Well, maybe not all of them, but it’s certainly the case with opportunity zones (OZs), the urban improvement program that Congress this summer made into a permanent policy fixture. Opportunity zones are a repackaged successor to “empowerment zones,” a program from the Clinton years. Empowerment zones were themselves a refurbishing of “enterprise zones,” an urban revival idea conjured up by Republican congressman Jack Kemp and his conservative allies in the 1980s.
All these ideas have had one crucial thing in common: They are efforts to draw on market forces to stimulate investment and create jobs and prosperity in the corners of the country that need help the most. Enterprise zones were designated areas where corporations would be induced to locate by exempting them from certain local, state and federal taxes and restrictions. Empowerment zones kept most of the earlier provisions but added an employer tax credit for a portion of the wages paid to employees in the zone.
So the promoters of the current opportunity zone scheme had a lot of history to work with when they started a decade ago. For the most part, it wasn’t a very positive history. Neither enterprise zones nor empowerment zones improved the economic life of many zone residents by more than a token amount.
But in the past decade, a determined group of enthusiasts became convinced that the idea could work if they just tweaked it a little bit. The ringleaders were Republican Sen. Tim Scott of South Carolina, Democratic Sen. Cory Booker of New Jersey, a bipartisan coalition in the House and a cadre of outside activists led by philanthropist Sean Parker, the founder of Napster and first president of Facebook.
This coalition got an opportunity zone experiment through Congress and into law in 2017. It still focused on developing and improving impoverished communities, but it came up with a slightly different tool. It offered massive exemptions in capital gains taxes to investors who put money into projects in the designated zones, defined by income and poverty levels. Initially the investors would get an exemption for 15 percent of their capital gains. If they hung on for 10 years, they wouldn’t have to pay capital gains taxes at all.
This year’s fourth act in the poverty zone drama kept most of the 2017 rules but added a few new ones. The definition of an impoverished community was made tighter — it now has to be under 70 percent of its state’s median income, reduced from 80 percent. It would be subject to re-evaluation every 10 years, even though its existence would be permanent. It added a provision making it easier for rural areas to qualify. But it’s the same fundamental idea that Jack Kemp began promoting more than 40 years ago.
At a time when the two parties scarcely agree on anything, opportunity zones have attracted an unusual bipartisan constituency. The OZs and their predecessor ideas have managed to fit in with the ideological preconceptions of both left and right. For the right, they offer the reduction in regulation and taxation that has long been an article of conservative faith. For the left, they represent an investment in relief from poverty at a moment when no other element of government seems to be heading in that direction.
SO SUBSIDIZED ZONE CREATION is that rare piece of policy that can bring opposite sides together. But does it work? What have we learned from the similar efforts launched in the past?
One thing we have learned is that subsidized zones do generate development. The question is whether they create the sort of development its promoters have envisioned. The bulk of investment in these zones doesn’t go into the establishment of new job- or wealth-creating enterprises but into the purchase of real estate. A study by researchers at the Treasury Department, the American Enterprise Institute and Hebrew University found that through 2022, 75 percent of opportunity zone money went into real estate, almost entirely residential property.
More than that, the real estate drawing the most investment tends to be in neighborhoods that have already started to improve without any opportunity zone involvement. Although investment has flowed to designated areas, the study concluded, much of it might have occurred otherwise. The research found that 27 percent of OZ investment went to areas in the bottom two deciles in household income, while 31 percent landed in the top two deciles.
And it appears there has been relatively little use of opportunity zone money to lift the fortunes of those living in severely impoverished surroundings. A study by scholars at the University of California, Irvine, using somewhat earlier data, found “at best modest positive effects on the average earnings of zone residents” and “no evidence that Opportunity Zones reduce local poverty rates.”
Arnold Ventures, a philanthropy focused on social policy, took these criticisms one step further this year in an independent evaluation. It concluded that “after nearly eight years of generous tax breaks for investors and developers, it is time to acknowledge an uncomfortable truth: this well-intentioned program has primarily enriched wealthy investors while doing little to help the people it was designed to serve” and has “steered money toward projects promising the highest returns — luxury apartments, office buildings and hotels — rather than the community-serving businesses that distressed neighborhoods actually need.”
It’s not entirely fair to take these criticisms as gospel truth. Other studies have reported more positive results. A study published this year by the Economic Innovation Group (EIG), for instance, found that between 2019 and 2024 the program led to a substantial increase in construction of new housing. It claimed that housing development in the zones actually doubled during those years, increasing the supply of affordable units. This evidence needs to be taken with a certain amount of caution, however: EIG has been a primary promoter of opportunity zones since the idea was first launched nearly a decade ago. Still, it does offer some specifics.
So does research from a less ideologically invested source. Harrison Wheeler, an economist at the University of Toronto, studied 12,000 neighborhoods in 47 cities in the years from 2019 to 2024 and reported an increase in development similar to the one the EIG has been citing. This is legitimate evidence. But it doesn’t clarify who the main beneficiaries are. They may have been — probably still are — wealthy investors and affluent renters with the resources to pay for homes in neighborhoods that have grown more expensive under the opportunity zone program.
SIFTING ALL OF THIS INFORMATION TOGETHER, we can say a couple of useful things. Opportunity zones get buildings built. They bring new life, and often new commercial activity, to communities that have been in need of them. But they don’t attract many new factories or new jobs, and they don’t do much to lift people out of poverty. In this respect, they have fallen short of their promised results.
In view of that, is the program worth the billions it is costing? Is there something else it has accomplished, something the studies can’t account for? Maybe.
It’s impossible to say just how many in Congress supported the revised opportunity zone program because it was part of the omnibus spending bill enacted this summer, but it’s fair to say it didn’t provoke any serious opposition. This was a conspicuous display of bipartisanship in Congress that has been almost entirely absent for the last decade.
The opportunity zone program may or may not lift residents of many distressed neighborhoods our of economic stagnation. But it does demonstrate the potential for Democrats and Republicans to work together when an issue comes up that offers something to both of them. That isn’t a spectacular achievement. But in the current climate of poisonous partisan rancor, it could be something to build on.
Governing’s opinion columns reflect the views of their authors and not necessarily those of Governing’s editors or management.
