Opportunity Zones Send Tax Breaks To Areas That Might Not Need Them

Jun 6, 2018

A federal tax incentive meant to drive private investment to neglected areas took effect in April for 43 Columbus-area Census tracts. So, why are some of those tracts already flush with private investment?

Yellow tractors crawl across a broad construction site near Ohio State’s Wexner Medical Center. It’s part of Census tract 11.22 covering much of west campus and running up to Ackerman Road, and it’s one of 43 "opportunity zones" in Franklin County. 

In January, Congress added the "opportunity zones" program to the new tax bill, offering a break on capital gains taxes in a targeted set of communities.  The idea, aimed at addressing generational poverty, was the brainchild of former U.S. Rep. Pat Tiberi of Central Ohio.

Tiberi describes the initiative as a way to address a simple but challenging question: “How do you incentivize, without creating a new government program, that private investment in areas where it otherwise wouldn’t go?”

In order to be eligible, Census tracts need a poverty rate above 20 percent or median incomes lagging behind city or state earnings. From there, state governors chose up to a quarter of eligible areas.

In Columbus, city officials teamed with local governments including Franklin County, Grove City, Reynoldsburg, Obetz and Whitehall, and recommended 49 census tracts for the program. Of those, 43 won approval.  

Mark Lundine.
Credit Nick Evans

Mark Lundine heads up Columbus’ economic development team, and he lists the directives he got from Mayor Andrew Ginther to develop the list.

“A, identify the neighborhoods that really need investment the most,” he says. “B, identify Census tracts that have an opportunity to receive the investments. And C, identify Census tracts where you have an opportunity to grow jobs.”

But public records obtained by WOSU show rather than focusing on lack of private investment, Ginther emphasized locations where dollars are already flowing. 

Tract 11.22, which covers much of The Ohio State University from King Ave. to West Dodridge. and west to North Star Rd., isn’t exactly an area associated with generational poverty.

In a letter of support, Ohio State president Michael Drake touts a brand new hospital tower—the “largest single facilities project ever undertaken” by the school. The recommendation letter from local governments notes two new hotel developments totaling $80 million, and several 150-plus unit residential complexes in the works. 

The poverty rate in this tract and the one just north of it easily qualify, but with the university so close, their populations skew smaller and younger than average.

“I think the question is not whether the poverty rate is correct,” says Rachel Kleit, an Ohio State professor of city and regional planning. “The question is whether these places would develop anyway—without the tax credit.”

Rachel Kleit.
Credit Nick Evans

Kleit allows there are many legitimate strategies officials might pursue.

“One could argue that by investing in places that are the poorest you’re not going to see huge bang for your buck,” Kleit says. “Because they need a lot more investment than these tax credits are going to be doing.  And so maybe you want to do a triage, these are the places we think will do the best with them, right?  Or we could say these places look like they’re going to crash soon.”

One thing Kleit wouldn't recommend:

“I think if I were choosing I probably would not choose those places already have a lot of stuff going on, because they don’t need it," Kleit says. "That’s not the point.”

Just north of campus, another census tract, 78.12, runs along the west side of the Olentangy River from North Broadway to Bethel. Here, local officials point to OhioHealth’s $100 million investment in a new headquarters.

Residents like Michael and Judi Bruce live just north of the hospital, and they’re confused to learn their neighborhood qualified as a low income community.

Michael and Judi Bruce standing in front of their home in census tract 78.12.
Credit Nick Evans

“I find it curious that anybody in this area that you’re describing would be considered low income,” Michael says.

“There’s some expensive houses up north of us,” Judi adds.

“Oh yeah,” Michael says. “You take The Knolls, my goodness.”

And they’ve got a point. This tract doesn’t qualify—or at least it doesn’t anymore. The Treasury Department used figures from 2015 to determine eligibility, and this tract narrowly met requirements that year with a poverty rate of 20.5 percent.  Now, investors can reap the benefits of opportunity zone tax breaks, even though just one year later the poverty rate fell to just 16.5.

Pressed on why local officials selected this tract along with the two near Ohio State, Lundine points to a regional transportation initiative.

“We’re also are working on a project regionally that focuses on five high priority transit corridors, and that’s one of the five transit corridor lines,” Lundine offers. “So that was a driver for why those three were picked.”

But in other areas of the city, tracts along those corridors with higher poverty rates and lower median incomes were ignored. There are four such tracts in Franklinton and Linden as well as another nine on the Eastside.

WOSU asked the city about the discrepancy, and in an email, a spokeswoman said the transit study was just one element in determining opportunity zones. She also said they tried to cover neighborhoods across Columbus rather than focus on one area.