The following story was written by Eric Peterson of The Utah Investigative Journalism Project in partnership with the West View Media.
There’s an old gambler’s expression that “Scared money don’t make no money.” Translation: you can’t win, if you don’t play. In 2017 President Trump created the “opportunity zone” program meant to encourage wealthy investors to roll the dice and bet on riskier investments in poorer, underserved communities that they might otherwise avoid. In return, the investor ups their odds of a profit by gaining lucrative tax breaks.
Since then, numerous reports have come out of how wealthy
investors have learned it’s better to cheat at this new game then play by the
rules. ProPublica reported on how one opportunity zone covered a superyacht marina
in Florida, another benefitted a real-estate development company co-owned by
Trump’s son-in-law, Jared Kushner. Critics say it has been a jackpot for the
wealthy and craps for the distressed communities that were supposed to benefit.
Experts say it’s hard to know if this benefit has helped local,
distressed communities, but in Salt Lake City a cluster of downtown luxury
real-estate developments will likely benefit, so will the Inland Port. Actual
west-side investments are a mixed bag, especially in Poplar Grove, where one
section of the low-income and racially diverse neighborhood was originally on
the list to become a zone, only to get bumped off the list by the Salt Lake
City Mayor’s Office.
Opportunity Knocks
The program allows investors to gain tax breaks by keeping their
investment in an opportunity zone for the long term; if they keep their capital
in a project for 10 years, they will pay zero capital gains tax on that
investment when they cash out.
Capital gains taxes previously could amount for as much as 20% of
an investment, so the program offered a big, juicy zero-percent tax to
investors. At the same time, it would encourage investors to make it rain
venture capital dollars on poor opportunity zone neighborhoods. Win-win right?
James Wood, the Ivory-Boyer Senior Fellow at the Kem Gardner
Policy Institute at the University of Utah, says most of the winning is
happening with real-estate developers and less so with underserved communities.
“I really think it’s had some perverse consequences,” Wood says of
the program. He notes that residential homes circling downtown were low-income
enough to qualify the area for the program – largely to the benefit of luxury
real-estate projects, including six different downtown high-rise projects currently
under construction.
Although, the developer of one of the major downtown projects told
Wood the opportunity zone didn’t make a difference in deciding to pursue the
project, as it was a promising project on its own merits.
Other downtown projects have long been on the books prior to the
opportunity zone program’s rollout in 2017 – the Inland Port has been in
discussion since 2016 and the Convention Center Hotel has been in the works
since 2013.
“It might be some icing on the cake,” Wood says, “But [these
projects] were committed before opportunity zones came into play.” Hence the
perverse consequence: funds going to projects already underway instead of
places that might truly need the boost.
Bumped
Governor Herbert’s office took hundreds of potential opportunity
zones nominated by communities across the state before selecting the final 46
in June 2018. In April 2018, community advocate, Michael Clára, was pleased to
see at an open-house meeting several west-side neighborhoods displayed at the
top of Salt Lake City’s list to be sent to the governor. A few weeks later he
was shocked to see one Poplar Grove tract bumped off that had previously been
in the city’s top five.
“What criteria was used to drop it?” Clara asked in an email to
the governor’s office in May 2018, noting that the Poplar Grove tract was more
distressed than others that were approved. “Who decided that tracts with less
poverty and ethnic minorities would benefit from this program at the expense of
those in Poplar Grove?”
According to Ben Kolendar, the Acting Director of Salt Lake City’s
Department of Economic Development, what happened is that the city offered
their choices, the county rejected two and the state dropped one as well. After
the state’s decision, then Mayor Biskupski wrote to the Governor’s Office and
asked them to reconsider.
Kolendar who worked on the project at the time says it came down
to a tough decision with one of the Poplar Grove tracts being dropped in favor
of securing a North Temple zone instead. The zone that got bumped ran west from
the Jordan River to Redwood Road and from 500 South down to approximately 900
south. This tract was previously number 5 on the city’s priority list.
Kolendar says the city’s approach to the zones was to prioritize
those that had other programs working to their benefits like redevelopment
agency projects in the works to maximize the impact of the zone designation.
“Having multiple tools in your tool belt in certain target areas
is the approach we took,” Kolendar says.
Millions had already been invested into the North Temple corridor
to help develop a housing and transit node, along with $4.5 million invested
into connecting the Legacy trail to the Jordan River trail.
“We were highly interested in the lost [zone] in Poplar Grove,” Kolendar
says, but “that area was speculative based on a future RDA project area rather
than an existing one.”
While the results of the zones are hard to measure, Kolendar says
at least the Granary District is doing well, and benefitting from its zone designation
and developers there he’s talked to say projects are moving forward despite the
pandemic’s effect on the economy.
Councilman Andrew Johnston who represents the Glendale, Poplar
Grove and Fairpark neighborhoods said he didn’t have much input on the Poplar
Grove area getting bumped. He also remembers wondering why the Inland Port
needed the perk of a zone designation over zones like Poplar Grove.
“I don’t know how much more incentive people need to build out
there,” Johnston says of the Northwest Quadrant. “Especially with the Inland
Port having such a massive amount of tax increment [financing] they can use.”
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