[image-1]Last month, members of Charleston City Council voted to leverage federal Opportunity Zone incentives to stimulate the development of affordable housing in the designated areas. The measure passed through Council on Dec. 17, but not without some skepticism from members.
QOZs are areas that are designated economically distressed according to the 2017 Tax Cuts and Jobs Act, where the concept was first enshrined into law. These zones are meant to encourage investment in low-income communities, thanks to a tax credit for investors that put money in Qualified Opportunity Funds (QOF), investment vehicles that are organized with the intent of devoting capital to QOZs.
First proposed by U.S. Sen. Tim Scott in 2016, Opportunity Zones have been on the receiving end of some criticism that they could exacerbate gentrification in low-income areas. Majority Whip Jim Clyburn indicated worry that the program would amount to "a tax credit for rich investors," and some early examples indicate that that could be what's happening. In December, Scott proposed additions that would build in accountability measures.
"The city of Charleston sought to offset any potentially negative effects of the Opportunity Zones by creating an additional incentive for affordable housing," says Jacob Lindsey, the city's director of planning, preservation, and sustainability. "So we were proactively creating our own additional regulations so we could gain more affordable housing in Opportunity Zones."
Gov. Henry McMaster designated eight census tracts as OZs in Charleston County, including some in areas of the peninsula that have already seen heavy investment in recent years. A total of 128 S.C. tracts have been approved as Opportunity Zones.
Councilmember Robert Mitchell's Eastside district includes parts of the downtown QOZs. Even though he voted in favor of the program, he is still concerned about the location of the zones.
"It's going in various areas that sometimes don't need the Opportunity Zone in it because they have the money and the resources to do the things that they need to do," Mitchell told the City Paper after the incentive was approved. "I think it's going to help a little in some areas that we need it, but I need it more in these blighted areas, mostly."
Developers using QOFs can apply to delay federal taxes on capital gains, but if a developer is building affordable housing, Lindsey says the project can automatically qualify for an unlimited level of residential density, lower parking requirements, and leeway that allows them to spend less time getting approvals wth the city. "What the developer gets," Lindsey says, "is a time bonus, effectively. And that's very valuable to the construction of affordable housing."
Affordable housing in QOZs must meet the same definition as all Mixed Use housing in the city. "It's a housing unit available to someone making 80-120 percent of the area median income," says Lindsey. "The units also have to be distributed throughout the larger housing project so as not to make them appear different from the market rate units."
Support for the measure was strong, but some members were cautious. "I do feel like the federal law has been put into motion prior to having the thoughtfulness of how it's going to be regulated and enforced to the level of accomplishing the goals that are stated by the sponsors in Congress," said Councilmember Carol Jackson, who represents James Island, said at the meeting. "We're trying to basically frame up a requirement that we have no control over."
"I applaud the city for ways to get affordable housing, but I was against Opportunity Zones from the beginning," said now-former Councilmember James Lewis said at the meeting. "If you look at the way this design is drawn — it's drawn for the rich folk. It's drawn for the developers… All the development that's going on down there, it's been going on. It's just another level of funds to help the rich developers get their properties, and get tax breaks, and it's not benefiting the neighborhoods."
Lindsey says the city has taken steps to ensure developers follow through on commitments to build the lower-cost housing. "Today, a developer cannot get their power turned on in their new building until they have met all of their criteria," he says. "We've created a pathway, a checklist, in effect, to be sure that developers have met all of their commitments prior to an issuance of a certificate of occupancy."
The city's to leverage QOZs was preceded by local legislation. North Charleston Rep. Marvin Pendarvis introduced a bill (H.3186) in 2018 to provide added incentives if a company commits to benefit the community before they invest in an Opportunity Zone.
"Our biggest problem is going to be trying to attract investments to those areas," Pendarvis told the City Paper. "You're going to have to have a developer that feels like it makes sense, but we also have to make sure we make it make sense, and give them the kind of incentive they need, but also hold them accountable to make sure it's something mutually beneficial so that the community benefits, as well." —Heath Ellison