Ques­tions linger about uses, ben­e­fits of city de­vel­op­ment zones cre­ated by tax over­haul

Chicago Sun-Times - - TOP NEWS - BY CAR­LOS BALLES­TEROS AND MANNY RAMOS Staff Re­porters Car­los Balles­teros and Manny Ramos are corps mem­bers in Re­port for Amer­ica, a not-for-profit jour­nal­ism pro­gram that aims to bol­ster SunTimes cov­er­age of is­sues af­fect­ing Chicago’s South and West sides

Siri Hib­bler left her na­tive Garfield Park for Cal­i­for­nia in 1986 to pur­sue a ca­reer in cor­po­rate Amer­ica. When she came back three decades later, the neigh­bor­hood she grew up in was un­rec­og­niz­able to her.

What were once rows of sin­gle-fam­ily homes and grey­stones were re­placed with va­cant lots, and much of the neigh­bor­hood’s com­mer­cial dis­trict along Madi­son Av­enue had been hol­lowed out, the 55-year-old said.

Hib­bler set up the Garfield Park Cham­ber of Com­merce in 2016 to help re­vi­tal­ize the com­mu­nity she loves through eco­nomic de­vel­op­ment.

The fed­eral Op­por­tu­nity Zones tax credit, stuffed in the mid­dle of last year’s Tax Cuts and Jobs Act, is sup­posed to help peo­ple like Hib­bler bring blighted com­mu­ni­ties back to life.

Its goal is to mo­ti­vate in­vestors and real es­tate de­vel­op­ers to build hous­ing, com­mer­cial and in­dus­trial projects in im­pov­er­ished and un­der­de­vel­oped ar­eas — “Op­por­tu­nity Zones” — by pro­vid­ing tax breaks on their cap­i­tal gains.

There are 135 Op­por­tu­nity Zones in Chicago spread across the South and West sides. The zones en­com­pass neigh­bor­hoods like Austin, Chatham and Garfield Park.

Hib­bler’s heard about the Op­por­tu­nity Zones, but that’s about it.

“No one even knows how it works,” Hib­bler said. “The fear res­i­dents have is that big de­vel­op­ers are go­ing to come into the neigh­bor­hood be­cause it’s an Op­por­tu­nity Zone and they are go­ing to wake up one day with all the land sold to these peo­ple.”

A re­port re­leased Thurs­day by the Ur­ban In­sti­tute, a non­par­ti­san think tank, out­lines how Chicago can best lever­age the Op­por­tu­nity Zones tax credit to ev­ery­one’s ben­e­fit — de­vel­op­ers, in­vestors, and, most im­por­tantly, long-stand­ing com­mu­nity res­i­dents.

“Only care­ful and co­or­di­nated com­mu­nity ac­tion around Op­por­tu­nity Zones can en­sure that the res­i­dents meant to ben­e­fit from up­graded neigh­bor­hood ser­vices and bet­ter ac­cess to em­ploy­ment are not sim­ply dis­placed to other dis­in­vested ar­eas,” the re­port states.

Some 85 per­cent of res­i­dents in Chicago zones are black and 10 per­cent are His­panic, ac­cord­ing to the re­port. The me­dian house­hold in­come is just over $26,000, and the me­dian home value is $140,000. Nearly 23 per­cent of the hous­ing stock is va­cant, and more than a third of house­holds are se­verely rent bur­dened.

Any­one who in­vests in an Op­por­tu­nity Zone can de­fer taxes on their in­vest­ment un­til the end of 2026 or when they sell their in­vest­ment, which­ever comes first. Cap­i­tal gains in­vested in zone devel­op­ments are tax­ex­empt if they’re held for at least 10 years. The re­port rec­om­mends city of­fi­cials should: ♦ Part­ner with com­mu­nity stake­hold­ers in de­ter­min­ing what kinds of de­vel­op­ment are needed in their neigh­bor­hoods.

♦ Pre­serve af­ford­able hous­ing in zones by iden­ti­fy­ing neigh­bor­hoods most likely to gen­trify.

♦ Layer Op­por­tu­nity Zone projects with lo­cal tax in­cen­tives like tax in­cre­ment fi­nanc­ing.

♦ Add re­port­ing obli­ga­tions from busi­nesses re­ceiv­ing in­vest­ments and who is do­ing the in­vest­ing in an Op­por­tu­nity Zone.

♦ Sell city-owned va­cant land in Op­por­tu­nity Zones only to in­vestors “will­ing to meet spe­cific com­mu­nity needs”

Un­like in other ma­jor cities such as New York and Los An­ge­les, Chicago zones do not over­lap with neigh­bor­hoods gen­tri­fy­ing at a fast rate, said Brett Theo­dos, a re­search as­so­ci­ate at the Ur­ban In­sti­tute and lead au­thor of the re­port.

That means cer­tain in­vestors might ig­nore sev­eral neigh­bor­hoods de­spite them be­ing in­side an Op­por­tu­nity Zone.

“Chicago re­ally picked zones that were not at the brink of gen­tri­fi­ca­tion,” Theo­dos said. “Na­tion­ally, most of the money will go to gen­tri­fy­ing zones, but Chicago might have the op­po­site prob­lem.”

Sev­eral Chicago in­vestors are rush­ing to in­vest in zone projects na­tion­wide. Most no­tably, real es­tate heavy­weight Larry Levy and pri­vate eq­uity in­vestors Avy Stein and Eric Becker of Cres­set Cap­i­tal Man­age­ment an­nounced in Oc­to­ber they’re look­ing to raise $500 mil­lion for zone projects.

For U.S. Rep. Danny Davis, D-Ill., whose dis­trict in­cludes Garfield Park, the zone tax credit is “manna from heaven.”

“I’m very in­ter­ested in these zones, and I ac­tu­ally think they are go­ing to be help­ful in re­de­vel­op­ing de­pressed ar­eas es­pe­cially in in­ner-city ur­ban ar­eas,” Davis said. “A lot of my time, en­ergy and ef­fort is go­ing to spend on try­ing to make use of these zones to re­de­velop real por­tions of my con­gres­sional dis­trict.”

But some stake­hold­ers in Op­por­tu­nity Zone neigh­bor­hoods have lit­tle idea of how they work.

Ald. Wal­ter Bur­nett, Jr. (27th), who has four Op­por­tu­nity Zones in his ward, said fed­eral of­fi­cials haven’t done enough to ex­plain how the pro­gram works.

Bur­nett is be­ing ap­proached by in­vestors with ques­tions about the zones, but he hasn’t been able to an­swer them with con­fi­dence.

“I mostly have been hear­ing about Op­por­tu­nity Zones from de­vel­op­ers, and I haven’t re­ally heard it from any ad­min­is­tra­tion,” Bur­nett said. “I am try­ing to get de­tails so I can learn how to lever­age and use it the best way in my ward.”

Bur­nett said his staff is work­ing to learn more as well as sched­ule a meet­ing with Chicago’s Depart­ment of Plan­ning and De­vel­op­ment for a brief­ing.

“We need to have some­one come and ex­plain it to us,” Bur­nett said.

The Ur­ban In­sti­tute will host a panel dis­cus­sion of the re­port at Mal­colm X Col­lege from 1:30 to 4:30 p.m. on Thurs­day.


The fed­eral Op­por­tu­nity Zones tax credit, stuffed in the mid­dle of last year’s Tax Cuts and Jobs Act, is sup­posed to help bring blighted com­mu­ni­ties back to life.

A va­cant home at 600 N. Pine Ave. in the Austin neigh­bor­hood within a des­ig­nated Op­por­tu­nity Zone.

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