those other tracts where we want to send you.”
While investments are taking place under the program, most experts say it is still short of reaching its full potential because people are waiting on further federal regulations. The initiative was enacted over a year ago as part of the 2017 federal tax overhaul.
Mastercard’s Center for Inclusive Growth was one of the groups that put on the summit.
“I think we need to take a step back and approach this with some degree of humility,” said Michael Froman, vice chairman and president of strategic growth with the company. “Because the history of place-based investment initiatives is decidedly mixed at best.”
“There is a risk that Opportunity Zones will become little more than windfalls for real estate projects that might have otherwise happened, accelerating displacement,” he added.
Accelerator for America, a group Los Angeles Mayor Eric Garcetti has helped to head up, has taken a leading role in developing best practices for how cities can approach Opportunity Zones. The group was one of the other organizers of the Stanford gathering.
Garcetti said an upside to the program is people are now talking about investment possibilities in places that may have gone overlooked previously.
He also noted that the program has guidelines designed to attract capital that remains in a community for a number of years, and that it’s forcing cities to reexamine their economic development strategies and take stock of their assets.
“Our job is not to blindly embrace Opportunity Zones as the best thing since sliced bread,” he told Route Fifty. “It’s to make them better, to find deals with more of a conscience and to use as a jumping off point for how we think about place-based revitalization.”
Maurice Jones is president and CEO of the Local Initiatives Support Corporation, or LISC, a national community development organization. The group’s history working in economically distressed areas dates back to the late 1970s.
“We were investing in Opportunity Zones before it was cool,” says Jones.
He cautions that while the zones present a “huge opportunity” they’re also just one tool.
“For the places that we’re talking about,” he said, “you’re going to need Opportunity Zones-plus if you really want to help these places grow.”
LISC is trying to recruit investors for the zones, he said, but is also trying to make sure people know that the communities targeted by the program need investments in things like workforce development, schools, and preparing people getting out of prison for jobs.
“If we just are looking at Opportunity Zones as this incredible chance for transactions,” he added, “we’re gonna do some harm.”
Editor's Note: This story was updated after publication to correct one of Gov. Gavin Newsom's quotes.
Bill Lucia is a Senior Reporter at Route Fifty and is based in Olympia, Washington.
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