OGDEN COMMONS CASE STUDY: A COMPARATIVE LOOK AT THE LOW-INCOME HOUSING TAX CREDIT AND OPPORTUNITY ZONE TAX INCENTIVE PROGRAMS.

• Author: Kaye, Tracy A.
• Position: A Comparative Lens: Analyzing Place-Based Initiative

Introduction 1068 I. The Ogden Commons Project 1072 A. North Lawndale Neighborhood, Chicago 1072 B. OZ Census Tract 8433 1075 II. Financing of the Ogden Commons Project 1080 A. Qualified Opportunity Funds 1080 B. Low-Income Housing Tax Credit Program 1084 III. Comparison of the LIHTC Program with the Opportunity Zone Tax Incentive 1090 A. Similarities Between the LIHTC Program and the Opportunity Zone Tax Incentive 1090 1. Holding Period Requirements 1090 2. Technical Expertise Requirements 1091 B. Differences Between the LIHTC Program and the Opportunity Zone Tax Incentive 1093 1. Administration of the LIHTC and OZ Programs 1094 2. Federal Cost of the LIHTC and OZ Programs 1096 3. Geographic Reach of the LIHTC and OZ Programs 1097 IV. Community Engagement and Community Impact 1100 Conclusion 1103 INTRODUCTION

Ogden Commons is a case study of a mixed-use project in North Lawndale, Chicago, which because of the involvement of a committed Housing Authority and anchor institutions as well as other regulatory requirements, represents the intended use of the Opportunity Zone (OZ) tax incentive. Congress introduced this place-based tax incentive in the Tax Cut Jobs Act of 2017, (1) incorporating the Investing in Opportunity Act that Senator Cory Booker introduced with Senator Tim Scott in 2016. (2) The idea was to "create[] a powerful new tool for promoting lasting economic development in the places that need it most" and to "incentivize private investors to invest their inactive capital in high-impact projects in economically distressed communities." (3)

Specifically, the OZ tax incentive provides for favorable tax treatment of capital gains that are reinvested into qualified opportunity funds (QOFs), (4) certain corporations or partnerships that then invest in Qualified Opportunity Zone property. (5) Opportunity Zone property can be Qualified Opportunity Zone stock, Qualified Opportunity Zone business property, or a Qualified Opportunity Zone partnership interest. (6) Qualified Opportunity Zones were designated in each state by the Treasury Department after being nominated by the states' respective governors. (7) The governors were limited to selecting a maximum of 25% of the number of low-income communities, generally tracts with poverty rates of at least 20% or median family income less than 80% of the area median, within their state. (8)

There are currently 8,764 designated Opportunity Zones throughout the United States and its territories, (9) comprising approximately 12% of all U.S. census tracts. (10) The number of designated Opportunity Zones ranges from 14 in the Virgin Islands to 879 in California. (11) "One in four Opportunity Zones have a poverty rate over 40 percent, compared to" 6.7% census tracts nationwide. (12) Furthermore, the median family income in an Opportunity Zone is 37% below the state median. (13) Part I of this Article describes one such designated Opportunity Zone in North Lawndale, Chicago, census tract 8433. (14) With a poverty rate of 46% (15) and an unemployment rate of 15%, (16) this census tract represents the type of economically distressed community that Congress intended to assist with the OZ tax incentive.

To learn more about this community and the Ogden Commons project, a list of participants to interview was developed from reviewing press reports regarding the Ogden Commons project as well as reaching out to the Author's network of affordable housing contacts. In-depth telephone interviews with the participants were held from June 2020 through June 2021, with follow-up questions sent by email. The interview list was expanded using a snowball sampling method, where at the end of each interview, each interviewee was asked for introductions to other participants in the Ogden Commons project and recommendations of other experts. (17) Interviewees included developers, project sponsors, lawyers, investors, nonprofit agencies, community development institutions, city and state level officials' staff, and employees of the community's anchor institutions. There are very few restrictions on the OZ tax incentive except for the prohibition of investment in certain "sin" businesses such as racetracks or liquor stores. (18) Investors can contribute funds of any amount and can pool their funds with multiple other investors. (19) The OZ tax incentive was designed to be flexible, but this lack of regulation is extraordinary. Typically, "federal programs targeting resources to disinvested communities have incorporated measures intended to ensure that residents have a voice in how resources are employed in their community." (20) For example, as explained in Part II, the low-income housing tax credit (LIHTC) program (21) requires the state's housing finance agency (HFA) to develop a qualified allocation plan that prioritizes certain types of projects over others, (22) based on input from the public. (23)

Also as described in Part II, the developer, The Habitat Company, is using both qualified opportunity funds and low-income housing tax credits to finance the different phases of the Ogden Commons project, and OZ funding for the initial commercial building phase and LIHTCs for the subsequent residential phases of the project. This unique feature of the Ogden Commons project allows for comparing and contrasting these very different tax incentives in Part III. This comparison was the subject matter of the Fordham Urban Law Journal's Symposium panel entitled A Comparative Lens: Analyzing Place-Based Initiatives, where this case study was first presented.

After discussing community impact and engagement in Part IV, this Article concludes by observing based on this and other case studies, that community engagement and community benefit only arise when a project's other funding sources require it or when anchor institutions, particularly nonprofit organizations, are involved in the project. This is not satisfactory, as community engagement is necessary for the success of the OZ tax incentive program. A letter signed by the Presidents' Council on Impact Investing (24) summarizes this sentiment:

[S]uccess will require clear opportunities for community engagement to ensure local context and priorities are front-and-center in every Opportunity Zone. Indeed, success hinges on the extent to which Opportunity Zones enable current residents to engage and equitably participate in defining how new investments ultimately reshape and strengthen the physical, social and economic fabric of their communities. (25) Thus, requirements for community engagement and benefit must be made explicit as part of OZ reform legislation. One proposal previously put forward involves competitively awarding grants to certified Community Development Financial Institutions (CDFIs) and qualified nonprofit housing organizations to partner with QOFs on an affordable housing project or a mixed-use project such as the Ogden Commons project. (26) CDFIs have a long history of working and engaging with low-income communities. (27) Other scholars' proposals mentioned in Part IV should also be considered, but under no circumstance should this tax incentive be continued without serious reforms. Unfortunately, the legislation currently proposed in Congress is focusing predominantly on reporting requirements to assess the impact of designation as an Opportunity Zone rather than mandating community engagement or community impact. (28)

1. THE OGDEN COMMONS PROJECT

   1. North Lawndale Neighborhood, Chicago

      Understanding the Ogden Commons project requires situating it in the context of the larger North Lawndale community located on Chicago's West Side. A predominantly Black community (29) with a median household income of $28,327 (less than half that of the city of Chicago), (30) that has seen a 19% decrease in population since 2000, (31) it is exactly the type of community that Opportunity Zone investment is supposed to target. Racially discriminatory real estate practices since the 1960s led to disinvestment such that "[t]he population is about a third of where it was at the height, and storefronts and homes have been demolished or abandoned." (32) In 1960, North Lawndale had over 125,000 residents, whereas by 2018 the population had shrunk to approximately 35,000. (33) With a high unemployment rate of 15.9%, (34) a high percentage of renters (35) almost half of whom are housing cost burdened, (36) and only 14% of the residents having attained a bachelor's degree or higher, (37) this neighborhood is suffering.

      Nevertheless, this community has a lot to offer. (38) There are "beautiful greystones and other historic buildings, wide boulevards and the 218-acre Douglas Park." (39) North Lawndale is close to transportation, downtown Chicago, and the University of Illinois at Chicago. (40) It is part of the INVEST South/West, "a community improvement initiative under Mayor Lori E. Lightfoot to marshal the resources of multiple City departments, community organizations, and corporate and philanthropic partners toward 10 communities on Chicago's South and West Sides." (41)

      The community is also home to two anchor institutions that made this redevelopment possible, the nonprofit Mount Sinai Hospital (42) and the Cinespace Film Production Studio. (43) As part of the Sinai Health System, Mount Sinai Hospital prides itself with "over a century caring for people living in the most underserved communities on Chicago's West and Southwest sides, many disproportionately affected by illness, poverty and other social challenges." (44) The 11-acre mixed-use development known as Ogden Commons resulted from a partnership of these anchor institutions, the Chicago Housing Authority, and a developer called The Habitat Company, as well as the involvement of PNC bank. (45)

   2. OZ Census Tract 8433

      The Ogden Commons project is located in OZ census tract 8433 in Cook County, Illinois, one of 181 Opportunity Zones in this county. (46) This census tract includes a high...