Tax breaks for projects in poor areas could double in Wisconsin
A program that provides big tax breaks for developments targeting poor neighborhoods would be doubled in Wisconsin under a new state proposal.
But opponents say some of those targeted areas, including one on downtown Milwaukee’s northern edge, don’t need tax breaks to encourage development.
A bill pending in the state Legislature focuses on Opportunity Zones, a federal program created by 2017 tax cut legislation approved by a Republican-led Congress and signed by President Donald Trump.
It is supposed to provide capital gains tax relief for long-term investments in distressed communities.
But the program, which took effect in 2018, has been criticized for drawing investments to neighborhoods that aren’t truly poor.
“The preliminary evidence in our state and elsewhere suggests that the current tax incentives are not well targeted, may cause gentrification, and are primarily benefiting the very wealthy,” said Jon Peacock, project director at the Wisconsin Budget Project.
Peacock made his remarks at a recent Senate committee hearing on the legislation, known as Senate Bill 440. His group focuses on state budget and tax issues, particularly those relating to low- and moderate-income families.
Among those speaking in support were Michael Welsh, legislative affairs director for the Wisconsin Economic Development Association. It represents over 425 public and private sector economic development professionals statewide.
“The legislation will encourage Wisconsin investors to keep their investment dollars in Wisconsin, funneling much-needed capital to communities in both rural and urban parts of the state,” Welsh said.
“It could also play a significant role in driving the development of much-needed workforce housing,” he said.
Wisconsin has 120 Opportunity Zones, which are based on census tracts with higher unemployment and lower incomes.
Under the program, an Opportunity Zone investor defers paying federal income tax on capital gains until that investment is sold — or no later than the end of 2026.
At that time, the capital gains tax bill is reduced by 10% if the investment was held for at least five years, or 15% if held
for at least seven years.
If the investment was held for at least 10 years, none of its earnings are taxed, according to the Legislative Reference Bureau.
The Legislature in 2018 added those federal provisions to Wisconsin’s tax code – allowing Opportunity Zone investors to also defer and reduce their state income taxes.
Under the new bill, an investor can exclude an additional 10% of state capital gains tax if the investment in a Wisconsin Opportunity Zone fund is held for at least five years, or an additional 15% if held for at least seven years.
The bill is sponsored by both Democratic and Republican legislators.
Its supporters include Associated Builders and Contractors of Wisconsin Inc., League of Wisconsin Municipalities and Wisconsin Realtors Association.
Opportunity Zones have both liberal and conservative critics.
The program’s eligibility and oversight requirements are minimal compared with other federal community development tools, according to a September report from the Urban Institute, a Washington-based social and economic policy research organization.
Also, some Opportunity Zones, including one on downtown Milwaukee’s northern edge, are seen as being in areas that are already improving and don’t need tax breaks.
That downtown zone includes the site for the proposed Convent Hill South, a high-rise that would blend market-rate units with apartments set aside for lower-income people. It’s planned for 1345 N. Jefferson St. and would be developed by an affiliate of the Milwaukee Housing Authority.
Other Milwaukee-area developments that fall within Opportunity Zones include Komatsu Mining Corp.’s future corporate campus. It’s being developed at the end of East Greenfield Avenue, in the Harbor District.