Aerial view of Pearl Street Mall in Boulder Colorado
Credit: iStock

In September 2018, Cindy Carlisle was invited to go to an informational session hosted by representatives from the state of Colorado. The event, held in downtown Boulder, was on a flashy new opportunity from the Trump administration: the emergence of “Opportunity Zones.” Under the new tax plan, private investments to certain ostensibly low-income areas would come with tax advantages.

Carlisle, a city council member, had an acute interest in the matter. With the help of Congress and the Colorado state government, part of her city had been designated an Opportunity Zone. But no one, including her, knew exactly what it meant, or how it would impact development in the bucolic college town. “I was the first one to find out,” Carlisle told me.

That was how Boulder’s municipal government discovered that a section of city would soon attract a new wave of investment that allows investors to defer taxes on capital gains when they pump money into economically depressed neighborhoods through pools of money known as “Qualified Opportunity Funds,” or QOFs. Yet it wasn’t clear, she said, whether Boulder would wind up as a beneficiary or a victim..

Little attention was paid to the tax abatement when it was quietly tucked into the bill. Since the tax bill has become law, however, it has come under fire as a giveaway to the wealthy, rather than a real effort to revitalize poor areas. In August, the New York Times reported several extreme cases of luxury development planned in so-called Opportunity Zones, such as a hotel with a rooftop pool in New Orleans owned partially by Anthony Scaramucci; a 46-story glass apartment building with a yoga lawn in Houston; and a luxury office tower in Miami’s Design District.

Indeed, Boulder’s experience exemplifies much of what the Opportunity Zone program’s critics say is wrong with it.

In each state, the governor’s office submits census tracts to HUD to prove that the area in question meets certain income requirements. But other parts of the process, which vary state by state, are notably opaque. In Colorado, the state’s Office of Economic Development and International Trade put out a request for input from “community stakeholders.” Boulder’s City Manager, the Boulder Chamber of Commerce’s president, and the Boulder Economic Council’s executive director all applied. The Boulder City Council, however, was never notified

If that sounds suspicious, that’s because it is. Critics like Carlisle argue that the governor’s office unfairly took advantage of the opportunity by picking college town and downtown commercial areas already on the rebound, over other areas with a greater need.

Boulder’s experience is a case in point: about a third of the city’s residents are students at the University of Colorado-Boulder, artificially driving down the average income. According to Carlisle, there are pockets of low-income areas, but Boulder is still the kind of place where people imagine the city could raise money by taxing Teslas.

Perhaps the strongest concern, however, is the simplest. There is no tangible way to track what effect the Opportunity Zone has because all Opportunity Zone transactions are kept confidential

That’s because the Opportunity Zone program is different most place-based investment incentives, which are tracked as government subsidies. Instead, Opportunity Zones only offer tax incentives. If investors meet the requirements, they elect to defer paying taxes on their investments in the designated areas. Therefore, they are not reported to the public, because they are private tax information.

For Boulder’s City Council, these concerns proved to be too much. In December 2018, the council put a moratorium on all commercial and residential development—indeed, all construction, period—in the city’s entire Opportunity Zone. They wanted to make sure, Carlisle said, the program wouldn’t just be a benefit for developers: “The community might as well get something out of it.”

This is not a problem exclusive to Boulder. Government officials in D.C., Maryland, and Virginia, were unable to provide any comprehensive list of Opportunity Zone projects in their states when I asked them for one, nor the total number of projects, let alone how much money has been invested in them.

Frank Dickson, director of strategic business initiatives for the Maryland Department of Housing and Community Development told me the state keeps track of the Opportunity Zones initiatives “as best they can,” but ultimately they rely on the self-reporting of developers to know whether  they are taking advantage of the tax break. “Even then,” he added,” you don’t know if it’s factual.”

Sometimes, self-reporting can disguise dubious uses of the tax break. For instance, the people behind Port Covington in Baltimore—a well-publicized development deal involving the CEO of Under Armour and Goldman Sachs—are taking advantage of the Opportunity Zone program. According to ProPublica, the tract only qualified on a technicality based on minor errors in the Treasury Department’s maps. Port Covington would not have qualified at all without a last-minute intervention between the development team and the Maryland governor.

That’s why experts say that self-reporting is not a reliable method for keeping track of Opportunity Zone development. It’s also problematic because state and local governments miss out on the opportunity to attach requirements to development projects funded through the tax break that would spur economic growth—or at least socially responsible growth—in those areas, like forcing the developers hire a certain amount of local construction workers for the project, or using minority- and women-owned subcontracting firms .

But the current system prevents local government from addressing each city’s unique needs.

In Boulder, for instance, affordable housing is a major concern. The council has allowed developers building new affordable housing units to get an exemption on the city’s height limit for buildings. Carlisle wanted similar policies in place around Opportunity Zone investments. Without a reporting requirement, though, it was impossible to write regulations that would apply only to these investments; there is simply no mechanism by which the city government could enforce them.

That’s why Greg Leroy, executive director of the nonprofit Good Jobs First, it so frustrated with the Opportunity Zones system. “It’s not about my community getting better or my tax base getting stronger or my labor market getting more jobs,” he told me.

Affordable housing isn’t the only social cause missing out as a result. “For economic development, you’re worried about political fairness, geographic fairness, privatization, gentrification, sprawl, racial discrimination Whatever you’re concerned about, you can’t get to first base if you don’t have the data about where the money’s going or what it’s doing,” Leroy said. “Everybody has a dog in the fight for disclosure.”

And, as Nate Jensen, a professor at the University of Texas Austin, points out: without reporting requirements, the only reason to publicly announce OZ plans is for good publicity. Any abuses, he said, will inevitably go unreported.

Opportunity Zones weren’t originally supposed to work this way. The idea was first formally introduced through bipartisan legislation sponsored by Republican Senator Tim Scott, Democratic Senator Cory Booker, Republican Congressman Pat Tiberi, and Democratic Congressman Ron Kind. The program also had the backing of the Economic Innovation Group, a bi-partisan think tank, and Sean Parker, an early investor in Facebook.

Notably, the original bill included key provisions that the eventual tax law lacked, such as the reporting requirements. It also mandated regular impact studies on how well these investments were spurring job creation and poverty reduction in the targeted areas.

But now, as the Opportunity Zone program comes under increasing scrutiny, there’s a growing political consensus around the need for tighter reporting requirements. Booker and Scott, along with senators Maggie Hassan and Todd Young, introduced a bill that would override the tax law to enforce the requirements that were taken out

On November 6, Senator Ron Wyden introduced yet another bill with a similar effect: it would require QOFs to make information about their investments available to the public, including which Opportunity Zone they’ve invested in, and how much.

Wyden’s bill includes rules limiting how college students are factored into a census tracts’ average income measurements—the tactic that allowed economically thriving towns like Boulder to count as Opportunity Zonea, which Carlisle called a way to “defraud” the program.

While it’s not likely that either bill could pass under current Congress, legislation may not be the only answer. Brett Theodos, a senior fellow at the Urban Institute, told me that the Treasury Department already has the authority to gather information on what development projects are financed through OZs. “As part of that certification process … treasury could require reporting about what those funds do,” Theodos said.

Of course, it’s unlikely the Trump administration would undermine the current tax law. I asked the Treasury Department whether it would consider adopting these changed. It did not respond to a request for comment.

After Boulder enacted its moratorium on downtown development, the city government spent almost a year trying to attach conditions to Opportunity Zone development.

During that time, a deadline was bearing down: December 31 was the last day for QOF investors to reap the full benefit of the tax abatement. If they invested before then, they could avoid taxes on 15 percent of the capital gains they invested. If they miss that deadline, the maximum they could save on their taxes fell to 10 percent. Some experts believe that the five percent bonus could act as a major incentive to encourage investors to act before the end of the year.

Ultimately, the Boulder council concluded that there was no way to create regulations for a program essentially done in secret. Instead, it settled on a slate of new blanket regulations that would apply to all development, including a provision that banned demolishing houses in the Opportunity Zone section of the city.

According to Leroy, that’s only half a solution. Place-based tax incentives need specific requirements of their own to ensure socially responsible use. “If you don’t attach strings, then you can’t be assured that they’re doing anything but creating a windfall.”

Still, Carlisle felt the compromise was the best Boulder could do given the circumstances. She said the city council received hundreds of emails from residents asking them to keep the moratorium in place. She described their expressed emotions as ranging “between despair and disappointment and chagrin.”

Eventually, in October 2019, the council announced that it would lift the moratorium, effective December 2, allowing investment capital through the Opportunity Zone tax break to flow into Boulder.

I asked Carlisle if she knew where the investments were going, now that the investment freeze had been lifted. “I don’t know,” she told me. “I don’t have any idea.”

A previous version of this piece referred to the Economic Innovation Group as a “libertarian” think tank. It is bi-partisan. We regret the error. 

Jake Maher

Follow Jake on Twitter @JakeMaher2. Jake Maher is an editorial intern at the Washington Monthly.