How Allegheny County Is Approaching Opportunity Zones

Nov 4, 2019

A 2017 change to the federal tax code aimed to spur private investment in some of the country’s most distressed areas through the creation of “opportunity zones.” As regulations surrounding the program are finalized, Allegheny County officials and residents are trying to figure out how best to capitalize on the change.

Opportunity zones were designed to do two things: bring economic development to low-income communities and produce financial returns for investors. The program allows people to reduce or eliminate capital gains tax if they put their money in qualified opportunity funds, which then invest in designated opportunity zones.

Nationwide, some of the first projects under the new law have been luxury condos and hotels, built in places that were already attracting investment. That trend has fueled concerns that the law will enrich investors without injecting economic energy into places that need it. While it’s natural for people to be skeptical, and to worry that the program will help the rich get richer, that’s not the reality of the policy, said Aaron Grau, executive director of the nonprofit Opportunity Zone Association of America.

“It’s not what Congress intended,” he said, speaking at a workshop OZAA helped organize in Pittsburgh last week. “This program was designed to benefit at-risk communities, so I would hate for that notion to hijack the conversation.”

Investors will always go for the low-hanging fruit first, said John Fleming, U.S. Assistant Secretary of Commerce for Economic Development.

“And then if you’re happy with the results, you’re getting good results, then you’re going to tackle more difficult situations,” he said.

Fleming said his office wants to create a true partnership between government and private industry to make sure that distressed communities really do see a benefit. He is pushing a reporting structure to track what projects get off the ground, and hopes that information can inform potential extensions of and changes to the program.

Revitalization is always presented positively, but it can also push people out of neighborhoods, said Alethea Sims, president of the Coalition of Organized Residents of East Liberty.

“It sounds good, it looks good on paper, but in reality, no,” she said. “It does not benefit the people who need the help the most.”

East Liberty is not a designated opportunity zone but communities such as Homewood, McKees Rocks, and Duquesne are. According to its website, Allegheny County has 23 opportunity zones.

Though an opportunity zone may add appeal for a project, it doesn’t guarantee investment. Many people at the workshop said the program simply makes a good deal better. With more than 8,600 opportunity zones in the United States and Puerto Rico, communities will compete with one another for investment dollars. These investors will be looking for returns, said Josh Lavrinc, CEO of Callay Capital. He said Pittsburgh may have to work a little harder to attract the kind of investment stakeholders want.

“How can we find the most responsible projects, and find ways to make them financially attractive?” he said. “Making sure that the benefits are going to intended locations.”

Opportunity zones are neither an economic development panacea nor a death knell for distressed communities, said Lance Chimka, director of Allegheny County Economic Development. When asked how communities can not only protect themselves but also take advantage of the program, Chimka said communities that haven’t seen investment in decades have to get ready.    

“If you truly want to compete for these, there’s tight windows for deployment of this capital,” he said. “It’s competitive and that kind of investment’s going to go to places that … have the infrastructure to deal with it.”

County officials announced one of the region’s first opportunity zone deals in October. Indoor vertical farming company Fifth Season will move into 60,000 square feet of warehouse space in Braddock. Real estate development company RDC officials said at the time that opportunity zone funding was a big part of pulling the deal together. Fifth Season expects to employ about 60 people at its new facility.