Opportunity zones are about to turn 3.
The tax provision, signed into law in December 2017, allows states to designate economically-distressed areas as ripe for investment. President Trump got the government into the business of “rewarding those who invest in distressed communities,” as he put it at the time.
Sen. Tim Scott (R., S.C.) has been the administration’s most prominent ally on the issue.
And this week Scott is announcing a new Virtual Opportunity Zone Tour that will begin by highlighting a project in his home state, which has been dubbed the Boeing of Agriculture, set to create 1,500 jobs in the coming years via an “agriculture technology campus” in rural Hampton county.
“It provides jobs for a county and the part of the state that simply has not had the type of job creation that we needed,” Scott said in an interview Tuesday. “The ability to do more of these around the country is real.”
“You are talking about creating jobs for generations,” he said in a video released Wednesday announcing the tour.
Part of President Trump’s $1.5 trillion Tax Cuts and Jobs Act passed in 2017, Opportunity Zones provide tax advantages for investors who put money into areas of the country designated as economically distressed. The program has been touted by the Trump administration as a key way to address racial inequality.
Scott outlined what he described as the “two pillars” of opportunity zones: the ability to invest in real estate in these areas as well as in businesses there.
But this balance within the program has come under its share of criticism, including from President-elect Biden who has previously said that some opportunity zones have let rich investors take advantage of the real estate tax provisions without helping poorer Americans.
Brett Theodos, a senior fellow at the Urban Institute, recently co-authored a report that found only 4% of qualified opportunity funds were focused on investments into operating businesses. Theodos said the program has failed to push significant cash to support businesses, but “this is not for want of the Trump administration trying; it really is because of some of the underlying elements of the incentive.”
Scott expressed an openness to changes to the program that may help push more money into that “second pillar.”
‘I don’t know what I don’t know’
Zeb Portanova, CEO of the GEM Opportunity Zone Fund, helped get the South Carolina project off the ground both by finding investors and then pairing them with the Hampton county project.
“I don’t know what I don’t know,” he said in an interview about what he expected in 2021 from the Biden administration. “Any time you have an administration change, different priorities, different policies float to the top.”
And whether Congress implements changes to how Opportunity Zones run, the Treasury Department has quite a bit of discretion in how it oversees the program.
During his presidential campaign, Biden said that the Opportunity Zone program had promise but he criticized loopholes that “allow billionaires to exploit Opportunity Zones tax breaks to pad their wealth” and promised reforms once he takes office.
Scott said he’s open to discussing changes, specifically the certification process for qualified Opportunity Zone funds and their donors.
“I'd be open to seeing a longer due diligence or fund creation establishment before you have to invest dollars,” he said, noting that it’s “a very important balancing act” between greater oversight and being able to attract investors.
Theodos described the current system as “a check-the-box self-certification process” where potential funds have to submit a form without minimal requirements around fraud, waste and abuse.
“If a Yellen Treasury introduces requirements around who is eligible to make these investments, that is, or at least could be, a game changer,” he said.
‘We need more marketing’
Portanova said a critical element of his South Carolina project was the group of mission-driven investors behind it. “Our investor set is looking for impact as well as a return on investment,” he said.
Scott said finding more of these types of investors is the key to the program going forward.
“We need more marketing, more strategizing with people with good intent,” he said. Scott also highlighted that younger millennial investors are particularly interested in mission-driven investments and could be willing to accept a somewhat “smaller profit in order to do more good.”
Scott, who is not yet taken to calling Biden the President-elect, said “it's hard to see what will happen if the administration changes.”
“I'll have direct questions for whoever the next head of Treasury is,” he said.
Ben Werschkul is a writer and producer for Yahoo Finance in Washington, DC.