A new bill in Albany would eliminate a state tax break that benefits real estate developers in New York City.
The legislation would end New York’s share of the Opportunity Zone tax break for projects in the city by decoupling the state’s capital gains tax code from the federal government’s and amending the city’s administrative code.
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Sponsored by Queens state Sen. Michael Gianaris and Assembly member Jeffrey Dinowitz of the Bronx, the bill takes aim at a congressional program that rewards investors and developers for investing in one of more than 8,700 designated areas across the country.
In justifying their legislation, the bill’s sponsors write that although the tax benefit is supposed to incentivize development in distressed areas, it is poorly targeted.
“Though a laudable goal, the vague standards for states to designate Opportunity Zones has allowed Empire State Development to designate many areas with booming, over-developed real estate markets as opportunity zones,” the bill text reads, referring to the state’s primary economic development agency.
New York City has no fewer than 306 Opportunity Zones, including 63 in Queens — three in Gianaris’s base of Astoria and nine in Long Island City, where he helped scare off plans for a tax-incentivized, multibillion-dollar Amazon campus last year.
Some analysis has found little evidence that the program, which began in January 2018 but was slowed by regulatory delays, has helped poor communities. The Treasury Department did not issue guidelines for the program until October 2018 and released additional guidance in April 2019. That discouraged investment into funds set up to take advantage of the tax break.
It is not clear how much tax revenue the bill would raise if it became law, or when. Opportunity Zone investments have to be held for 10 years for investors to avoid all tax on reinvested capital gains. Still, with the city and state in financial freefall and casting about for areas to cut — including the city’s capital budget for affordable housing — the bill’s sponsors hope to find fertile political soil in targeting a program criticized as a taxpayer-funded boon to developers.
“We’re in a moment where the state is facing an unprecedented budget crisis,” said Tom Speaker of good-government group Reinvent Albany, which is pushing for the legislation.
He called Opportunity Zones “a program that has zero transparency” and “just a giveaway to real estate and the wealthy.”
Included in the Republican 2017 tax overhaul, the Investing in Opportunity Act, as the legislation was formally known, allowed developers and investors who build projects in designated low-income neighborhoods across the country to get substantial capital-gains tax breaks.
But rather than spurring investment and creating jobs in exclusively low-income communities, in many cases it has been used to finance luxury projects in affluent areas — prompting a federal investigation by the Treasury Department earlier this year.