Standing in a Miami neighborhood where federal tax credits and local property tax dollars are slowly turning derelict buildings into affordable housing and blighted blocks into commercial hubs, one of the architects of the country's new tax code explained Friday that help of a different kind is on the way to Overtown.
Starting this year, said Republican Sen. Tim Scott, America's tax laws are giving hedge funds and banks reason to plunge otherwise stagnant money into low-income communities. In specifically identified "opportunity zones," those businesses can invest money made off profitable investments and stocks and mutual funds without taking the steep tax hits they'd normally face — a reason so much of it sits on balance sheets.
On Thursday, Gov. Rick Scott identified 68 such zones in Miami-Dade and Monroe counties, including one in Overtown.
"You’ve got government assistance already throughout the country and throughout neighborhoods," said Sen. Scott, speaking to the press from the basketball gym at the Overtown Youth Center. "The fact is what you have to have in a complement to government assistance is private sector capital that sees the desire to invest in these neighborhoods."
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The South Carolina senator, who spent the day touring Miami with Florida Sen. Marco Rubio, ticked off how venture capitalists will now have vehicles, called opportunity funds, through which to invest, and state-targeted areas in which to do it. And they'll have incentives: under the bipartisan Investing in Opportunity Act, passed last year as part of a sweeping $1.5 trillion tax bill, the taxes on capital gains are deferred when invested in the funds.
The longer the investment is held, the lighter the tax penalty.
The South Florida tour by the two senators is part of an effort by the Republican party to explain the complicated legislation, and to convince the public that the tax bill will put more money in their bank accounts and expand the economy. Slammed as a corporate bailout by Democrats, the legislation is a chief talking point for America's governing party as it heads into the mid-term elections.
"What we’ve been able to do with tax reform is employ for distressed communities strategies that other countries have been able to use to take jobs away," said Rubio, who also visited Homestead and West Little River. "Today, you’re better off investing here in Overtown — theoretically, if we can get this done — than you would be taking your jobs to another country, thereby creating opportunities for dignified work for thousands of people that live within walking distance."
The U.S. Department of Treasury has 30 days to certify each of the zones identified by Gov. Rick Scott, who with the ability to designate a quarter of the state's qualified census tracts chose large swaths of north central Miami-Dade, south Dade, and northwest Dade, among other areas. After the zones are approved, the federal government will create rules around how funds are created and how businesses can invest.
Will it work?
For decades, Overtown has been the subject of reinvestment schemes. Under state law, property taxes have been recaptured and reinvested in the neighborhood to mixed results. While those dollars have helped build hundreds of new affordable housing units, bring in anchor commercial tenants like grocery stores and lure celebrity chef Marcus Samuelsson to town, the effort has also drawn the occasional public corruption scandal, talk of corporate welfare and fears of gentrification.
Miami's experience with tax-incentive zones has been troubled as well. A plan to encourage new business in downtrodden neighborhoods called enterprise zones resulted this year in a potential $12 million class-action settlement after the process was botched.
That, of course, is the city. And this is the federal government.
Sen. Scott also pointed out that opportunity zones aren't part of a plan to dole out government assistance. Rather, he said private money should become more widely available to finance growth, leaving economic investment to the private sector.
"The key is to bring in private sector capital, and government programs don’t do that," he said. "By deferring the capital gains tax up to 10 years you allow for long-term investment in struggling communities. When that happens you’ll find that hope is breathed into those communities and opportunity flourishes."