The full impact of the Tax Cuts and Jobs Act of 2017, also known as the federal tax bill from this past December, is beginning to make itself known in the community development sector. One new program that got very little attention in the national debate that raged throughout the early November and December was the creation of federal “Opportunity Zones.” These Opportunity Zones (OZs), which can be found on page 130 of the bill, provide tax incentives to private developers in low and moderate income communities. Each state will be allowed to designate up to 25% of the eligible tracts for OZ status, with the final selections being made by the state’s governor. Pennsylvania has roughly 1,200 eligible tracts, meaning that Governor Wolf will be permitted to select 299 for OZ designation.
The idea behind OZs is not new, and was unsuccessfully floated during the Obama Administration. Some of the individuals that have lined up behind and lobbied for the inclusion of OZs in the tax bill includes Sean Parker, creator of Napster and early Facebook investor, Rob Busby, president of the U.S. Black Chambers, and Jared Bernstein, Vice President Biden’s former chief economist. Even in such starkly partisan times, there has been interest from both the Right and Left in what is, by any measure, a fairly neoliberal solution to urban and rural blight and neglect.
Private investment in designated OZs will be theoretically spurred on by three different tax incentives through a “qualified Opportunity Fund” – essentially an investment portfolio organized as a corporation used solely for investing in OZ property. The three tax incentives included in the OZ program are:
There are many questions to be answered about this program, including how fairly OZ status will be doled out to LMI census tracts and whether giving private developers additional tax breaks will necessarily result in the neediest area getting investment and attention. PCRG is actively analyzing the legislation and assembling data and maps of eligible tracts in Western Pennsylvania to present to Governor Wolf. If you or your organization would like any further information about this program and/your eligibility, please feel free to reach out to us.
If you’d like to see which tracts in your community are eligible, see this online mapping tool.
February 12, 2018 marked an exciting day for City of Pittsburgh staff, as Governor Wolf announced that Pittsburgh is no longer considered to be a distressed community under Act 47. During his yearly budget address in November 2017, Mayor Peduto announced his intention of requesting the PA Department of Community & Economic Development to remove Pittsburgh’s distressed status since city officials have been more diligent about financial responsibility, including through city council developing best financial practices that involved standards for fund balances and realistic revenue projections.
As a refresher: The Municipalities Financial Recovery Act, Act 47 of 1987, is a Pennsylvania state program that gives economically struggling cities strong financial oversight, generally as a result of huge debt burdens, increasing and poorly funded pensions, and other legacy cost issues. Originally entering into Act 47 in 2003 under then Mayor Tom Murphy Jr – resulting from the city operating under a debt burden of more than 20% of its operating budget —, for fourteen years Pittsburgh has operated under Act 47 with limited control over the city’s budget, working to establish a recovery plan to cut costs, and reducing the municipal workforce and debt/pension expenses.
In June 2014, DCED’s Governor’s Center for Local Government Services issued an amended and revised report titled “Municipalities Financial Recovery Act Amended Recovery Plan,” that was designed to transition the city one step closer to shedding the distressed status. The Recovery Plan set five mandated objectives the city to hit in order to lose Act 47 status:
As of 2011, Pittsburgh’s annual general fund returned to having greater revenues than expenses however, DCED ruled previously that “the path out of Act 47 oversight is not solely defined by the absence of operating deficits…,” and as a result, Pittsburgh remained under Act 47 supervision until this year. However, since entering into Act 47, the city decreased the size of its workforce by approximately 26%, according to Peduto.
So what’s next for Pittsburgh? Pittsburgh is the second city and 14th municipality to successfully exit the program and regain autonomy over the city’s budget. Many city officials see this as an opportunity for the city to shine, nationally, as an example of a rust belt city that has remade itself and overcome financial turmoil. Additionally, this ruling gives the city more power to issue and leverage bonds in the future, which will be especially important over the next few years as state and federal funds continue to shrink. Proving fiscal responsibility demonstrates to Wall Street, investors, out of state developers, and potential new residents that Pittsburgh truly is an up and coming, innovative, and attractive city. In addition, departing Act 47 will allow city leaders more influence over budget priorities, including adding additional police officers and increasing the number of annual infrastructure improvements.
More importantly, this monumental occasion has led Peduto to call on institutions like UPMC, Highmark, Carnegie Mellon University and the University of Pittsburgh to contribute more financially to the city, for moving forward with projects around addressing the affordable housing shortage, improving pre-K education for all, and developing safe water initiatives. As Peduto stated, “we’re investing in what we believe to be the core issues of our city and we’re asking our partners to do the same.” This is an ideal time for city officials to consider negotiating and entering into a formal Community Benefit Agreement with these institutions to ensure sufficient investment over the next decade that all Pittsburgh residents can benefit from.
Articles & Reports Referenced:
 Since 2015, five municipalities, including Pittsburgh, have recovered from distressed status including Altoona, Blair County; Plymouth, Luzerne County; Nanticoke, Luzerne County; and Clairton, Allegheny County.
 A WESA article from 11/13/17 stated that UPMC, Highmark, and the University of Pittsburgh all responded back to Peduto’s request for further investment and “emphasized their existing partnerships with the city and expressed willingness to do more.”
The Community Growth Fund, a sister organization of PCRG, offers two affordable financing tools:
First, the Community Acquisition and Rehabilitation Loan or, CARL, is a program that provides individuals and families an affordable and simplified loan tool to purchase, renovate, and reside by reclaiming and making new dilapidated housing stock in Pittsburgh’s Low to Moderate Income markets.
Second, a new partnership with Wesley Family Services and their Ways to Work program, which provides small dollar car loans for purchase and repairs of vehicles in order to keep our residents mobile and provide reliable transit to work, family and community functions, recreational activities, and healthy food when public transportation connections are limited.
The Community Growth Fund was recently awarded a generous grant from The Pittsburgh Foundation to kick start Ways to Work program in order to carry out this important work and keep our residents connected to the workforce.
For more information on this newsletter, please contact Adrie Fells, AmeriCorps Outreach VISTA, at email@example.com or (412) 391-6732 ext. 211.