Stealing a post title from 2011, Slabbed is going to tell you the story you won’t hear in the local media about the new Opportunity Zones, which made the news this past week locally. For those so interested in catching up, the Sea Coast Echo ran this press release based account of the Hancock County designation along with a picture of the smiling Bill Cork of Hancock County Port and Harbor Commission. Likewise WLOX ran a similar story plus acted the part of cheerleader in an editorial which was completely devoid of substance. But first here is the reaction from our local politicos as recounted by those media outlets linked above:
Blaine LaFontaine, president of the Hancock County Board of Supervisors, said, “We are grateful not one, but two census tracts in Hancock County were selected for this opportunity. We hope that private investment and incentives will help provide long-term investments to decrease poverty and increase per capita incomes in our community.”
Here LaFontaine correctly repeats the theory behind the program as did Bill Cork in his remarks. Here is some more reaction:
Waveland Mayor Mike Smith said, “Waveland is very excited to be a part of the opportunity zone which offers tax relief to investors. It will be the shot in the arm that our community needs to spur development and create very needed jobs.”
Glenn McCullough Jr., executive director of the Mississippi Development Authority, said global companies know the advantages of the state’s productive workforce coupled with our superior business climate. “By adding Qualified Opportunity Zones, investing in Mississippi becomes an even more logical business decision for companies looking to locate or expand in our state,” he said.
As we read those last two remarks everyone began to giggle behind the scenes here at Slabbed. Here in Mississippi the MDA is more well known for its multi-million dollar boondoggles and by linking the tax relief Opportunity Zones offers investors with job creation both Mayor Smith and McCullough stepped out in a big way because there is no such linkage between jobs and investment in the program. In fact one naturally wonders if Mayor Smith actually saw the map of the designated area because Waveland was largely EXCLUDED from it. Here is a screen capture of the map of the local Opportunity Zone area:
What was included is what is interesting because some of the most expensive, rapidly developing real estate in the entire state, Old Town Bay St Louis was included. Locals will tell you this is the part of town that has money and this made everyone scratch their heads. Waveland by way of example has been trying to spur redevelopment of Coleman Avenue since 2006, only to see that City’s downtown area remain stagnant with just a few business re-opening.
So with a critical eye I began to google this feature of the new tax law passed last year and what I found confirmed my instincts that this program, at least in its incarnation in Mississippi is nothing more than a government handout to the politically connected. Here the politically right leaning (but otherwise nonpartisan) Brookings Institution was an invaluable resource:
States are fast approaching a deadline set by the new tax law to designate low-income neighborhoods as “Opportunity Zones”—a designation that will unlock favorable capital gains treatment for investments in those areas. Supporters say this will help revitalize distressed communities, but there is a risk that instead of helping residents of poor neighborhoods, the tax break will end up displacing them or simply provide benefits to developers investing in already-gentrifying areas.
Looney hits on the key difference between the old tax codes zones such as the Empowerment Zones and Gulf Opportunity Zones, whose focus was directly on maintaining existing and creating new jobs and rewarding the taxpayers that did so. The new Opportunity Zone is geared to investment development, not job creation and while those two concepts are not mutually exclusive they are far from synonymous. Let’s continue with Looney’s February setup piece which I highly recommend everyone read in total:
Unfortunately, the evidence on the benefits of existing place-based policies is inconclusive. To understand whether Opportunity Zones are effective—and worth extending when key benefits come up for renewal as soon as next year—states have only a short window to act to incorporate evaluation mechanisms into their selection process. States and the District of Columbia must select qualified neighborhoods for Treasury’s approval by March 21. Only one in four low-income areas in any state can be designated as an Opportunity Zone, so states must reject more neighborhoods than they select. This is a perfect opportunity to build in a rigorous comparison of places that made the cut to those that did not, to see whether the program helps residents of low-income communities, which elements are effective, and whether it should be renewed.
So the first question to solve is to identify the winners and losers. The second question becomes how those winners and losers were determined. Here in Mississippi, America’s most corrupt state the $econd que$tion i$ key becau$e the Governor’$ de$ignation create$ geographic winner$ and loser$. Here is a last snippet from Looney’s first article on this subject:
In an optimistic scenario, the tax benefits might encourage purchasing and rehabilitating residential property or expanding local businesses. But the value of the tax subsidy is ultimately dependent on rising property values, rising rents, and higher business profitability. That means a state’s Opportunity Zones could also serve as a subsidy for displacing local residents in favor of higher-income professionals and the businesses that cater to them—a subsidy for gentrification. Indeed, the highest returns to investors, and thus the largest tax subsidies will flow to those investing in the fastest gentrifying areas. Most major metropolitan areas are already grappling with the right balance between promoting development and helping existing residents. Opportunity Zones favor one side of that balance. With few guardrails that might promote so-called “smart gentrification”—policies to retain local residents and preserve or expand low- and middle-income housing—it is uncertain whether poor residents will benefit or be kicked out.
By including Old Town Bay St Louis in the designated opportunity zone area Governor Bryant picked an area undergoing rapid gentrification that needed no other help attracting investment. Between businessmen extraordinaire Mike Cure and Jim MacPhaille Old Town was already rapidly redeveloping which is why including it in the Opportunity Zone over an area that needs investment in Waveland’s Coleman Avenue is such a head scratcher. Luckily for everyone Adam Looney remained on the case and just a few weeks ago analyzed some preliminary data, which included Mississippi along with 17 other states.
And what did Looney find?
Looking at the 18 states that have submitted, the good news is that most states designated deeply impoverished places for the new subsidy, with Georgia and California standing out for allocating most of their picks to their most distressed neighborhoods.
What about Mississippi?
But in South Dakota, Idaho, and Mississippi, neighborhoods designated as OZs were actually better off, on average, than eligible communities that were not selected. In Mississippi, in particular, the state selected tracts that had lower average poverty and child-poverty rates, were better educated, and had smaller minority populations than the low-income areas they skipped over.
The political connection between those currently developing real estate in Old Town Bay St Louis and Governor Bryant has been very well documented on these pages. Based on what Brookings has found already I suspect there are politically connected winners in each of the areas designated by Governor Bryant as Opportunity Zones. Meantime areas that truly need help just a few miles away from the most wealthy part of Bay St Louis go without any tax help.
File this one under more government handouts to the wealthy, because in Mi$$i$$ippi politic$ trump$ need every time. I personally wouldn’t look for these new fangled OZs to do much more than increase the national debt.