Three bills recently introduced in Congress would tighten the statute that created Opportunity Zones (OZs). The three combined would limit the OZ tax benefit associated with any housing projects to those occupied by either very-low or extremely low-income residents, remove census tracts that are not low-income from OZs, require advisory boards appointed by local elected officials, and require some diversity in investment. A fourth bill (H.R. 5252), introduced by Representative Rashida Tlaib (D-MI) on November 22, would repeal the provision in the Internal Revenue Code authorizing OZs.
Senator Ron Wyden (D-OR) introduced the “Opportunity Zone Reporting and Reform Act” (S. 2787) on November 6, along with two cosponsors, Senators Michael Bennet (D-CO) and Angus King (I-ME). Representative James Clyburn (D-SC) introduced “The Opportunity Zone Reform Act” (H.R. 5042) on November 12, replicating the “reform act” language of S. 2787. Representative Clyburn was joined by four cosponsors, Representatives Alma Adams (D-NC), William Lacy Clay (D-MO), Marcia Fudge (D-OH), and Eleanor Holmes Norton (D-DC
The provisions of S. 2787 and H.R. 5042 most relevant to Memo readers are identical – Section 3 of S. 2787 and Section 2 of H.R. 5042. The bills would redefine the term “low-income community” to exclude any census tract with a median family income exceeding 120% of the national median. (This provision does not apply to Puerto Rico.) Such a census tract could be considered “low-income,” however, if the poverty rate is at least 20%, and if less than 10% of the population is enrolled in an institution of higher learning.
In addition, a census tract would no longer be included as part of an OZ if the tract was not a low-income tract but was included in the OZ because the tract was contiguous to low-income tracts. States will be allowed to replace such “lost” tracts with low-income tracts.
In order for residential rental property to be considered “qualified Opportunity Zone business property,” at least 50% of the units must be rent-restricted and occupied by individuals with incomes less than 50% of the area median income. The bill would also exclude stadiums and self-storage properties.
The other sections of S. 2787 (not included in H.R. 5042) have provisions that would augment reporting requirements to include the value of properties held by “qualified opportunity funds,” the identity of an entity conducting business in an OZ, and information on individuals with investments in a qualified opportunity fund, among others.
Also on November 12, Representative Hank Johnson (D-GA) introduced H.R. 4999, a bill yet to be titled that would require greater fairness, low-income targeting, and diversity in OZ investments. Representatives Bobby Rush (D-IL) and Eleanor Holmes Norton (D-DC) joined him as cosponsors.
H.R. 4999 has three provisions. In order for a fund to be considered a “qualified opportunity fund” (QOF):
- At least 20% of the units in residential rental property claiming OZ tax benefits must be occupied by individuals with incomes less than 30% of the area median income or less than 200% of the poverty level. (Curiously, 200% of the poverty level is greater than 60% of the national median income.)
- The QOF must have an investment advisory board appointed by the local government.
- One of three investment diversity requirements must be met:
- At least 30% of the QOF’s property is in a county or local jurisdiction with a population of 200,000 or less;
- At least 50% of the QOF’s property consists of interests in partnerships and stock of corporations that are small businesses owned and controlled by women or by socially and economically disadvantaged individuals.
- At least 40% of the QOF’s property consists of entities the value of each is less than $20 million and have a price-earnings ratio under five.
Representative Tlaib’s bill, on which Representative Pramila Jayapal (D-WA) is an original co-sponsor, would eliminate OZs altogether.
Opportunity Zones are designed to spur investments in distressed communities through tax benefits to investors. To date, there are no regulatory provisions specifying that investments must benefit low-income people, build affordable housing, employ low-income residents, or protect and support existing local small business. Nor are there protections to prevent the displacement of low-income people as a result of the new investments in the distressed communities (see Memo, 10/22/18).
Advocates have called for rules to ensure Opportunity-Zone investments benefit low-income households (see Memo, 4/22). “Unless the Treasury Department quickly establishes regulatory guardrails,” said NLIHC President and CEO Diane Yentel, “there is no guarantee that low-income people will benefit in any significant way — if at all — from Opportunity Zones."
An unpublished version of S. 2787 is at: https://bit.ly/2XuSAs5
An unpublished version of H.R. 5042 is at: https://bit.ly/2O5JSxp
An unpublished version of H.R. 4999 is at: https://bit.ly/2s2sWiF
An unpublished version of Representative Tlaib’s repeal of OZs is at: https://bit.ly/2XMXReN
Read Representative Tlaib’s press release on her bill at: https://bit.ly/2Odhp8X