Dorothy Brown

Professor Deanna S. Newton’s article, Closing the Opportunity Gap, is an example of the best of legal scholarship, one which provides a thorough critique of a well-known problem, but also engages with unique policy prescriptions designed to actually make a difference. The article discusses Opportunity Zones, introduced by the Tax Cuts and Jobs Act of 2017 and designed to “encourage investment in economically distressed areas by offering investors tax benefits.” (P. 1161.)

Professor Newton begins by acknowledging the most frequent critique of Opportunity Zones, namely “that most benefits from Opportunity Zone legislation go to wealthy investors rather than the residents within Opportunity Zones.” (P. 1161.) Her Introduction includes an anecdote about how then-Florida Governor Rick Scott designated a West Palm Beach area “that houses $100 million superyachts” as an Opportunity Zone area, but left behind “three low-income areas” because they did not receive such a designation. (P. 1162.)

Professor Newton describes clearly the tax game that is being played. If an investor profits $40 million from selling a business in 2018, and the $40 million gain is a capital gain, and the investor might be liable for $8 million in taxes. However, if the investor takes the $40 million gain and instead invests it in an Opportunity Fund (an investment vehicle to directly contribute capital to Opportunity Zones on the investor’s behalf) the investor could delay paying the $8 million in tax. If the investor keeps the Opportunity Fund investment for at least ten years, the investor won’t have to pay any tax on the difference between the purchase and sale prices for the assets originally invested in the Opportunity Fund. (P. 1163; Pp. 1173-75.)

The goal was for the Opportunity Fund to create benefits for marginalized communities. As Professor Newton tells us, “Unfortunately, Opportunity Zones have failed to meet this goal.” (P. 1163.) Opportunity Zones have contributed to gentrifying communities because they do not require residential retention or affordable housing programs. As Professor Newton deftly describes, when a community is undergoing gentrification, the community attracts new businesses and new people, which inevitably lead to higher land values and housing prices that existing residents cannot afford, with the result that existing residents are “ultimately… displaced.” (P. 1164.)

She points out the connection between Opportunity Zones and NFL Stadiums. For example, fifteen out of thirty NFL stadiums are located with Opportunity Zones, with three others next to Opportunity Zones. This allows NFL teams, stadium owners, and others the opportunity to invest in hotels, retail property, or mixed-use projects around the stadium, and receive tax breaks, all the while buying out community members and existing businesses, and pushing out others as property values increase. (And as we learned through Pro Publica reporting, sports team owners already pay low tax rates.)

Professor Newton points out that much of the scholarship addressing Opportunity Zones, with which she deeply engages, argues for their repeal. (Pp. 1176-80.) I have to admit, I was sympathetic towards much of that scholarship before reading Professor Newton’s article. She has made me re-evaluate my abolitionist mindset towards Opportunity Zones and similar tax credits. As Professor Newton describes her position, she “argues for a set of reforms that will make good on legislators’ and supporters’ good faith conviction that the Opportunity Zone program can benefit communities.” (P. 1165.) She argues for a framework that applies best practices and principles from community development scholarship, which insists “on active and direct participation by both community members and investors.” (P. 1165, emphasis in original.)

Professor Newton argues that Opportunity Zone incentives currently do not recognize the value of existing assets already in the community and do not engage the community and investors. She advocates for an interdisciplinary approach, and proposes two intriguing reforms: (i) first, that investors should be required to make a one-time “buy-in” or pay an “initiation fee” (P. 1202); and (ii) second, that a percentage of each Opportunity Zone should be reserved for current community members to invest in, which they will be able to do because the amount of the “buy-in” would be allocated to the community members and would fund their investment. She discusses the practicalities of how the amount of the buy-in should be determined (Pp. 1206-09); how the community fund should be managed (Pp. 1209-11); and how community members can accumulate assets through this approach (P. 1211-20.)

Professor Newton concludes by once again arguing that Opportunity Zones should be reformed based on community development principles. It is an argument with the potential to transform marginalized communities. “Opportunity Zone reform must include participation by investors and community members in the decision-making process, in program implementation, and in benefit sharing.” (P. 1221.) But the truly radical nature of her argument is how she envisions a future where existing community members financially and socially benefit from Opportunity Zones. Here’s hoping that Professor Newton’s vision materializes in the not-too-distant future.