Investors and community groups around the Pittsburgh region and country are eagerly awaiting guidelines and regulations for the U.S. Department of the Treasury’s Qualified Opportunity Zone (QOZ) program.
The QOZ program was added as a provision on the controversial tax reform bill passed by Congress last year. Under the program, investors would be able to avoid taxes on capital gains by investing those gains into Qualified Opportunity Zones.
A final list of zones nominated by the nation’s governors was approved by the Treasury on June 14. In Pennsylvania, 300 Qualified Opportunity Zones made the list. QOZs in the Pittsburgh region include the Hill District, Homewood and Wilkinsburg.
The funds have the potential to funnel billions of dollars towards the most underserved parts of the Pittsburgh region, but key questions remain over how the program will be implemented.
Since approving the final list of zones, the Department of the Treasury has not provided additional regulations or guidelines that explain how the process will play out. A timeline of the QOZ program posted on the PA Department of Community and Economic Development’s website says only that “guidance from IRS” will be coming this fall.
“I think it can be a really positive thing,” says Tracey Evans, executive director of the Wilkinsburg Community Development Corporation. But the QOZ funds generated by investors “will basically be as good as the people who create them, and what their requirements are.”
Of particular concern: Will there be a level of community control over the investments?
“I think we all need to be really cautious about out-of-town investors without the best interest of these communities in their intentions,” says Matt Madia, chief strategy and development officer of Bridgeway Capital in Downtown Pittsburgh. If investors “don’t understand the communities and they don’t understand the people in these communities, they could potentially do some damage.”
“We need to ward off speculative interest or people that are making investments in projects that would result in displacement,” Madia says, “rather than economic activity that benefits existing residents.”
Evans also points out that while local organizations like the Wilkinsburg CDC have lawyers and accountants to help the community navigate new and complex policies, other QOZ areas do not. Many communities, she says, lack robust organizations or the funding to manage this new investment.
“It takes having people on the ground,” she says, “to really make these things work well.”
Despite their reservations, both Evans and Madia emphasized that they were rooting for the program to succeed, as it would mean long-term investments in many communities that have yet to recover from the financial crisis.
“We work with Allegheny County, and they’re great partners, but there’s a gap in funding we found in bringing the private market into Wilkinsburg,” says Evans, who also pointed out that community assistance from the state capital has completely “dried up” since the end of the Rendell administration.
“What’s different about the Qualified Opportunity Zones is that it’s essentially an unlimited pool of resources that are going to be available to these communities as long as the funds are used properly,” says Madia.
The project is the brainchild of Sean Parker, the Napster founder and venture capitalist who was played by Justin Timberlake in the 2010 film, “The Social Network.” Parker’s think tank in Washington D.C., the Economic Innovation Group, had been pushing the idea for several years before they convinced Sen. Tim Scott, Republican of South Carolina, to add it to the tax reform bill.
The QOZ program’s origin in the tax reform bill is somewhat ironic, given that the bill slashed funding sources for many programs aimed at helping low-income communities. An analysis by the accounting firm Novogradac & Company found that without government action, the tax cuts will lead to 235,000 fewer affordable rental housing units being built over the next decade nationwide.