Gov. Jerry Brown made no secret about his disdain for the federal tax bill Republican lawmakers passed in December. That won’t stop him from using one of its provisions to open economic development opportunities in lower-income neighborhoods around California.
His Finance Department on Friday released a map showing where it wants to place so-called “opportunity zones” where people and businesses could pocket some tax relief by committing to long-term investments in lower-income communities.
The economic development incentives were little-noticed features in the tax bill that were overshadowed by the law’s reduction in the corporate tax rate and its elimination of the Obama-era requirement that adults buy health insurance.
The new tax law allows governors to designate certain census tracts as “opportunity zones” where investors could defer or eliminate federal taxes on capital gains.
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Neighborhoods are eligible if 20 percent or more of their households are in poverty, or if median family incomes are significantly lower than the statewide average or the median family incomes of their broader metropolitan areas.
Brown’s Finance Department of Friday released its first batch of 797 recommended “opportunity zones.” It has to submit a proposal to the Treasury Department by March 21, and it’s asking people to comment on its recommendations by March 15.
Sacramento County has several proposed opportunity zones, including census tracts in downtown Sacramento, Natomas, North Highlands, South Sacramento, parks of Elk Grove, Rancho Cordova and much of Galt.
The proposal includes a portion of Sacramento's Arden Arcade, which saw an increase of 8 percentage points in its poverty rate two years ago. West Sacramento west of Highway 84 also is on the list of recommended opportunity zones.
Other areas around California with Brown’s recommendation include downtown Stockton, Modesto, Merced, central and south Fresno, and much of the western San Joaquin Valley. Pockets of San Francisco, the East Bay and Los Angeles also have recommended opportunity zones.
It’s not clear yet whether investments have to create jobs to reap the tax benefits. Still, officials from the Brown administration say they’re hopeful that the zones could lure investors to communities that have not benefited from the full economic recovery since the recession.
“We do know it’s an opportunity to go in and invest in these areas,” Finance Department spokesman H.D. Palmer said.
Republican Sen. Tim Scott of South Carolina advocated for the opportunity zones as a way to direct development incentives to neglected communities. “I came out of one of these communities, so I believe that there’s untapped potential in every state in the nation,” he told The New York Times in January.
They’ve also been endorsed by Stockton Mayor Michael Tubbs, who has been trying to lure development to his city.
The tax breaks are projected to reduce federal tax revenue by about $7.7 billion through 2022, according to the Joint Committee on Taxation.
Critics say the zones might displace residents and reward investors who were already putting money into those communities.
“It’s a subsidy based on capital appreciation, not on employment or local services, and includes no provisions intended to retain local residents or promote inclusive housing,” Adam Looney, a former Treasury Department deputy secretary in the Obama administration recently wrote for the Brookings Institution.
Brown’s Finance Department posted interactive maps showing the proposed opportunity zones on its website, as well as instructions for how to comment on his proposal.