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Blog Post | November 19, 2019

Committee on Ways and Means Must Investigate Opportunity Zones

Congressional Oversight

Lawmakers sold opportunity zones as a solution for this country’s poorest communities but, two years into the program, that claim does not seem to be holding up. Rather than infusing poor communities with much-needed cash, it seems that many zones are padding the already bursting pockets of some of the country’s wealthiest individuals. No story has better embodied the mismatch between the program’s intent and actual outcome than ProPublica’s report, out last week, detailing how a luxury apartment development in a superyacht marina came to qualify for the tax break.

While this example is particularly absurd, a growing body of reporting shows that it is not a unique case. Just how widespread the misconduct is, however, remains a mystery. Due to the program’s lack of reporting requirements, it is impossible for journalists, academics, and even many lawmakers to move beyond examining isolated incidents to fully assess the tax credit’s efficacy. Luckily, there is at least one entity with the power to get these answers: the House Committee on Ways and Means. With jurisdiction over tax policy and the power to issue subpoenas, Ways and Means is uniquely positioned to conduct a broad investigation of the opportunity zone program. It must do so immediately.

Questions about opportunity zones’ efficacy have been swirling since the program’s inception. Chief among many onlookers’ concerns was the lack of investment criteria or even reporting requirements. According to the law’s architects, this wasn’t a mistake; a similar program established in the 1990s that created “empowerment zones” was said to have failed, at least in part, because investors found the program requirements to be too burdensome. But without criteria, there’s no way to measure if qualifying investments actually help the low-income communities for which the program was supposedly designed. And with no reporting requirements, the public has no way of determining if they do.

As program implementation has progressed, new concerns have arisen. First, there was the designation of eligible census tracts. When Treasury released its list of eligible zones, some pointed out that it included many areas that hardly seemed to be struggling. That included, for example, many college towns and neighborhoods for which income statistics are artificially deflated — thanks to the large share of non-income-earning students — but which are often quite affluent.

Many also questioned the Treasury Department’s decision to allow pre-existing investments to qualify for the tax break. Opportunity zones’ purported purpose was to attract new investment to downtrodden areas, not to subsidize or reward those investments that have already been made.

In other words, serious questions relating to both design and implementation have existed for some time. That should have been enough to convince Representative Richard Neal (D-MA), chair of the Ways and Means committee, to open an investigation. It is the responsibility of Congress to not only write the laws, but to ensure that they are effectively implemented and to continually assess their efficacy at addressing the problems they were designed to combat. With questions swirling about opportunity zones, it falls to Neal and his committee to find answers. As early as this January, we insisted that they do so, but our calls went unheeded.

In the last few weeks, however, the ground has started to shift. A recent round of reporting has made clear that this is not only a story of imperfect tax policy, but also one of corruption. According to reporting from ProPublica and the New York Times, billionaires and Trump donors Dan Gilbert and Michael Milken both used their connections within the administration to have census tracts in which they held investments made eligible for the program, despite those tracts not meeting the standard eligibility requirements.

After leaning on Trump administration officials to get their way, several of these wealthy individuals went on to pressure state officials as well. Governors were ultimately responsible for selecting the opportunity zones from the Treasury Department’s list. Individuals like Gilbert and superyacht marina owner Wayne Huizenga Jr. successfully lobbied for their preferred tracts to be included. It also appears that several state executives, including then-Florida governor Rick Scott, may have independently used opportunity zone-designations to reward wealthy backers.

These reports of corruption at both the state and federal level make abundantly clear that lawmakers need to take a second look at opportunity zones’ structure and implementation. Many are taking steps in that direction. At the end of last month, Senator Cory Booker (D-NJ) and Representatives Emanuel Cleaver (D-MO) and Ron Kind (D-WI) requested that the Treasury Department Acting Inspector General, Richard Delmar, open an investigation into the  opportunity zone selection process. Others have introduced new legislation to fix some of these problems. Senator Ron Wyden (D-OR) has proposed stripping many of the wealthiest zones of their designations and instituting stricter investment criteria, while others have put forward more modest proposals to establish public reporting requirements for those taking advantage of the program.

Even Neal  has taken some action. Earlier this month he joined Wyden in requesting documents from the Treasury Department and the Internal Revenue Service (IRS) relating to a Nevada opportunity zone that is home to a Michael Milken-owned industrial park. This small step pales, however, in comparison to what Neal could be doing.

First, by now it should be clear to all House Democrats that the time for polite document requests has passed. Over the last 10 months, administration officials have routinely ignored these requests and refused to give testimony. House lawmakers should dispense with the niceties and the needless delays by moving straight to issuing subpoenas for documents and testimony. As the chair of Ways and Means, Neal has the power to subpoena Mnuchin, IRS Commissioner Rettig, other tax officials, and private individuals to obtain their records and testimony. He should not waste any time in doing so.

Second, while Treasury’s behavior with regards to Milken is undoubtedly deserving of more scrutiny, it is far from the only opportunity zone-related issue requiring investigation. It is, as outlined above, not even the only case in which an ultra-wealthy individual used his connections in the administration to access the tax benefit. Ways and Means should also investigate how Gilbert, Huizenga, Jeff Vinik, Stephen Ross, and Jorge Perez came to be eligible for the program.

It is important, however, that Ways and Means not only examine these flashier cases of misconduct but also consider the structural problems of the program’s design and implementation. How did the program lend itself to exploitation and corruption by wealthy interests? How might that be changed? To what degree will the investments in opportunity zones (as currently designed) plausibly serve low-income communities? How could they be made to fulfill that stated intent?

This is not a radical proposal. Oversight is a central component of Congress’ duty to govern and essential to good policymaking. In order to fix a problem, lawmakers must first understand it. Thus, a Ways and Means committee investigation is a crucial prerequisite to addressing the problems (known and, hopefully, soon-to-be-known) with opportunity zones.

But that’s not all. A congressional investigation would also give the public access to consequential information that was previously opaque. Because lawmakers did not include any public reporting requirements in the program, the public only knows about a fraction of qualifying opportunity zone investments. This makes it impossible for journalists, researchers, and members of the general public to assess how well the program is working. Chances are slim that lawmakers will succeed in rectifying that problem in this Congress, but the Ways and Means committee has the power to make relevant information available to the public now.

Of course, Neal has hardly shown a great deal of enthusiasm for oversight. What should have been a straightforward task — requesting Trump’s tax returns — turned into a six-month affair in his reluctant hands. Nonetheless, it is still not too late to set the ship on a new course. With mounting evidence of opportunity zones’ corruption, now is the perfect time for Neal to intervene.

Congressional Oversight

More articles by Eleanor Eagan

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