Qualified Opportunity Zones - How Active Participation and Complementary Legislation Can Help States Develop Their Distressed Communities

• Author: Michael Neiman
• Position: J.D., May 2019, Capital University Law School; Volume 47 Staff Member, Capital University Law Review; B.S. Corporate Finance, December 2015; The Ohio State University
• Pages: 173-202

QUALIFIED OPPORTUNITY ZONES—HOW ACTIVE

PARTICIPATION AND COMPLEMENTARY LEGISLATION

CAN HELP STATES DEVELOP THEIR DISTRESSED

COMMUNITIES

MICHAEL NEIMAN*

I. INTRODUCTION

This comment recommends a legislative proposal for states to enact a

complementary law to the Qualified Opportunity Zones (“Opportunity

Zones”) tax incentives that were granted by the Tax Cuts and Jobs Act

(“TCJA”) in December of 2017. The driver behind this tax incentive was

the focus on “addressing the impact of the uneven economic recovery” after

the 2008 housing market crisis.

1

The expectation is that this program would

“encourage long-term private capital investment” into these economically

distressed areas to make up for the slow rate of recovery of the areas

following the recession.

2

The goals of this tax incentive cannot be

maximized without the ongoing interaction with state governments, who are

most familiar with their communities.

3

By enacting a complementary state

tax law and being an active participant through endorsing opportunity plans,

states will be able to “realize the full economic and social potential of this

* J.D., May 2019, Capital University Law School; Volume 47 Staff Member, Capital

University Law Review; B.S. Corporate Finance, December 2015; The Ohio State University.

I would like to thank all of the staff and students at Capital Law School for constantly pushing

me to be a stronger legal professional. I would also like to thank Sikora Law LLC for sparking

my interest in this particula r topic, our clients for entrusting us with this work, and Professor

Richard J. Wood for guiding me through the drafting of this comment.

1

JARED BERNSTEIN & KEVIN A. HASSETT, UNLOCKING PRIVATE CAPITAL TO FACILITATE

ECONOMIC GROWTH IN DISTRESSED AREAS 1 (2015), https://eig.org/wp-

content/uploads/2015/04/Unlocking-Private-Capital-to-Facilitate-Growth.pdf [https://perma

.cc/4582-VZRF].

2

Benjamin W. Kennedy, The Opportunity Zone Program, 26 NEV. LAW. 19, 19 (2018).

3

BRUCE KATZ, JEREMY NOWAK, JAMIE RUBIN & DAN BERKOVITS, HOW STATES CAN

MAXIMIZE OPPORTUNITY ZONES: THE GOVERNANCE PROJECT 2 (2018),

http://thenewlocalism.com/wp-content/uploads/2018/06/OpportunityZonesStateActionPlan

_TheNewLocalism_June222018.pdf [https://perma.cc/D96L-K59Z] (“States can play

multiple roles to enhance the attractiveness of Opportunity Zon es and ensure that social

benefit within and beyond these communities are maximized.”).

458 CAPITAL UNIVERSITY LAW REVIEW [48:457

unique tax incentive.”

4

One major concern behind this tax incentive is the

effect it will have on affordable housing in these distressed communities,

5

which are already at risk of being subjected to gentrification.

6

Enacting a

state income tax credit would encourage more local money to pour into the

Opportunity Zones, and limit the amount of out-of-state capital coming in.

7

Local investors presumably have the best intentions of growing their local

distressed economy in a way that is most sensible, since it will be close to

home. These investors are not just making an investment, receiving an

economic return, and never seeing the results; these results are in their

backyard, giving the investors the opportunity to personally interact with

them.

This comment will review the background and policy of Opportunity

Zone law, the mechanics of the tax incentive given the recently released sets

of Proposed Regulations, and the benefits investors can expect. After

reviewing that information, this comment will discuss complementary bills

introduced at the state level and look at suggestions on how state bills

introduced in the future could be improved to achieve the policy and purpose

behind the Opportunity Zone incentive and maximize value within these

distressed communities.

4

Id.

5

Id. at 14 (“Expanding the production and preservation of affordable housing is a key

component of a successful Opportunity Zone strategy. Concerns have been raised that

increasing market investment in low-income communities will boost housing prices and

displace the very residents that the tax incentive is intended to help.”).

6

Sue Sturgis, New ‘Opportunity Zone’ Program Risks Gentri fying Distressed

Communities, FACING SOUTH (Mar. 9, 2018), https://www.facingsouth.org/2018/03/new-

opportunity-zone-program-risks-gentrifying-distressed-communities [https://perma.cc/

SGD9-NSZG] (“[D]epending on how the funds operate, the program could end up serving as

a t ax subsidy for gentrification—the largely urban phenomenon in which affluent people

move into predominantly poor commun ities, causing jumps in housing prices that can

displace longtime residents.”).

7

NORTON FRANCIS, STATE TAX INCENTIVES FOR ECONOMIC DEVELOPMENT 3 (2016),

https://www.urban.org/sites/default/files/publication/78206/2000636-state-tax-incentives-

for-economic-development.pdf [https://perma.cc/U498-RZCR] (“The idea is that significant

tax incentives will increase investment in a geographic area and thus lead to more jobs and a

revitalized community.”).