Opportunities Offered by New “Opportunity Zones”?

By Diego Marcano and Flaviana Sandoval, Somerville Neighborhood News

Somerville, Mass., Dec. 3, 2019 – Somerville has two of the state’s 138 “Opportunity Zones,” areas where investors can get a tax break if they invest their money in development or job creation. 

Part of the 2017 federal tax reform, they were designated to “spur economic development and job creation in distressed communities,” according to the IRS.

Will the designation offer opportunities to residents and neighbors hoping for better quality of life? Opportunities for locally owned businesses? Or to chain stores? Will they drive up housing prices? Encourage start-ups? These are some of the questions community groups, city officials and others are trying to answer as they seek input and convene meetings.

Somerville’s Two “Opportunity Zones” 

Opportunity Zones in the City of Somerville. Map originally from the Massachusetts Government website.

The city has two Opportunity Zones: one in Assembly Square and the other between Union Square and the eastern border of the city, comprising the neighborhoods of Brick Bottom, Boynton Yards and Inner Belt. A capitalist who invests in these areas would get a break on his or her federal taxes as part of an effort to promote economic development and job creation.

Somerville’s Opportunity Zones were nominated by City Hall, based on the eligibility criteria set by the federal government and on information from the 2010 U.S. Census. The state then selected the final list of zones, which were later approved by the Secretary of the U.S. Treasury through the Internal Revenue Service (IRS).  

According to Thomas Galligani, director of economic development of the City of Somerville, the areas nominated by the City were very much in accordance with SomerVision 2030, the City’s comprehensive plan for growth and redevelopment. 

“These are areas that almost exactly correspond to areas in SomerVision that the community identify as areas that should have growth,” Galligani said in an interview at City Hall on Nov. 26. “They are areas where we wanted more investment; areas in our community plan that we’ve targeted for more investment. It seemed to make logical sense.”

But not all agree the Opportunity Zone scheme will bring only benefits and economic growth. 

In an analysis piece published in 2018, Adam Looney, a scholar at the Urban-Brookings Tax Policy Center thinktank, warned that Opportunity Zones “could also serve as a subsidy for displacing local residents in favor of higher-income professionals and the businesses that cater to them – a subsidy for gentrification.” 

Looney also noted that basing Opportunity Zones on outdated census data could open the door for investors to make profits in “hotspots” that have “already gentrified over the last several years.”  

While Galligani still supports the Opportunity Zone designations in Somerville, he also agreed that the city “is not starving for outside capital.”

“There is a lot of development activity because of the strength of the market in Greater Boston and the fact that we’re making investments like transit that are attracting,” Galligani noted. “And because the City has been doing some thoughtful planning over the last 10 to 15 years, it has made it attractive for people to invest here already.” 

Opportunities for All?

Because of the tax break incentives and the MBTA Green Line extension, Somerville’s two “Opportunity Zone” areas will likely soon see new, transformative development. 

Although no investments or plans have been announced to date for the Union Square/East Somerville Opportunity Zone, located next to a new Green Line stop, community groups are already preparing. 

After several internal discussions during the summer, Union United, along with Somerville Community Corporation, with financial support from the Local Initiatives Support Corporation (LISC Boston), took the lead in creating the “Opportunity Zone Steering Committee,” formed in September. 

The committee now has around 10 members, representing neighborhood associations and local organizations and also including Galligani and Ward 3 City Councilor Ben Ewen-Campen. 

Activists and Neighbors: Community Input Needed

The group recently hosted two public meetings – on Nov. 2 and Nov. 16 – at the City Club to help residents understand the potential impact of Opportunity Zones and to discuss the type of development they would want to see.

“We want to talk to the residents and figure out what are some of the development standards that we want to set for this area before all that investment comes into our community,” René Mardones, lead organizer at the Somerville Community Corporation and a member of the steering committee, explained in an interview at the Nov. 16 meeting. 

About two dozen residents attended the sessions. During roundtable discussions, participants came up with preliminary lists of things they want to see in the city as it continues to develop. They called for more affordable housing, protection for existing residents against displacement, net-zero construction and more green and walkable spaces. 

City residents discuss what kinds of development they might like to see in one of the two Opportunity Zones that have been designated in Somerville, Mass., at a meeting at the City Club on Nov. 16, 2019. Photo: Diego Marcano

Union Square resident Laurie Goldman, who is also a senior lecturer in social policy and public and nonprofit management in Tufts University’s Department of Urban and Environmental Policy and Planning, was at the Nov. 16 meeting. She expressed wariness because, she said, the Opportunity Zone process lacks transparency. 

“For me what is really critical is that community members have a voice in shaping the direction of what gets developed in our underdeveloped areas of Somerville,” Goldman said in an interview. “We have so little land in Somerville for development. We need to view that developable land as a precious commodity that should really serve those who still want to be part of what makes Somerville great and not only the newcomers who are more affluent.” 

Attendees also emphasized the need to find ways to compel developers to standards that residents might want. 

Because development projects are negotiated and approved by the City’s Planning Board, Councilor Ewen-Campen explained at the meeting, one of the ways to influence the process is to make sure community demands are included in these negotiations. 

Marie-Elle Merchant, a member of the Union United community group, adds input from the community about Opportunity Zones after a meeting at the City Club in Somerville, Mass., on Nov. 16, 2019. Photo: Diego Marcano

“A lot of the things that the community desperately is pushing for: things like affordable childcare facilities; things like support for elderly residents, neighborhood groceries stores, libraries, parks… A lot of these things don’t directly generate money for developers,” Ewen-Campen said. “And so, that’s why we don’t see developers just kind of providing these things of their own goodwill. You often need to push them.” According to Galligani, City Hall already does inclusive and comprehensive planning that takes into consideration the input it gets from the public. 

“The community over the last seven, eight years has come together to advocate for things like affordable housing linkage and jobs linkage,” Galligani noted.

But would those achievements have come without community pressure?

Speaking at the Nov. 16 meeting, Tufts professor Goldman stressed the importance of grassroots involvement in order to assure that an “opportunity” does not become “a threat.”

“If there is this thing called an ‘Opportunity Zone,’ that others have called a ‘Threat Zone,’” she said. “There should be an opportunity for the community to get around what it is that they share in terms of the vision for that zone and the city as a whole. There has to be a mechanism for expressing that with force, thoughtfully and purposefully.

The City is holding a public meeting on Dec. 4 at the Public Safety Building to discuss the Neighborhood Plan for Boynton Yards, part of the Union Square/East Somerville Opportunity Zone. For more information, see the announcement.

Opportunity Zones Explained 

What is an Opportunity Zone? 

Opportunity zones are geographical areas in a city or town, within the boundaries of a particular census tract. They were introduced in the Tax Cuts and Jobs Act of 2017 (also known as the federal “tax reform”) and they were designated to “spur economic development and job creation in distressed communities,” according to the IRS.

How many Opportunity Zones are there? 

There are 8,764 Opportunity Zones across the U.S, including Puerto Rico, Guam, Northern Marina Islands, American Samoa and the Virgin Islands. 

How were they selected?

State governments across the U.S. sent out a notice to local governments to nominate Census tracts for Opportunity Zone designation. Areas had to match criteria established by the federal government to qualify as low-income communities, based on information from the 2010 U.S. Census. After the nomination process, governors selected the tracts that would become Opportunity Zones, which were later approved by the Secretary of the U.S. Treasury through the Internal Revenue Service (IRS).   

How do they work? 

The idea is to attract investors by offering a kind of tax holiday. An investor who has generated capital gains (making profit by selling stocks, real estate or art, for example) will have his/her capital gain taxes deferred, or even completely erased, if he or she invests in a fund to develop or improve property or businesses located in an Opportunity Zone. If the investment is held for five years, the tax on the original capital gains is reduced by 10 percent. After seven years, the reduction increases to 15 percent. At 10 years, the originally capital gains taxes are entirely waived. The investor would pay zero taxes over his/her capital gains upon taking them out of the investment fund. 

Expired data?

Census tracts were selected with data from the last U.S. Census of 2010. In some cases, areas that were then considered low-income communities have since experienced growth and development, but the outdated data does not reflect it. Because of this, some critics say the Opportunity Zone system offers unnecessary tax breaks, since capitalists who would already be likely to invest in certain highly desirable areas, such as Somerville, for example.