The Opportunity Zone program created as part of the 2017 tax reform has been controversial since its inception. Designed to incentivize capital investment within low-income census tracts, which tracts were designated eligible, had significant implications for the tax advantages available to investors already based in the area. Therefore, the legislation aimed to guard against political favoritism by empowering governors to select a subset of tracts from “Low Income Communities” (LIC) which the U.S. Treasury identified according to a formula.

Unfortunately, no process is entirely immune to political interference. The House Oversight’ Subcommittee on Economic and Consumer Policy is investigating some seemingly improper Opportunity Zone designations identified by the Niskanen Center in late 2019. Last week, Rep. Raja Krishnamoorthi, the Subcommittee Chairman, and subcommittee member Rashida Tlaib submitted a request for documents and information from Treasury Secretary Steven Mnuchin regarding the following zones: 

Detroit Tracts 26163517200, 26163517000, and 26163520800;

Los Angeles Tracts 06037206020 and 06037206031; and

Oklahoma City Tract 40109103200.

In my initial analysis of these Opportunity Zones, I found that these designations could not be explained by any of the eligibility criteria established by the Tax Cuts and Jobs Act. Specifically, the U.S. Treasury labeled 3 census tracts as “Low Income Community,” ” despite not meeting the relevant qualification thresholds regarding population, income, or poverty. These tracts, in turn, were used to designate 3 additional otherwise ineligible tracts situated in Detroit and Los Angeles through the “Contiguous Tract” criteria. One of these Detroit tracts (26163520800) was overlooked in my initial analysis, discovered by the House Subcommittee following up on these irregularities. The Opportunity Zone program was intended to support struggling regions — not affluent areas such as these.

My follow-up analysis uncovered that these zones were, in fact, late additions by the U.S. Treasury. On February 27, 2018, the Treasury Department issued a revised list of eligible LIC tracts, describing the relevant changes as merely “technical corrections.” Upon further investigation, I found that a late modification to the “population” parameter was the likely culprit behind three evidently miscategorized LIC tracts. Each census tract should have been ineligible for having populations above 2,000. But if the Treasury modified its definition of “population” to exclude prisoners, suddenly the very same tracts became eligible. And since tracts are drawn based on population size irrespective of incarceration status, a modification of this sort is effectively a distortion of the law’s intent. My analysis suggests that this modification is the only avenue through which these, and only these, census tracts could be designated Opportunity Zones. 

The Subcommittee’s investigation of the Treasury’s action is warranted due to strong suggestive evidence of impropriety. The late “technical corrections” to the Opportunity Zone eligibility criteria occurred less than two weeks after lobbyists working for Quicken Loans founder Dan Gilbert contacted the White to “be sure [they] are coordinated” on Opportunity Zones. Gilbert stands to be a huge beneficiary of these eligibility modifications, as he holds substantial property within the dubiously designated Detroit zones. And ProPublica’s investigative reporting has uncovered significant efforts by Dan Gilbert’s lobbyists to shape the Opportunity Zone selection process at the state, local, and federal levels of government. The Subcommittee’s inquiry will hopefully shed further light on what exactly transpired at the Treasury.