Ticco Topic of the Day: Why do we think Opportunity Zones are an issue worth solving?
Updated: Mar 28, 2020
I got my golden ticket to Ticco yesterday. And I am already enjoying the platform that has had me excited for over a month. What is Ticco? Well that's another post, this post is more important for right now, so you can go and read more about Ticco online. Here's a good article from the Community Development Society and from the Architects Newspaper. And here's the direct link to the website.
A discussion thread on Opportunity Zones sparked my interest because it didn't have any responses. Granted Ticco is in pre beta launch, but every other discussion topic had discussion. I have also been following Opportunity Zones from afar, skeptical since the beginning that they will have the intended effect. That's a stretch actually. I have really been questioning their intention in general.
Here's the discussion question intended to spur the conversation.
And here's my response this morning.
Unfortunately, It's so complicated that I can't even wrap my head around answering those questions. Because I always go back to the Why?
I just started diving into some research regarding the total dollar amount of tax dollars currently tied up in "incentives." In Texas, we have a serious property tax crisis. The state will soon pass an arbitrary 2.5% property tax cap to address school finance reform (but excluded ISD's from the cap. I know crazy. Welcome to Texas ya'll!) We don't have a state income tax, so property tax is local governments bread and butter. To complicate matters even more, in Bastrop County, appraisals just went up again, and have increased over 60% over the last five years. Yes. I said 60%. It isn't isolated to central Texas either.
I've also recently been trying to get a better grip on the state and federal preservation tax credit data to understand the complete picture. I need to be able to support my claims that the credits don't really work for small projects or in rural areas. (Yes, there are always exceptions, including a friend who to spite the system put an $1800 project through the system ). But for projects like the Old Post Office hotel in DC, which received a 32 million dollar preservation credit, they make perfect sense. And when originally created those were the projects we needed them to work for. Having served as a main-street manager in multiple communities for over a decade, I have had only one property owner take advantage of the federal and state credits. I consulted with at least a dozen others who just couldn't see the value in the ROI including time and capacity.
So back to my statement above, WHY? I think the WHY for the cap and appraisal values is that we keep tax breaking and crediting and exempting and incentivizing and abating. We've been doing it for so long and for so many that our tax base has shrunk to unsustainable levels. But no one is really talking about it. Some national discussions dating back to 2012, but at least in Texas it isn't on the radar like it should be. Instead of looking at expanding the base and creating some more equity in taxation and addressing the cause of our fiscal issues, we just keep choking the already choked tax base. Why do we keep thinking we can get more blood out of a turnip?
And WHY don't more rural and incremental small scale projects take advantage of the preservation credits? The policy wasn't necessarily set up for that purpose, we didn't need to use it for small projects back then. We needed to save our big national treasures that couldn't pencil without the credits. But now with so few contributing to the tax system, the rising costs of development and real estate being a 217 trillion dollar capital product driving policy behind development it's no wonder we are in such a mess. So instead of holistically addressing what got us here, we started doling out incentives, tax breaks, credits, abatements, and most recently opportunity zones.
I am sure we have dozens of other subsidy examples such as affordable housing, etc. But I think I am getting to my point. Fact. We have an ever-shrinking "middle" funding the majority of our government services. Fact. Data is not my specialty and time isn't on my side lately. So all I can do right now is speculate and hypothesis. Long story short is that it's really freaking complicated. And I don't think we can look at these new "credits" known as Opportunity Zones in a vacuum like we have our development challenges.
Until we look at WHY we needed opportunity zones in the first place, we are just putting band-aids on a much larger wound. Band-aids that were never designed to serve as a tourniquet. No matter how amazing the band-aids are the wound needs a tourniquet. We have to stop the cause of the bleeding. Which is why I don't sleep well at night when I think about it all. We need surgery or something. I am certainly not a surgeon. Should we ask some Doctors to join us on Ticco, lol? So instead of solving the inherent challenges with Opportunity Zones or throwing holes in the process used to develop the policy parameters, we need to collectively figure out WHY we keep having the need to dole out incentives. And how do we actually get the support that is needed to focus on tax equality and diversifying the tax base so that we don't need to incentivize development to the magnitude for which we have been?
I am interested to see what others have to say.
Sarah served as a Texas Main Street manager for over a decade and is a proud two-time Past President of the Texas Downtown Association. She lives in Smithville Texas and has worked in local government. community development, destination management and downtown revitalization across the State of Texas. She is a motivational speaker, consensus builder, and visionary problem solver who helps organizations and communities understand their purpose and achieve collective impact.