A federal tax break outwardly designed to benefit low-income areas is being used in Champaign to build more student housing in a market that already is oversaturated.
The “opportunity zone” concept was part of the 2017 Republican tax cut law and was supposed to stimulate job creation and investment in depressed areas.
U.S. Rep. Rodney Davis, R-Taylorville, praised the opportunity zones idea last year, boasting at the time the Treasury Department designated 23 opportunity zones in his congressional district that the zones would “continue to spur economic investment in areas that need it most.”
But that’s not what is happening in low-income areas of Champaign County.
Instead, the area of investment is near the University of Illinois, where the Campustown Opportunity Zone Fund I is building three more apartment buildings at 32 E. Green St. (164 beds), 105 E. Healey St. (76 apartments) and 54 E. John St. (68 beds).
A prospective for the Campustown Fund noted that the tax law “intends to serve as a catalyst for economic investment in low-income and under-developed communities by offering preferential tax treatment for capital gains invested in a Qualified Opportunity Fund.”
But a partner in the Campustown Fund acknowledged it won’t do anything for low-income communities.
“These projects are really not serving that purpose unfortunately,” said Ryan Tobias at Jackson Dearborn, a real estate investment and development company that focuses on multifamily and student housing and is one of three collaborators in the Campustown Fund, along with Sub4 Development and Green Street Realty.
But they will give tax breaks to those who invested in the fund, so much so that the fund that had a goal of raising $10 million was oversubscribed, Tobias said.
Meanwhile, the apartments will go up at the same time other Campustown apartment complexes seek reductions in their property tax assessments because of high vacancy rates.
None of this is a surprise to Michelle Layser, an assistant professor of law at the University of Illinois who specializes in tax law and social policy. She predicted earlier this year that opportunity zones wouldn’t do much for the poor.
In a piece in Crain’s Chicago Business, she wrote that they are “poised to become the latest — and most devastating chapter in the history of tax incentives that target poor neighborhoods but leave communities behind.”
The tax law that created the opportunity zones included tax incentives for investors in the fund but didn’t include any requirement that they benefit low-income people — even though that supposedly was one goal of the plan.
“You have a law that is designed without any sort of safeguards or restrictions on the types of investments that are ultimately going to be qualifying. There’s no oversight in any meaningful way,” Layser said. “This is very different from prior programs that had federal oversight from federal departments that specialized in low-income communities and played an active role in reviewing the projects being proposed and learning about the areas. Opportunity zones doesn’t have anything like that.”
Campustown, she said, is “nominally low-income” only because it is filled with students who, for the most part, don’t have full-time jobs.
“It’s not what most of us would think of as a way to benefit low-income populations. But the law was written in this way,” Layser said. “There’s nothing that requires opportunity funds to have any pro-social mission whatsoever. As long as they are making qualifying property investments in the correct locations that have been approved as opportunity zones, it’s a go.”
The opportunity zones weren’t designated by local government officials but by the governor’s office of each state (at the time the office of Illinois Gov. Bruce Rauner) from a list compiled using U.S. Treasury guidelines. There are 327 designated opportunity zones in Illinois but fewer than 10 funds specifically investing in the state, according to a list compiled by the National Council of State Housing Agencies.
“There’s no restriction on the type of investment that can be made, the type of property that will qualify,” Layser said. “The research that I’ve done on this suggests that there aren’t a lot of projects that are going to be funded in the opportunity zones that you would think of as beneficial to low-income populations. The law is not structured like that.
“When you set up the law where the biggest payoff is going to come for those who have made profitable investments and then you don’t require the investors to adopt any sort of pro-social mission, you don’t involve the government in any way in actively vetting projects as they’re being proposed, and you draft the legislation so broadly that anything qualifies as long as you’ve purchased property in the right place, what do you expect to see?”
Tobias of Jackson Dearborn said the investment partnership has projects in the planning stages “in a number of communities” around the country that could benefit low-income communities.
“Some of these properties are in areas in need of investment and will hopefully be a catalyst for the neighborhoods where they are located,” he said.
That’s what Davis pledged when he endorsed the Trump administration’s opportunity zone idea.
“During the recession, many of our rural communities were hit the hardest and have been the slowest to recover. The tax-free, private investments that will be a result of these opportunity zones will help create jobs and grow these communities,” the Taylorville Republican said. “We’ve only just started to see the benefits from tax reform and because of provisions like this, we will continue to see tax reform help Americans at all income levels.”
That’s especially true, it seems, for high-income communities.
Tom Kacich’s column appears Sundays in The News-Gazette. He can be reached at email@example.com.