The U.S. Qualified Opportunity Zone Program Is Vulnerable to Corrupt Manipulation by Politically-Connected Investors. Here’s How To Fix It.

The U.S. federal government’s Qualified Opportunity Zones Program, a program established as part of the 2017 Tax Cuts and Jobs Act, is supposed to drive investment to certain low-income neighborhoods (so-called “qualified opportunity zones,” or QOZs) by allowing investors to defer (or, in the case of sufficiently long-term investments, to avoid) capital gains taxes on their investments in these areas. The process of designating QOZs works as follows: First, the U.S. Department of the Treasury provides each state with a list of eligible “economically distressed” neighborhoods. This list is based on census data, but, importantly, it includes not only neighborhoods located in poor census tracts, but also neighborhoods that are adjacent to poor neighborhoods, or that overlap (even slightly) with areas designated as “empowerment zones” under a Clinton-era redevelopment initiative. Next, each state governor has the authority to nominate up to 25% of these eligible neighborhoods for designation as QOZs. The governors’ lists are then submitted to the Treasury Secretary, who has the final authority to certify these neighborhoods as QOZs. As of July 2020, 8,700 neighborhoods had been designated as QOZs.

Many have questioned the wisdom and efficacy of the QOZ program on a variety of grounds, with some characterizing the program as little more than a new form of tax avoidance for the wealthy that fails to address structural poverty. Even if one puts those concerns to the side, there are serious concerns that the existing QOZ program—and in particular, the process for selecting QOZs described above—has been corrupted by wealthy interests, who are able to exploit their political connections to get certain areas designated as QOZs, even when professional staff deem such designations inconsistent with the established program criteria. Consider just a few high-profile examples: Continue reading