Crain’s reported this week that the over-hyped federal Opportunity Zone program is going poorly for Chicago.

Nobody should be surprised. The program had bipartisan support in Washington but was flawed from the start. We wrote when the program rolled out that it looked like an attempt to reinforce the worst stereotypes of both parties – greedy Republicans handing a pointless tax break to the rich, and reality-challenged Democrats wasting money on a well-intentioned program for the poor likely to fail.

Sales in Chicago-area opportunity zones in 2018 and 2019 ranked 29th out of the top 50 largest metropolitan areas, according to Crain’s. That puts Chicago’s volume on a par with far smaller cities. Markets like Houston, Miami and Portland, Ore., have seen three or four times Chicago’s transaction volume during that period.

The basic problem is that developers tend to choose sights that aren’t really blighted, which the program is intended to help, or they pick sites already on the upswing. That’s been the history of similar programs for decades.

That problem is particularly acute for Chicago because of its other particularly acute problems. Why build a project in a Chicago when you can build using the same program in a recovering market without Chicago’s fiscal, property tax, corruption, crime and other issues?

As Crain’s put it, “convincing those investors to funnel that money to Chicago’s zones—which are mostly in areas of extreme need…has proven to be difficult. Many funds are gravitating to other markets whose zones are in areas that don’t need a tax incentive to fuel development.”

If it’s any comfort, the program is funded by federal tax breaks, not Chicago or Illinois taxes.

-Mark Glennon

 

 

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Susan
3 months ago

Failure of developers to take on Illinois projects even with juicy TIF and Enterprise Zone incentives seems directly correlated to property tax rates here.
As you know, a property tax rate of 4% of fair market value (ss we have long suffered in McHenry County) skews Cap rates.

Susan
3 months ago
Reply to  Mark Glennon

Then they should not be built. At dome point taxpayers must face the question: At what price is it cheaper to let your house burn down rather than fund a fire department? (We have exceeded that price where I live, with fire&rescue district exceeding. 33% of total home fair market value, and that does not include liability for OPEBs accrued and accruing). At what price is it cheaper to abandon a home when that home is simply a promissory note to entitled public employees? What surprises me is that the Federal reserve is giving away money to Illinois lenders without… Read more »

Susan
3 months ago

The problem with this program can be cured with a penstroke.
Ambiguous language ceding local authority to determine eligibility indicates this is one more political industry mechanism to transavt crony capitalism.

The cure for the problem is to tie eligibility of “blight” and “but-for” to industry standard Cap rates. Very straightforward formula.