Notably, the House proposal is a departure from the original model in which the governor would play a leading role in the designation of Opportunity Zones. This model helped ensure that state leaders were actively involved in policy implementation, typically with broad input from local officials and other stakeholders. The state-driven nomination process also provided a gateway to local knowledge to shape the maps with insights not available through federal statistics alone. Although by no means perfect, this process is an advance in how subfederal employees can be incorporated into the implementation of federal tax policy, resulting in both high need and strong activation potential. It is remarkable how a map that so successfully targeted a region with such resources came about. Even though it's my first exercise.
The lack of robust transparency and reporting requirements associated with OZ incentives has long been a point of frustration for critics and supporters alike, and the focus of bipartisan attention from lawmakers. Fortunately, the appropriations bill incorporates most of the extensive reporting provisions included in the bipartisan bill. Opportunity Zone Transparency Expansion Improvement Method (OZTEIA) was introduced in the House and Senate last year and includes a strict penalty regime for violations.
Among its provisions are Small Business Employment Law The Treasury Department publishes two annual reports that use aggregate district-level OZ investment activity data (e.g., amount, type, location, and number of districts) and two that measure the performance of OZ communities across different regions over time. Longitudinal reports should be produced. Key socio-economic indicators (poverty, employment, new business starts, affordable housing units, etc.), including comparisons with the performance of non-designated communities. Longitudinal reports would be published in the 6th and 11th years after enactment. These reporting requirements and compliance penalties are intended to apply to investments made in the original OZ designation and the new map of local Opportunity Zones.
If passed, the House proposal would provide a clear picture of how the nation's largest place-based tax incentive is being used and how it will help improve local outcomes for many residents of the nation's most disadvantaged communities. The public's understanding of what is happening will likely improve dramatically. . Such insights are essential for policymakers to understand how successful their policies are and identify lessons that can be applied to future legislation.
Considerations for Congress
Collectively, the House bill's OZ provisions represent an important step forward for this relatively new and still experimental tax incentive. Below, we outline ways to improve how Congress, based on the House's proposals, can leverage past and future HIS OZ designations to benefit targeted communities. This is likely to have a disproportionately positive impact on rural communities in particular.
Identify locations most likely to benefit from OZ designation: Rural areas were well represented in the first round of OZ designations in 2018. In total, 23 percent of OZ census tracts are outside metropolitan areas, matching the rural proportion of the census tracts covered. However, while there is no comprehensive or conclusive data, observers close to OZ agree that the designated prorations are not reflected in the prorations of the investments. why is that? It is true that many factors are involved, but new research Research on the effects of OZ designation on regional development suggests that some types of districts are more suitable for OZ incentives than others. In other words, it is not simply a question of specifying a certain percentage of urban or rural areas, but rather what kind of urban or rural communities are better suited to the nature of this particular incentive. For this reason, Congress should be wary of proceeding with automatic designation of all eligible districts, regardless of their specific geographic characteristics.
Income and student limits: Rural persistent poverty census tracts are arguably some of the highest need areas in the country. However, the new OZ designation round must incorporate a small number of targeted and meaningful filtering criteria to ensure eligible areas are in line with the spirit of the policy.
In particular, median household income and student population filters can effectively identify locations that may appear statistically poor but may not actually be suitable candidates for federal investment incentives. can be excluded. Therefore, Congress should set reasonable limits on income levels in eligible areas. For example, 32 rural areas of persistent poverty actually have higher median household incomes than the country as a whole. On the other hand, universities' upward bias in poverty rates may be particularly pronounced in rural areas. In one-tenth of all districts nominated solely for persistent poverty, (low-income) students make up more than a quarter of the population. . Rural areas with relatively high incomes and large student populations are found in places such as Ithaca, New York (Cornell University and Ithaca College), State College, Pennsylvania (Penn State University), and Ames, Iowa (University of Iowa).
Incorporate bipartisan consensus recommendations: beyond implementation of new reporting requirements; Congress should pursue a number of additional improvements to the original OZ designation. bipartisan support in parliament and in various fields. stakeholder group.
First, Congress should move to eliminate the small percentage of existing OZs where median household incomes are well above the national level. Second, Congress should enact a one-time bill extending the OZ incentive by two years through the end of 2028 to make up for time lost during the two years of regulation implementation. Such an extension would reinvigorate the OZ investment market at a time when many communities desperately need support.
Other improvements will help address barriers that currently prevent greater levels of OZ investment in rural areas, namely scale and capacity. For example, tweaking the law to allow OZ feeder funds to aggregate money and channel it to smaller opportunity funds would encourage smaller investments and more diversification. Dew. This is exactly the kind of structural change that will allow more funds to flow to the regions where projects take place. They are often small and have a thin local investor base. This change will also encourage investment in businesses other than real estate operations. There, the playing field is much more level in rural areas than in large real estate projects. Additionally, providing direct support to states to fund technical assistance, local capacity building, and pre-development investments, as called for in OZTEIA, would induce increased OZ investment in rural areas. would be disproportionately beneficial on
These recommendations are based on real-world evidence about what works to encourage OZ investments in rural areas and generally in the highest-need Opportunity Zones. To date, OZ incentives have generated billions of dollars in rural investment and numerous success stories in rural communities across the country. Selma, Alabamato Brookville, Indianaof Colorado west slope. This legislation seeks to double the impact of the OZ Initiative by extending it to a wider range of rural areas with persistent poverty. This will increase if we work to build local capacity, take steps to widen the investor base, and make it easier to invest in the kinds of projects that are most likely to take root and grow locally.
Opportunity Zones are already generating large-scale investment and reaching far geographically Beyond previous attempts with location-based investment incentives.of Small Business Employment Law This reflects the desire of many MPs to extend the benefits of incentives to more communities and the clear and laudable recognition of the need for detailed, publicly available data on the nature and effects of OZ investments. Masu. While these are welcome signs, we urge Congress to further strengthen current policies and apply important lessons from the original designation process to the new round of designations.