Trump Tax Break Created to Help the Poor, Criticized for Benefiting the Wealthy - Launching in RI
GoLocalProv Business Team
Trump Tax Break Created to Help the Poor, Criticized for Benefiting the Wealthy - Launching in RI
The project is complete with retail, residential and recreation — a minor league soccer team.
The Pawtucket project is intended to take advantage of a special provision in President Donald Trump’s 2017 tax reform legislation called “opportunity zones.”
GET THE LATEST BREAKING NEWS HERE -- SIGN UP FOR GOLOCAL FREE DAILY EBLASTThe opportunity zone program offers wealthy investors unmatched tax savings for investing in "low income" areas.
But, the program which is only at its infancy has been receiving criticism by Democratic members of Congress and has been the subject by investigative series at both the New York Times and ProPublica — the non-profit investigative news organization.
Now, Democrats in Congress ranging from the House Black Caucus to the ranking member of the Senate Finance Committee Ron Wyden (D-OR) are calling for reforms and urging that hundreds of the zones be eliminated.
“The Opportunity Zone program has been troubled from the start. The Treasury Department has been steering potentially billions in tax breaks to Donald Trump’s friends, and there are no safeguards to ensure taxpayers are not simply subsidizing handouts for billionaires with no benefit to the low-income communities this program was supposed to help,” Wyden said. “Republicans who support the program should work with Democrats to ensure it does not become a boondoggle.”
Even U.S. Senator Cory Booker, initially one of the strongest proponents of the program, is calling for reform. He is on a joint letter to the U.S. General Accounting Office co-signed by Wyden and U.S. Congressman John Lewis.
ProPublica has reported a series on how the zones are being misused and manipulated to the benefit of the wealthy.
Basketball Team Owner
“But numerous reports have highlighted ways in which politically connected individuals have landed opportunity zone designations for areas in which they have a financial stake, sometimes at the expense of poorer areas. ProPublica’s reporting uncovered instances in Baltimore and Detroit in which billionaires stand to benefit from the break, in areas that shouldn’t have qualified for the program in the first place,” writes ProPublica.
Some of the ProPublica series document how the billionaire owner of the Cleveland Cavaliers is involved. “Billionaire Dan Gilbert has spent the last decade buying up buildings in downtown Detroit, amassing nearly 100 properties and so completely dominating the area, it’s known as Gilbertville. In the last few years, Gilbert, the 57-year-old founder of Quicken Loans and owner of the Cleveland Cavaliers, has also grown close to the Trump family.” Read the rest of the story HERE.
Superyacht Marina
“The Rybovich superyacht marina lies on the West Palm Beach, Florida, waterfront, a short drive north from Mar-a-Lago. Superyachts, floating mansions that can stretch more than 300 feet and cost over $100 million, are serviced at the marina, and their owners enjoy Rybovich’s luxury resort amenities…Then-Florida Gov. Rick Scott bestowed the tax break on the marina after a direct appeal from [Wayne] Huizenga Jr., according to a 2018 letter Huizenga Jr. wrote that was obtained by ProPublica. Huizenga and his family have been major donors to Scott,” wrote Pro Publica.
Read more HERE.
Maryland’s Richest
"Under a six-lane span of freeway leading into downtown Baltimore sit what may be the most valuable parking spaces in America.Lying near a development project controlled by Under Armour’s billionaire CEO Kevin Plank, one of Maryland’s richest men, and Goldman Sachs, the little sliver of land will allow Plank and the other investors to claim what could amount to millions in tax breaks for the project, known as Port Covington," reported Pro Publica.
“ProPublica and WNYC reported on an opportunity zone in Baltimore largely owned by Under Armour founder Kevin Plank’s private development company. Maryland Gov. Larry Hogan picked the area for the program after a meeting with Plank’s lobbyists, despite a member of his own staff noting that it was too wealthy to qualify for the program. Both Hogan and Plank’s team have said the development will benefit a neglected part of the city and help the surrounding communities,” reported ProPublica. Read more HERE.
The New York Times has also reported on opportunity zones and cited cases of abuse. The New York Times editorial board writes, “Of all the ways President Trump’s 2017 tax cut has enriched the wealthy at the expense of the public interest, perhaps the most outrageous is the black comedy of ‘opportunity zones.’”
In Rhode Island, two projects have made news in the past few weeks — the Pawtucket project being unveiled on Monday and the Aloft Hotel adjacent and port of the Wexford development was initially green-lighted — before the opportunity zones were created in the Trump tax cuts.
Commerce RI recommended that the Wexford census track be designated for inclusion in the opportunity zone program.
In April of 2018, Raimondo submitted to the U.S. Department of the Treasury nominations of twenty-five census tracts in Rhode Island, the maximum permitted by law, for designation as Opportunity Zones. And, In May of 2018, the U.S. Treasury certified the tracts nominated by Raimondo. Under federal law, the designations will remain in effect until December 31, 2028 and the designations cannot be modified.
As GoLocal reported last week, ten months after the Rhode Island Commerce Corporation approved $7.6 million in tax incentives for the proposed $55.2 million Aloft hotel located on former 195 land, the project has not broken ground.
The reason, according to Rhode Island Commerce Secretary Stefan Pryor, is that hotel Investors are “recruiting dollars” for the highly lucrative — and controversial — “Opportunity Zone” designation under the Trump tax cuts of 2017.
“The Aloft hotel is located in one of our Opportunity Zones — so investors have been working on recruiting dollars within the new ‘OZ’ structure, and my understanding is that they are approaching the finalization of their capital stack, which means that once the financing is done, they can proceed with their project,” said Pryor on Monday.
“I would not want to preempt them, but we are very optimistic about the creation of a new hotel in the 195 district — as we call it the innovation and design district,” said Pryor.
In January, CV Properties’ Dick Galvin had indicated that construction on the Aloft hotel would start “later in the summer” of 2019 -- and Commerce officials confirmed Monday that the “Opportunity Zone” capital gains tax relief designation under Trump’s opportunity zone designation was not initially part of the project.
The OZ designation for Aloft is an added windfall for the Galvin and his companies.
According to Commerce RI, “Rhode Island Opportunity Zones are located in twenty-five census tracts spread across the following fifteen municipalities: Bristol, Central Falls, Cranston, Cumberland, East Providence, Narragansett, Newport, North Providence, Pawtucket, Providence, South Kingstown, Warren, West Warwick, Westerly, and Woonsocket.”
Fortuitous Partners and Pawtucket
Fortuitous Partners is led by Berke Bakay — who was the President of the restaurant chain Kona Grill which filed for bankruptcy this past summer and was sold off to new ownership by the bankruptcy court.
Bakay and his Fortuitous Partner Brett Johnson are also owners of the USL soccer franchise, Phoenix Rising FC. The team built what Johnson calls a “pop-up stadium” and is located in an opportunity zone.
The Rising team also runs a major youth program — which includes more than 10,000 players participating.
Johnson says the benefits of the opportunity zones "bends the laws of economic gravities.” Listen to the podcast HERE.
Benefits to Investors
According to RI Commerce, the benefits of the opportunity zones according to commerce include:
1) Capital gains that are invested in Qualified Opportunity Funds may temporarily defer capital gains taxation until the investment is sold (or, if not sold, until December 31, 2026).
2) Capital gains that are invested in Qualified Opportunity Funds for at least five years or seven years may step up its basis, respectively, by 10% or 15%. This means $100 of invested capital gains will have $15 tax-free after keeping the investment for at least seven years.
3) Capital gains resulting from appreciation of Opportunity Fund investments are excluded from taxation if the original investment is held for at least ten years.