The program has a compelling ring to it: a tax incentive for struggling communities.
But nearly two years after the Opportunity Zone investment program opened for business, tracking where the money is going is nearly impossible.
That’s because the program, created in 2017 but fully authorized by governors across the country in 2018, does not include basic public reporting requirements for who is investing and who is benefiting.
In New Hampshire, that means the 27 census tracts designated by Gov. Chris Sununu in 2018 – including one that encompasses Waterville Valley, the ski resort owned by the Sununu family – could be receiving some investment, a lot of investment, or none at all.
The U.S. Internal Revenue Service collects the data through its regular filing process for investment funds, but is barred from disclosure due to tax privacy laws.
The only way for the public to know about specific investments is if the recipients or the investors disclose them voluntarily.
“We’re living in the land of the anecdote,” said Brady Meixell, a research analyst at the Urban Institute, a think tank that has tracked Opportunity Zones.
When it comes to receiving investments, Meixell said: “Certain projects will want it known. Other projects that don’t want to be known that they received this incentive might never report that they received this financing.”
It’s a concern that has received national attention. This year, U.S. senators are working to increase the reporting requirements for the program, which has appeared to take off in recent weeks.
That includes New Hampshire Sen. Maggie Hassan, who has co-sponsored a proposal to create that transparency.
Onlookers say it’s important.
“In order to evaluate the effectiveness of Opportunity Zones and their incentives, you need data,” said Michael Novogradac, a partner at Novogradac LLP, a national accounting and consulting firm that is closely watching the zones and compiling public data on them.
“It’s that simple.”
Progress during an election year, though, is uncertain. For now, when it comes to seeing all the investments, interested observers will have to wait.
The transparency problem stems in part from how the Opportunity Zone program was created.
It allows the creation of Opportunity Funds, which must invest money in projects in the census tracts chosen by the governors. Investors that use capital gains to make those investments can delay the payment of those capital gains taxes. And investors can write off up to 15% in capital gains taxes in the new investments – depending on how early they get in.
It’s an attractive suite of options meant to get investors to consider opportunities in underprivileged areas.
For years, the program had bipartisan support. It wasn’t until the Tax Cuts and Jobs Act Bill came along, though, that its sponsors saw an opportunity to get it passed.
The tax and jobs act was the gargantuan overhaul of the tax code passed by the Republican Congress in 2017 over the objections of Democrats. But because the tax reform package was whisked along using a process called budget reconciliation, there were certain rules attached.
One rule was that no legislation could be added to the bill unless it had a revenue impact. The reporting requirements did not, so senators stripped them out.
Now, the program is off the ground and attracting millions of dollars in investment. But without regulation, a full accounting of its impact is not possible.
That makes it unusual among federal tax incentive programs, notes Meixell.
For example, the New Markets Tax Credit, a similar program that encourages investment in low-income communities, has released five-year data files logging the activity of the program.
Those files indicate the zip code of the investment, the investment type, the purpose of the investment and other indicators that can make it easy to follow progress.
The Community Reinvestment Act of 1977 – which provides incentives to banks to offer credit in low-income neighborhoods – also has similar reporting requirements to allow tracking by community for more than 20 years of data.
Loans given through the Small Business Administration are also assiduously logged and available to the public.
When it comes to Opportunity Zone Funds, not requiring such similar reporting is not just an inconvenience, Meixell said. It could also lead to abuse.
The New York Times reported in August that some of the investors in the funds are friends of President Donald Trump who have used the tax-advantaged census districts to plow money into luxury hotels in and real estate – hardly the kind of investment trumpeted when it was created.
In New Hampshire, the opportunity zones created a flap in December, after a report in the New Hampshire Business Review drew attention to the fact that Sununu had designated a census tract that included the ski area owned by his family – Waterville Valley.
Doing that, Democrats said, meant that the Sununu family could benefit down the line from tax-privileged investments made on properties.
However, James Sununu, a member of the board of directors at the ski area and the brother of Chris Sununu, said that Waterville Valley developments would not qualify because the Opportunity Zone funds could only be made on properties with over 70% new development.
“Since Waterville Valley Resort does not qualify as an Opportunity Zone Business, the reporting requirements are not really relevant,” he said.
The governor has said that the tract was chosen for development in Lincoln and Thornton, neighboring towns – and for its proximity to Interstate 93.
But as the accusations swirl, more transparency could cut deliver some resolution.
“The public should know very basic info around the who, what, where, when, and how much for every single opportunity zone investment made,” Meixell said. “These are being incentivized via taxpayer dollars so taxpayers have a right to know where the money is going.”
Meanwhile, efforts have been made to make do with what is known about the funds.
Accountant Michael Novogradac keeps his own database of investment funds set up under the Opportunity Zone Act. At this point it’s the most comprehensive portrait of the program.
That database is compiled from a mix of some investment funds volunteering their info to the firm directly, other funds releasing press releases or showing up in news articles, and other listings scrubbed from filings with the Securities and Exchange Commission.
It’s by no means comprehensive – not even close. Novogradac estimates it captures anywhere from one third to a half of the total investments.
The data that does exist, however, hints at some patterns. Investors appear to prefer investing in real estate to investing in business stock or renewable energy projects, Novogradac said.
And those that do invest in real estate prefer residential developments to commercial – just barely.
Perhaps it’s a result of the incentive structures: The Opportunity Zone program rewarded investors who jumped in within the first year of its operation and gave bigger benefits for investments that paid off. Land development can be an obvious target for quick growth.
One other trend is clear too. So far none of the funds listed by Novogradac have announced publicly that they’ve invested in New Hampshire.
As the tax incentive program continues moving through its lifespan – it’s slated to end in 2026 – a handful of senators have been working to add that data reporting piece.
A bill by Sens. Cory Booker (D-NJ), Tim Scott (R-SC), Todd Young (R-IN) and Hassan would require the Treasury Department to gather data on the number of investment funds created through the tax incentive program, as well as how those funds have actually impacted the communities.
To Hassan, it’s an important piece that will allow lawmakers to take stock in how successful the program was, and whether it should be continued.
“By establishing reporting requirements for Opportunity Zones, this bipartisan legislation will provide needed oversight and help better measure the impact Opportunity Zone investments are having on job creation, poverty reduction, and support for new businesses,” Hassan said in a statement when the bill was introduced.
The Opportunity Zone program was meant to boost low-income communities, in New Hampshire and everywhere.
For the public, it’s just the kind of benefit to their communities that they may never know about.
(Ethan DeWitt can be reached at [email protected], at (603) 369-3307, or on Twitter at @edewittNH.)