Congressman Emanuel Cleaver II says investors in Independence and other communities should be ready to act quickly when a new federal program of incentives kicks in – and he says those incentives are not likely to last.
“It’s designed to drive long-term capital to rural and urban areas,” he said Tuesday to dozens of local leaders gathered for an update at the Independence Chamber of Commerce. The underlying idea is good, he said, but he expressed mixed feelings on how it was enacted into law and how it’s likely to be carried out once the Treasury Department issues rules in the coming weeks.
The essence of the federal opportunity zone program is that investments in low-income ZIP codes – there are several in Sugar Creek and northwest Independence as far south and east as the Square – can go free of capital-gains taxes for up to 10 years. The program expires in 10 years, and Congress could extend it.
The investments could be in housing or commercial properties. Cleaver stressed the need for new housing, for instance.
“It can be anything,” Cleaver said. “It’s got to generate revenue, whatever it is.”
Cleaver repeated on Tuesday something he’s said before – that this has the potential to be the most significant federal program for development in decades. But he also outlined several concerns.
“This is going to knock another hole in the U.S. treasury,” he said.
The federal opportunity zone proposal is one Cleaver has favored for some time. How it came about, however, caught supporters by surprise.
Cleaver is no fan of last December’s federal tax-cut bill – “this 2,000-page document that nobody read,” he called it – that was passed with no hearings and only hours after the final version was presented on the floor of the U.S. House of Representatives.
“And to our surprise, our bill was placed inside this tax bill, and I found out about it two weeks after we passed the law,” he said.
But the opportunity zone proposal had been broadened significantly from the original intent. For instance, properties not just in low-income ZIP codes can qualify, but so can areas adjacent to those ZIP codes.
The Plaza, he said, could fall into that category.
“It is something that we did not have in our legislation,” he said. “It was added, and I think it’s dangerous.”
Also, there’s essentially no paperwork and no IRS approval. Just self-certify and file for the tax break with the U.S. Treasury.
“So they made it really simple. Sometimes I’m concerned about the simplicity,” he said.
He also acknowledged a loophole now in the law. There’s nothing to stop a business from moving across the street, claiming a new investment and its tax benefits – but not adding anything to the local economy.
His prediction is that the program will cost the Treasury too much in taxes and will be suspended.
“I will be stunned if this is around in two years,” he said.
Still, he said, it has the potential to bring new money into areas that need it, and he encouraged communities to take advantage while they can.
“I just think we ought to be ready,” he said.