A recent Business Journal story examined Opportunity Zones, a new program created in the 2017 Tax Cut and Jobs Act. Opportunity Zones are low-income census tracts where groups or individuals can receive tax breaks for investing in the area. Because the legislation is so new, there aren’t any data available to see how the program will actually be used. Even in the Journal’s write up, they allowed for unintended consequences:
Some economists and policymakers caution that the law’s loose language is ripe to be gamed or at the very least exploited outside the spirit of the program’s intent. Concerns about gentrification and the displacement of poor, minority neighborhoods in the name of economic development are legitimate, they say, and probably will play out in unexpected ways, should the program work as designed.
Later in the piece we learn the Kansas City Opportunity Zone Coalition is being “spearheaded” by the Greater Kansas City Chamber of Commerce. It is not a surprise that the chamber would be involved, but anyone familiar with their role in city and state economic development policy knows this isn’t necessarily a good sign the program won’t be gamed or exploited.
The Heritage Foundation recently published a piece on Opportunity Zones, and they remain skeptical:
Academic and government studies show that past place-based development experiments often failed to yield promised employment gains or advance general economic opportunity for targeted residents. Even in cases where place-based policies induce greater investment within the targeted zone, the favored businesses gain an unfair advantage over competitors elsewhere. Often, new investments simply represent a shift in capital away from other investment opportunities outside the zone’s boundaries. In those instances where place-based policies draw capital away from more productive investments, they can result in net economic losses of jobs and income.
Incentives lavished on downtown Kansas City are a perfect example of the failed promises of place-based development incentives. A great deal of tax dollars have been spent just to redirect investment; little if any new economic activity has occurred citywide. That’s not to say that governments are powerless. But the power they wield is often negative. They can do the most good by simply getting out of the way, as the Heritage piece notes:
The economic literature, however, does offer a positive vision for helping distressed communities access economic opportunity. Lifting government-imposed barriers to work, housing supply, and education choice can expand economic mobility and opportunity. In stark contrast, top-down federal incentives can unintentionally reward failing state and local policies by masking the need for reform. Paired with removing government-imposed barriers to success, broadly applied tax reforms that reduce taxes on investment for everyone can help lift struggling communities out of poverty.
Pundits and policymakers, like former Kansas City Star columnist Steve Rose pictured above, have for too long said they don’t care what the research reveals. That is unfortunate, because good public policy demands that we pay attention to successes and failures here and elsewhere.