Poor Neighborhoods Need More Than ‘Investment’

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Low-income neighborhoods need employee-owned businesses anchored to their communities, not investors looking to make a quick buck.

Where some of us see distressed neighborhoods — where families endure poverty and homes fall into disrepair — others see dollar signs. In fact, the Trump administration now brands them “opportunity zones,” offering tax breaks to investors who invest capital there.

What remains unclear is this: Opportunity for whom? Big investors may stand to cash in, but many communities are saying they’re not getting the benefits they were promised.

This story goes back to the 1980s, when British Prime Minister Margaret Thatcher’s conservative government introduced 11 “enterprise zones” throughout the United Kingdom. Inspired, conservatives in the U.S. under President Ronald Reagan promoted the creation of these zones in 40 states.

Even many Democrats warmed to these zones as a viable pro-market approach to urban renewal. The idea resurfaced as “empowerment zones” under the Clinton administration in 1994.

Whatever you call them, they’re spaces where businesses can delay, reduce, or even eliminate taxes altogether on the money they invest.

The Trump administration has certified an estimated 8,700 census tracts as opportunity zones; the official list is 186 pages long. There are nearly 900 such zones in California, more than 600 in Texas, 500 in New York, and 300 in Ohio. The designated tracts in Puerto Rico account for nearly the entire island.

Advocates argue that these incentives encourage investors to direct money into distressed communities in ways that will lead to new jobs, better housing, and other businesses being willing to open up shop in the revitalized community.

There are at least two problems with that argument.

First, many distressed communities suffer from economic challenges that investment alone cannot address, including redlining and housing discrimination. These communities need systemic policy changes that get at the root of discrimination to set the stage for lasting economic change.

Second, studies across the country (as well as in the U.K.) offer little evidence that such incentives actually benefit neighborhoods in the long run.

An expansive study of 75 enterprise zones in 13 U.S. states concluded that tax incentives had “little to no impact on economic growth.” One study of a zone in New Jersey even concluded that increased economic activity within its zone came at the expense of non-zones in the nearby area — the kind of zero-sum economics that would discourage investments in the long run.

Amid all of this is the concern that opportunity zones will mean escalating housing costs, accelerating the process by which residents are displaced because they can no longer afford to live there.

There are ways opportunity zones can be made to work so that the people living in the zones benefit as well as investors.

One strategy is for investors to partner with anchor institutions — enterprises such as hospitals and universities that are anchored to the community by both location and mission. These institutions can play special roles in employing people in opportunity zones and supporting local small businesses through purchasing and contracting.

Even better, they should invest in employee-owned businesses.

A prime example for both strategies is the Evergreen Cooperatives in Cleveland, whose Cuyahoga County is home to 64 low-income “opportunity zones.”

Evergreen’s enterprises show the power of employee ownership to turn communities around and create economic opportunity. Employees who own parts of their place-based business have a long-term source of wealth and an incentive to stay and improve their neighborhoods, because doing so improves their businesses.

We also need to make more affordable housing available, especially through community land trusts, limited equity housing cooperatives, and other strategies that offer opportunities for resident equity building.

Under the Trump administration, opportunity zones — the rebranded “enterprise” and “empowerment” zones of the past — will have some new features but the same bottom line: investors stand to win, while residents lose.

Ensuring that people living in these zones are also winners will require us to push for more fundamental change.