Policy Document: Urban Renewal for the rich – the Opportunity Zone scam


According to the IRS, “An Opportunity Zone is an economically-distressed community where new investments, under certain conditions, may be eligible for preferential tax treatment.” “Opportunity Zones are an economic development tool—that is, they are designed to spur economic development and job creation in distressed communities.”

So you know, according to our state government, which designated Colorado’s Opportunity Zones, the area in Boulder between 28th Street and 55th, from Arapahoe to Iris, is a “distressed community.” And we’re not the only one to have such a bizarre designation. Parts of Fort Collins, Estes Park, and Grand Junction are now OZs. But there are some rural parts of the state included that at least might be genuinely in need.

Investing in an OZ gets you some incredibly beneficial tax breaks. If you stay in the deal for 10 years, you pay no Federal capital gains tax on any profit you make in the deal. (Plus, you get to avoid 15% of the capital gains tax on whatever you sold to generate the cash to make the investment.) A quick calculation shows that investing in an OZ could double the rate of return on investments, so these are hugely beneficial – to the investors. So investors will look for whatever are the most profitable deals, both in terms of which OZs and which specific properties within a given OZ to invest in, exactly the opposite of what is needed to actually help the parts of truly distressed communities that most need investment

No surprise, unlike the old and apparently old-fashioned “urban renewal” projects of yore, local communities have no say as to whether or where such investments are made. So whatever public benefits might be realized will only be a result of happy accidents. But of course, the OZ scam was not created to really help those in need of help, but to benefit those who already are well off by helping them avoid paying taxes.

Once the Trump tax cut passed in December, 2017, inevitably the states worked to create as many OZs as they could. Already some 8,700 OZs have been designated. So investors have plenty of opportunity to look for the best deals – for them. To actually invest you have to go through a “Qualified Opportunity Fund”, which will take its own cut. So the big money folks (investment funds, big developers, etc.) are getting in the deal. And they are generally not interested in small fry, so it’s likely that most of the money will come from, and most of the tax benefit will go to, the rich and ultra-rich. Also, property owners will want their piece of this extra profit, so property prices and then property taxes will go up.

These tax shelters decrease the Federal government’s revenue, which increases the Federal debt, now at the highest debt-to-GDP ratio since the end of World War II. And we are all on the hook for it. Of course the OZ fiasco is not the only such scandal. In June, the Colorado Economic Development Commission approved $2.9 million worth of tax breaks – over $10,000 per employee – so that a German fitness equipment maker would locate in Boulder. Thanks for wasting my tax money.

Coming back to Boulder, the OZ mess really accentuates the need to do some fast revisions to what types of new development we allow in our absurd OZ, which encompasses most of east Boulder. Boulder clearly does not need more jobs, which just create more pressure on housing prices and increase in-commuting traffic. But because we have no control over the use of the OZ scam, we have to do some serious re-zoning and do it fast! The recently proposed conversion of Macy’s in 29th to 150,000 sq. ft. of office space, using the OZ profiteering scam, is case in point.

I have heard it argued that the Diagonal Plaza is one place where the OZ designation might help. But the issue there is not that there is no money, but that the diffuse ownership structure has made it impossible to organize.

I should point out at this point that Boulder does NOT have a Transportation Master Plan that actually will limit the traffic growth from OZs to any meaningful extent. Any number of good approaches that could be implemented, but for whatever reason, this effort has been stalled for years, just like our planning efforts to rein in our excessive job growth.

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