By Anayat Durrani

Advancing racial equity across the U.S. economy is the backbone of President Joe Biden’s Build Back Better plan. The president seeks to build up the economy much stronger than it was in pre-COVID-19 times. One way the Biden administration plans to advance racial equity as part of the nation’s economic recovery is to reform Opportunity Zones so that they fulfill their promise.

The economic crisis took a particularly heavy toll on the Black and Latino communities, with Black unemployment at 15.4 percent, Latino unemployment at 14.5 percent and their businesses shutting down at a high rate, per a White House statement. Biden has said he wants to reform Opportunity Zones to ensure they serve the Black and Latino communities, small businesses and homeowners in low-income urban, rural and tribal communities. The Biden administration has said the Trump administration has failed in delivering that promise to too many areas in the country. 

“The president’s recently proposed Build Back Better plan will have a significant impact on the Opportunity Zone Program,” says Craig Bernstein, chief investment officer at OPZ Capital.

Changes might be coming in Opportunity Zones

Biden is working on making big changes to the OZ program. He is tasking his team to reform Opportunity Zones by incentivizing Opportunity Funds to partner with non-profit or community-oriented organizations, and to work together to produce a community-benefit plan for each investment, focusing on creating jobs for low-income residents and a direct financial impact to households within the Opportunity Zones.

He also wants to have the Department of Treasury review Opportunity Zone benefits to ensure tax benefits are only being allowed where there are definite economic, social, and environmental benefits to a community, instead of only high returns to investors, such as those from luxury apartments or hotels.

And lastly, he wants to introduce transparency by requiring recipients of the Opportunity Zone tax break to provide detailed reporting and public disclosure on their Opportunity Zone investments and the impact on local residents, including poverty status, housing affordability, and job creation, per the statement.

“As currently drafted, over $500 billion has been earmarked to promote “green energy” investments, within a wide range of industries including real estate, transportation, energy and agriculture,” says Bernstein. “As we see new companies formed to try and capitalize on this latest round of infrastructure spending, I would expect several of these organizations to initially form the company as a Qualified Opportunity Zone Business.”

How can we expect the Opportunity Zone program to be reformed?

Just how Biden’s reforms will impact the OZ program and investors is hard to tell, says attorney Ronald R. Fieldstone, Saul Ewing Arnstein & Lehr LLP

“He previously announced proposing limits on what types of assets will not qualify, such as luxury multi-family projects and storage facilities that service higher income parties,” says Fieldstone.

President Biden believes the Build Back Better plan can pass both houses of Congress, and will sign it into law. As to the timing of when the OZ reforms will be implemented, that remains unclear.

“Does not seem to be a priority for this year and does not seem to be on the tax agenda at this time,” says Fieldstone.

Bernstein says he thinks Opportunity Zone investors need to be patient as the program begins to roll out.

“The president set a preliminary target of reducing greenhouse emissions by over one-gigaton over the next 10 years,” says Bernstein. “As we have seen in the past, it often takes at least two to four years for large scale infrastructure projects to receive the necessary governmental approvals to move forward.”

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