Opportunity Zone Oversight Bills Introduced in Congress

Recently, congressional Democrats have been increasing oversight efforts over the Opportunity Zone (OZ) program. This program is a community investment incentive established by Congress in the Tax Cuts and Jobs Act of 2017 to encourage long-term investments in low-income urban and rural communities nationwide. Treasury and the IRS have yet to finalize the regulations governing OZ investment.

House Ways and Means Committee Chairman Richard Neal (D-MA) and Senate Finance Committee ranking member Ron Wyden (D-OR) announced that they’ve sent a letter to Treasury Secretary Steven Mnuchin, requesting more information about the department’s decision to designate Storey County, Nev., as an OZ after the department previously determined that the area wasn’t eligible. Additionally, Wyden, Neal, and two other key Democrats sent a letter to the Government Accountability Office requesting that the office issue a report that includes:

• An analysis of the census tracts designated as OZs;
• An evaluation of the implementation of the provision by the Treasury Department and the IRS;
• An evaluation of the controls the IRS has in place to make sure that investors are in compliance with the OZ provisions; and
• An evaluation of Treasury’s ability to report on the effectiveness of the program.

Following the letters, Senator Ron Wyden introduced “Opportunity Zone Reporting and Reform Act” (S. 2787), a bill that would eliminate around 200 OZs deemed too affluent to need tax breaks as encouragement to invest. The census tracts in question initially qualified because they were adjacent to tracts that met the low-income requirements of the program. And Representative James Clyburn (D-SC) introduced “The Opportunity Zone Reform Act” (H.R. 5042), replicating the “reform act” language of S. 2787.

Both bills would redefine the term “low-income community” to exclude any census tract with a median family income exceeding 120 percent of the national median. Such a census tract could be considered “low-income,” however, if the poverty rate is at least 20 percent, and if less than 10 percent of the population is enrolled in an institution of higher learning. In addition, a census tract would no longer be included as part of an OZ if the tract wasn’t a low-income tract but was included in the OZ because the tract was contiguous to low-income tracts. States will be allowed to replace such “lost” tracts with low-income tracts.

Also, for residential rental property to be considered “qualified Opportunity Zone business property,” at least 50 percent of the units must be rent-restricted and occupied by individuals with incomes less than 50 percent of the area median income. The bill would also exclude stadiums and self-storage properties.

Another bill introduced by Representative Hank Johnson (D-GA) would require greater fairness, low-income targeting, and diversity in OZ investments. This bill has three provisions. In order for a fund to be considered a “qualified opportunity fund” (QOF):

1. At least 20 percent of the units in residential rental property claiming OZ tax benefits must be occupied by individuals with incomes less than 30 percent of the area median income or less than 200 percent of the poverty level;
2. The QOF must have an investment advisory board appointed by the local government; and
3. One of three investment diversity requirements must be met:

• At least 30 percent of the QOF’s property must be in a county or local jurisdiction with a population of 200,000 or less;
• At least 50 percent of the QOF’s property must consist of interests in partnerships and stock of corporations that are small businesses owned and controlled by women or by socially and economically disadvantaged individuals; or
• At least 40 percent of the QOF’s property must consist of entities whose individual value is less than $20 million and have a price-earnings ratio under five.

Lastly, Representative Rashida Tlaib (D-MI) recently introduced legislation to repeal the “opportunity zone” program. Representative Pramila Jayapal (D-WA), co-chairwoman of the Congressional Progressive Caucus, is co-sponsoring Tlaib’s bill.