Hartford Business Journal

www.HartfordBusiness.com • September 30, 2019 • Hartford Business Journal 21 ECONOMIST'S PERSPECTIVE Will Opportunity Zones help low-income communities? Only time will tell By Fred McKinney T he Tax Cut and Jobs Act of 2017 is the defining economic law passed by the Trump administration. Most of the attention and focus of the law has been on cuts in corporate taxes and taxes on high-income individu- als. Some would argue that the law cuts taxes for ev- ery taxpayer, but the nonpartisan Tax Policy Center estimates that taxpayers with over $733,000 in income can expect a $50,000 reduction in their taxes. In contrast, a taxpayer with $50,000 in income might expect a reduction in taxes of less than $500 — 100 times less than the high-income person in this example. This discrepancy will lead to an increase in income and wealth inequality as well as a balloon- ing of the federal debt and deficit. But a lesser-known part of the tax cut law is the section that creates Op- portunity Zones. Opportunity Zones (OZs) were sup- ported by Corey Booker, a Democrat and Tim Scott, a Republican, both Af- rican-American U.S. senators. The law calls for states to identify parts of their state that would qualify for OZ status. Most states in collaboration with their state legislative bodies identified OZs based on percentage of households below a certain level of poverty, the percentage of children receiving free lunch, and unemployment rates. On June 13, the Connecticut legisla- ture passed Public Act 19-54, "An Act Concerning Opportunity Zones." The Act authorizes the Department of Eco- nomic and Community Development to hire/appoint a deputy commissioner who will be responsible for the state's effort to increase investment in OZs. The act also identifies vacant state- owned properties located in Opportu- nity Zones as properties that could be sold to private investors interested in converting these properties into afford- able housing units or other commercial developments. The Connecticut act also provides additional incentives for investors to make investments in OZs over and above the incentives provided by the federal legislation. The goal of the federal program is to increase capital investment, employ- ment and economic growth in these OZs. The federal legislation provides attempts to increase investment in OZs by creating tax incentives tied to unrealized capital gains. The federal legislation permits: • Taxes on capital gains to be de- ferred until 2026 if those unreal- ized gains are invested in busi- nesses located in OZs. • Taxes on unrealized capital gains held in OZ investments for seven years will experience a 15 percent reduction in those taxes. This is the equivalent of a 15 percent increase in the basis of the original invest- ment that created the capital gain. • Capital gains earned in OZ invest- ments held for 10 years will be free of taxes on those gains. According to the Economic Innovation Group there is over $6 trillion in unreal- ized capital gains sitting in the accounts of American households and corporations. This is an incredible amount of potential capital that could be directed towards investments in low-income communities. The challenge is on the demand side of the investment equation. There are scores of companies that are trying to harvest these unrealized capital gains and then direct those gains into OZ opportunities. The bigger, more difficult question is: Are there businesses, or more specifical- ly investment opportunities, that want or need capital unleashed by this law? This is where the new state law comes in. Connecticut wants to put state-owned vacant properties located in OZs on the market for investors to buy, rehab or repurpose into commer- cially profitable projects. I am concerned that while residents of OZs may benefit from the jobs cre- ated by new investments in their com- munities, they are not likely to be the ones who create wealth for themselves. The investment returns will stay with wealthy investors. More needs to be done if OZs are go- ing to create new wealth in low-wealth communities. Time will tell whether OZs are just another boondoggle for those who already are getting the most from the new tax law. Fred McKinney is the Carlton Highsmith Chair for Innovation and Entrepreneurship and director of the Center for Innovation and Entrepreneurship at the Quinnipiac University School of Business. Fred McKinney COMMUNITY CONNECTIONS Generosity is an important leadership, life trait By Ted Carroll W ould you ever agree to house a stranger for a week? If so, would you be willing to sleep in the kids' room so that the guest could use yours? Even if I said yes to the first ques- tion, I'm pretty sure my response to the second would be "no way." Yet, last month I was that stranger. I volunteered to join others build- ing houses in one of Guayaquil, Ecua- dor's poorest bar- rios. A local family hosted me and the parents gave up their bedroom so that I could sleep more comfortably. Now that's what I call "extravagant hospitality." For the last 40 years, I have dedicated much of my life and work to building community in Greater Hartford, mostly as the head of the region's community leadership organization. My recent trip to Ecuador, however, reminded me that a first step in building community is to extend a warm and generous welcome to new people who enter our space. Whether it's the new kid on the block, the new hire at work, or the new arrival at our border, we all have multiple opportunities to show kindness and generosity toward the other. Of course, sometimes we do, sometimes we don't. When we do, positive changes often result. Supportive relationships can form, lives can be enriched, and the larger community can be strengthened with additional talents and energies. When we are not so ready to accept and integrate the stranger, however, something else usually happens: We stay distant from one another, with some feeling fearful, others resentful and no one feeling particularly good. So, what blocks us from being more open, more generous and more welcoming? Perhaps we fear we might lose something if we were to share our time, space and resources with the other. There may have been times when our kindness has not been returned, or when we felt people took advantage of our generosity. Those times may be rare, but they do happen. In my experience, however, kindness and generosity usually beget more kind- ness and generosity. When we welcome new employees warmly, we take the first step to engaging their full talents and commitment to our enterprise. When we prepare a meal for the family that has moved in next door, we lay the foundation for what could be a long and mutually beneficial friendship. When we help a refugee family settle in a new land, we pave the way for them to add to the rich tapestry of our country. I am not sure what triggered my Ecuadorian family to offer me such a gracious welcome. Perhaps they were moved by my own willingness to help their neighbors re-build their homes. Perhaps they remembered that 20 years earlier, their own home was up- graded by a similar group of volunteers. All I know for sure is that, throughout the week, we found ourselves in the midst of a wonderful giving and sharing cycle. At meals, the family fed me first and with the biggest portion. Later, I played wiffle ball and soccer with their grand- children. We helped one another com- municate despite our language barrier. And before leaving, we exchanged modest gifts and touching notes that we will cherish long into the future. If I have learned anything in my years of studying and trying to prac- tice leadership, it's that leaders go first. So, to break down the barriers and close the gaps that separate us, I believe real leaders must initiate the actions and take the risks associated with being kind, generous and wel- coming to the stranger. Gandhi once implored us to "be the change you want to see in the world." When we summon the courage to do so, we take the first step in building genuine community and in healing a broken world. And for such worthy goals, even I might be willing to give up my bed- room for a week. Ted Carroll is the president and CEO of Leadership Greater Hartford. Ted Carroll

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