New tax law can aid areas in need
Federal program offers development incentives
SACRAMENTO — Three million Californians living in low-income areas across the state could see an infusion of private development dollars in their communities — including in nine San Francisco spots — under a littleknown federal tax-incentive program.
The Opportunity Zone program included in last year’s GOP tax reform bill calls for states to designate U.S. census tracts with high poverty that would benefit from private investment. To lure investors, the program offers a significant advantage: They could defer or eliminate their federal capital gains taxes on any projects in those areas.
On Friday, Gov. Jerry Brown released a list and map of 798 census tracts across California that he says should be considered as Opportunity Zones. Nine locations encompassing 11 tracts are in San Francisco: at Treasure Island, Alcatraz, Angel Island, Chinatown, Visitacion Valley area, Mid-Market/Tenderloin, South of Market, Bayview-Hunters Point and around San Francisco State University.
Additionally, in the Bay Area, large swaths of Oakland, Richmond and Vallejo are being recommended, as well as parts of Marin City, Redwood City, Hayward and San Jose.
“We hope this spurs or encourages more economic development in areas that historically or traditionally haven’t seen the kind of investments in business development and job creation that other parts of the state have been able to enjoy,” said H.D. Palmer, a spokesman for the state Department of Finance.
The governor has opened his plan to local governments, residents and businesses and will take comment until March 15. Then California would submit its recommendations to the U.S. Treasury Department, which gives final approval for inclusion in the program.
Under the federal program, Brown can designate up to 879 census tracts to the Opportunity Zone program. Additional areas are expected to be added during the public review.
Census tracts typically include around 4,000 people, meaning some areas of San Francisco that are being considered encompass just a few blocks.
There is no timing yet on when the program would launch, but it could be as early as this fall. Palmer said it’s unclear what if any role California would have in the program beyond designating the areas that would attract private investors with federal tax incentives.
The concept of the program is not new and has been pushed in bipartisan fashion for decades with mixed results, said Adam Looney, a senior fellow in economic studies at the Brookings Institution. Looney said the program as currently created has few strings attached on developers, who would receive a windfall in the form of tax subsidies for building in areas they may have already been looking at, such as low-income neighborhoods bordering affluent ones. He said that creates the potential for accelerating gentrification, an issue particularly troubling in the Bay Area where rising home and rent prices have pushed out residents.
That makes the impact on residents of low-income communities unclear, he said.
“You don’t know when a neighborhood gentrifies whether the current residents share in the new opportunities or they are forced to live elsewhere when rents increase,” Looney said.
He said census tract data often put college campuses into low-income designations because students and graduate students are counted as poor. Under Brown’s recommendation, half of the Stanford campus in affluent Palo Alto is designated as a lowincome area included as an Opportunity Zone.
“That seems like almost a loophole in the designation,” Looney said.
Opportunity Zones have been pushed by the think tank Economic Innovation Group and its chairman, Sean Parker, the co-founder of Napster and first president of Facebook, who has said the program allows investors to make a positive impact on low-income communities while earning a profit.
John Lettieri, the senior director for policy and strategy at the Economic Innovation Group, said the program brings the economic recovery to areas that have not yet experienced it.
“One of the most common themes in areas that are struggling is a declining stock of businesses and with that comes a loss of jobs and resources to pull themselves out of the decline,” Lettieri said.
Concerns about gentrification “are coming from the right place,” Lettieri said, but mayors and governors can ensure local and state zoning laws direct investments to areas that benefit communities.
In California, he said, that could mean affordable housing projects.
“This is coming at a time when they need to fill the gap and this will help,” he said.