Old Policies and New Presidents: Promise Zones and the Trump Administration

By Robert P. Stoker (George Washington University) and Michael J. Rich (Emory University)

Our recent Urban Affairs Review article (Stoker and Rich 2019) examined President Obama’s urban legacy.  We described the distribution of selected place-based urban assistance grants provided by the administration to the fifty largest U.S. cities.  That analysis emphasized the complexity and fragility of Obama-era urban policy, which required multiple local mobilizations to win competitive federal grants.  Few cities won multiple grants and those that did often had difficulties coordinating projects to create synergistic local initiatives.

This essay updates elements of that research as it discusses the perils some urban programs face during presidential transitions.  Many urban assistance grants are one-shot deals.  Others are entitlements, governed by established rules that limit administrative discretion.  However, some programs have a more precarious status; they aim to provide discretionary assistance beyond the end of a presidential administration.  In the case of the Obama administration, Promise Zones (PZs) received 10-year designations, some of which began as late as 2016.  Consequently, PZs were required to navigate the change of presidential administrations, raising questions about how PZs have fared during the Trump administration.  Were PZs subjected to political backlash?  Have PZs enjoyed success in securing federal benefits to support their revitalization efforts?

PZs confronted these challenges with mixed success.  PZs were not passive actors; they mobilized to influence their prospects during the transition and won additional benefits from the Trump administration and Republican majorities in Congress.  However, while PZs have endured, the benefits of PZ designation may be shrinking as the Trump administration turns its attention to its own revitalization policy, Opportunity Zones. 

Promise Zones

Promise Zones are distressed areas (with high concentrations of poverty) that may be situated in urban, rural, or tribal locations, selected by the Obama administration to receive federal support for planning and implementation of local revitalization initiatives.  Three rounds of competition between 2014 and 2016 established twenty-two PZs, fourteen of which were in urban areas.  The benefits of PZ designation were modest.  PZs received federal technical assistance, capacity enhancing personnel resources, and preference points for future federal grant applications.  The technical assistance and capacity enhancing resources included dedicated federal staff to help identify and access federal resources and AmeriCorps VISTA members. 

The preference points are available for a variety of federal grants (though the implementation of the preference system varies from one agency to another).  Each PZ has a local lead agency that has established a process to decide whether or not the zone’s preference points in federal grant seeking will be extended to various local groups and projects.  The preference points and the authority of local PZ lead agencies to distribute them provided a strong incentive for local stakeholders to work with and through the PZ lead organization, enhancing the coordination of local revitalization efforts.  However, PZs did not receive dedicated funding for local programming or tax benefits during the Obama administration.  By contrast, under the Clinton administration, Empowerment Zones received both federal block grants and tax incentives.  Under the George W. Bush administration, Renewal Communities received tax incentives to encourage investment and employment.  

Opportunity Zones     

It is not possible to describe how PZs have fared during the Trump administration without discussing Opportunity Zones, the Trump administration’s signature revitalization initiative.  Opportunity Zones provide tax incentives intended to attract private investments to stimulate market activity and create jobs in distressed communities.  Opportunity Zones are composed of Census tracts nominated by states (in accordance with federal criteria) and approved following a federal review.  The Internal Revenue Service (2020) explains the tax benefits Opportunity Zones offer to investors who reinvest capital gains in a Qualified Opportunity Fund:

First, investors can defer tax on any prior gains invested in a Qualified Opportunity Fund (QOF) until the earlier of the date on which the investment in a QOF is sold or exchanged, or December 31, 2026.   If the QOF investment is held for longer than 5 years, there is a 10% exclusion of the deferred gain.  If held for more than 7 years, the 10% becomes 15%.  Second, if the investor holds the investment in the Opportunity Fund for at least ten years, the investor is eligible for an increase in basis of the QOF investment equal to its fair market value on the date that the QOF investment is sold or exchanged.

Although the immediate benefits are tax incentives, the Trump administration’s implementation plan (White House 2019) reflects the influence of Comprehensive Community Initiatives.  Opportunity Zones are to be multi-faceted, working across policy domains, including economic development, public safety, workforce development, and education reform.  Consistent with the design principles of PZs, the implementation plan includes efforts to provide federal technical assistance and coordinate the use of federal financial resources.  Cities are also taking independent action to complement Opportunity Zone tax incentives.  For example, Atlanta has gone to great lengths to promote a wide range of other local incentives and supports to encourage investment in their Opportunity Zone (Atlanta 2020). 

Opportunity Zones are controversial (Slate 2020; Ernsthausen and Elliott 2019; Tankersley 2018).  Controversies surrounding the initiative include: that states selected inappropriate areas to receive Opportunity Zone tax benefits; that investors will gain windfall tax benefits; that the initiative provides no mechanism to engage local governments or other key local stakeholders in the implementation process[1]; that the investments stimulated by the tax benefits will do little to assist needy residents; that residents may be displaced as investment increases; and that it will be difficult to evaluate the initiative.  One recent report noted that rather than providing incentives for investment and job creation in distressed communities, “billions of untaxed investment profits are beginning to pour into high-end apartment buildings and hotels, storage facilities that employ only a handful of workers, and student housing in bustling college towns, among other projects” (Drucker and Lipton 2019).    

According to the White House Opportunity and Revitalization Council (White House 2019) there are more than 8,700 Opportunity Zones.  The implementation plan has identified 160 federal programs that could be coordinated at the federal level to increase targeting of resources through grant preference points, loan qualifications, reduced fees, and modified eligibility criteria.  However, local efforts to coordinate revitalization plans are likely to be difficult.  Unlike PZs, no mechanism currently exists to coordinate local Opportunity Zone grant seeking.  Beyond this, investors are not required to coordinate their investments with the activities of other local stakeholders (including local governments).   

Promise Zones Mobilize

As the 2016 presidential election approached, PZ designees were concerned about sustaining their local revitalization efforts.  PZs were one of President Obama’s signature place-based initiatives and a change in administration implied uncertainty, regardless of which candidate won the election.  PZs wanted a voice in Washington to sustain the initiative and influence emerging federal policy.  In this context, sustainability is maintaining a policy’s integrity, continuing its core principles, and avoiding debilitating change (Patashnik 2008).  In response to these concerns, self-selected local PZ leaders, including representatives from rural, tribal, and urban zones formed the National Coalition of Promise Zones (NCPZ). 

Shortly after President Trump’s inauguration, NCPZ members visited Washington to frame the initiative: They presented PZs as high capacity, low cost entities that promoted collaborative local problem-solving through public-private partnerships that stimulated market activity to encourage business investment and job creation.  This message was delivered to the new administration’s political appointees, professionals in a variety of executive agencies, and members of Congress.  NCPZ participants claimed that the mobilization campaign was successful; following their Washington visit the Trump administration was generally supportive of the initiative and the administration did not take steps to undermine the program. 

The mobilization is ongoing, with active NCPZ members making annual visits to Washington.  While the NCPZ’s initial objective was to sustain the initiative, over time its goals have evolved.  The coalition’s current goal is to position PZs to benefit from emerging developments in national policy.  Two federal legislative successes have been achieved.  First, the “Tax Cuts and Jobs Act of 2017” mentions PZs as potential beneficiaries of the Opportunity Zone tax benefits created by the legislation.  Subsequently, PZ leaders persuaded state and local policymakers to designate parts of PZs as Opportunity Zones, making them eligible for the tax benefits.  All of the urban PZs have had some portion of their area designated as part of an Opportunity Zone.[2]  The entire San Diego PZ is now comprised of an Opportunity Zone.  Nine of the fourteen urban PZs had more than half their area designated as an Opportunity Zone: San Diego (100%), Indianapolis (80%), both PZs in Los Angeles (77% and 53%), Philadelphia (63%), St. Louis (63%), Sacramento (61%), Atlanta (61%), and Minneapolis (55%).  The minimum overlap of a PZ with Opportunity Zones is found in San Antonio (20%).  A second federal legislative victory came in the 2018 Omnibus Spending Bill which reaffirmed PZ designations and continued designation agreements that had been made with the Department of Housing and Urban Development.  During the fall 2019 visit, NCPZ members focused on Opportunity Zone implementation and lobbied for more extensive federal grantmaking preferences for projects within PZs. 

Sustainability Challenges

A shift in political control of the White House presents two potential sustainability challenges, layering and backlash.  Layering is the more common challenge.  A new administration may develop its own urban revitalization policy, layering it on top of existing programs.  Since the 1980s, federal urban policy has promoted a series of initiatives including Enterprise Zones, Empowerment Zones and Enterprise Communities, Renewal Communities, Promise Zones, and Opportunity Zones.  While common threads run through these initiatives, each has generated a fresh process to identify new local beneficiaries, layering the new initiative on top of existing programs.  Backlash, an effort to undermine an existing policy, is a less-common challenge in the urban policy domain.  A new administration is more likely to allow existing policy to wither, rather than attacking it directly.  However, policies that assist marginalized groups are more likely to be backlash targets; backlash is also more likely if the change of administration also represents a change in party control in a highly polarized environment in which political elites strive to distinguish themselves from their predecessors (Patashnik 2019).  PZs were potential backlash targets, especially given President Trump’s penchant to roll-back Obama-era policies (Eilperin and Cameron 2017). 

To sustain policy there is a continuing need for policy maintenance, “the long-term care and upkeep of policies” (Mettler 2016).  Mobilization is the foundation of policy maintenance.  Policies that lack a capable, mobilized group of supporters are more likely to be reversed, gradually eroded, or displaced.  New institutional structures that create capacity can help to sustain policy by enhancing the ability of groups to mobilize (Patashnik 2008).  Beyond this, political mobilization is more likely when the policy distributes material benefits; policies are unlikely to be sustained if benefits are “too small, too delayed, too uncertain, or too invisible to mobilize supporters” (Bardach and Patashnik 2016).   

An Unexpected Mobilization

The NCPZ mobilization is unexpected for several reasons.  Political mobilization to sustain policy is a collective action problem; mobilization is difficult and costly and the gains to be won are public goods for the mobilizing group.  The formidable difficulties inherent in mobilizing are likely to be amplified in distressed communities, where resource limitations, lack of capacity, and limited political skills and experience can make mobilizing more difficult.  Beyond this, the need to mobilize across a widely dispersed and diverse group of communities (rural, tribal, and urban PZs spread across the nation) compounds this difficulty.  The mobilization is also complex; it requires ongoing contact and coordination of action between PZ sites and a variety of federal officials as well as state and local policymakers.  Finally, the material rewards available to PZs (preference points for consideration in future federal grant applications) provide highly contingent and uncertain incentives to mobilize, particularly in an era of declining federal grant support for programs that address urban distress.  Despite these limitations, the NCPZ mobilization was undertaken by a disparate group of disadvantaged communities, banding together to advance their policy agenda over time at the local, state, and national levels, in the absence of significant material rewards. 

Winning Grants

The preferred status PZs enjoy when applying for selected federal grants is the contingent material reward they received.  To assess the success of PZ cities in winning federal grants during the Trump Administration (fiscal years 2017 ad 2018) we counted the number of grants provided by Promise Neighborhood, Choice Neighborhood, and Byrne Criminal Justice Innovation grant programs.  These programs were the core of the Obama administration’s Neighborhood Revitalization Initiative (NRI) and were expected to be the foundation of revitalization efforts in PZs (Stoker and Rich 2019).   

Three of the fourteen PZ cities received support from one of the core NRI programs to implement projects (Indianapolis, Los Angeles, and St. Louis).  All of these grants were for criminal justice innovation (Byrne Criminal Justice Innovation grants were renamed Innovations in Community-Based Crime Reduction grants beginning in fiscal year 2018).  Two additional grants were provided to areas nearby PZs.  The United Way of Greater St. Louis, a key participant in the St. Louis PZ, won a separate BCJI grant in FY 2017 to implement criminal justice reforms in East St. Louis.  However, the PZ is located in St. Louis, Missouri, not East St. Louis, Illinois.  The United Way of Greater St. Louis serves both areas.  San Diego was the lone PZ city to win a Promise Neighborhood grant, but that was to fund activities outside the PZ (in Chula Vista).  No Choice Neighborhood grants were awarded in PZ cities. 

When judging the performance of PZ cities, it is important to consider the limited support that the Trump administration has made available for revitalization initiatives.  During fiscal years 2017 and 2018, twenty-six awards were made for criminal justice innovation.  However, only seven Promise Neighborhood grants and only eight Choice Neighborhood grants were awarded.  Our earlier research (Stoker and Rich 2019) reported comprehensively on the distribution of these programs to the fifty largest U.S. cities, including PZ cities.  Much more support was distributed: Thirty-four of the fifty largest cities won at least one of the three NRI grants; twenty-six won two or more; and seven won grants from all three programs.  Although this paper only covers the first two years of the Trump administration, PZs have faced significant limits on the number of available federal grants.

Conclusion

PZs have enjoyed some success during the Trump administration.  They have attracted a few of the federal grants that were available and have become eligible for extensive potential tax benefits.  These successes are the result of the remarkable political mobilization undertaken by NCPZ that prevented backlash and positioned PZs to win new benefits.  The mobilization shows that local actors from a diverse set of distressed communities with limited resources were able to solve their collective action problem and influence national, state, and local policy.  This suggests an additional element of President Obama’s urban legacy: Promise Zones have demonstrated that political action to advance a revitalization agenda across urban, rural, and tribal communities is a possibility yet to be fully realized.

However, the NCPZ mobilization did not prevent layering.  While there is extensive geographic overlap between Opportunity Zones and PZs, the creation of Opportunity Zones is a partial realization of the concerns that animated the NCPZ’s mobilization.  As the Trump administration continues to implement its own revitalization initiative, PZ designation may become less significant.  Certainly, the large number of Opportunity Zones dilutes the value of the federal grant preference points awarded to PZs by increasing the number of applicants in the preferred pool.  It remains to be seen whether PZs will remain distinct or whether they will be lost in the shuffle, a small and vocal subset among thousands of Opportunity Zones.

References

Abravanel, Martin  D., Nancy M. Pindus, Brett Theodos, Kassie Bertumen, Rachel Brash, and Zach McDade, New Markets Tax Credit (NMTC) Program Evaluation, Final report prepared for U.S. Department of Treasury, Community Development Financial Institutions (CDFI) Fund, (Washington, DC: The Urban Institute, 2013).

Atlanta, City of.  2020.  “Are You Missing Out on Tax Credits?”  Atlanta, Georgia: Invest Atlanta.  Accessed on February 7, 2020: https://www.investatlanta.com/site-selectors/resources/opportunity-zone-tax-credits

Bardach, Eugene and Eric Patashnik.  2016.  A Practical Guide for Policy Analysis: The Eightfold Path to More Effective Problem Solving (Fifth Edition).  Washington, DC: CQ Press.

Drucker, Jesse and Eric Lipton, “How a Trump Tax Break to Help Poor Communities Became a Windfall for the Rich,” New York Times, 31 August 2019.

Eilperin, Juliet and Darla Cameron.  2017.  “How Trump is rolling back Obama’s legacy.”  Washington, DC: The Washington Post (originally published 3/24/2017, updated 1/20/2018).  Available online: https://www.washingtonpost.com/graphics/politics/trump-rolling-back-obama-rules/?utm_term=.67fa65f42984

Ernsthausen, Jeff and Justine Elliott.  2019.  “One Trump Tax Cut Was Meant to Help the Poor.  A Billionaire Ended Up Winning Big.”  Propublica (6/19/2019). Available online: https://www.propublica.org/article/trump-inc-podcast-one-trump-tax-cut-meant-to-help-the-poor-a-billionaire-ended-up-winning-big

Internal Revenue Service.  2020.  “Opportunity Zones Frequently Asked Questions.”  Washington, DC: U.S. Department of the Treasury.  Accessed on February 7, 2020:  https://www.irs.gov/newsroom/opportunity-zones-frequently-asked-questions#general

Mettler, Suzanne. 2016.  “The Policyscape and the Challenges of Contemporary Politics to Policy Maintenance,” Perspectives on Politics, 14, 2 (June 2016): 369-390.

Patashnik, Eric.  2008.  Reforms at Risk: What Happens After Major Policy Changes are Enacted?  Princeton, NJ: Princeton University Press.

Patashnik, Eric.  2019.  “Limiting Policy Backlash: Strategies for Taming Counter-coalitions in an Era of Polarization.”  Annals of the American Academy of Political and Social Sciences, 685, (September 2019): 47-63.

Rich, Michael J. and Robert P. Stoker.  2014.  Collaborative Governance for Urban Revitalization: Lessons from Empowerment Zones.  Ithaca, NY: Cornell University Press.

Slate.  2020.  “Billionaires’ Favorite Tax Reform.”  Podcast (January 2, 2020).  Available online: https://slate.com/podcasts/what-next/2020/01/opportunity-zones-tax-reform

Stoker, Robert P. And Michael J. Rich.  2019.  “Obama’s Urban Legacy: The Limits of Braiding and Local Policy Coordination.”  Urban Affairs Review.  Available online: https://journals.sagepub.com/doi/abs/10.1177/1078087419849490

Tankersley, Jim.  2018.  “Tucked Into the Tax Bill, a Plan to Help Distressed America.”  The New York Times (1/29/2018).  Available online: https://www.nytimes.com/2018/01/29/business/tax-bill-economic-recovery-opportunity-zones.html

White House.  2019.  “Implementation Plan for the White House Opportunity and Revitalization Council.”  Washington DC: White House Opportunity and Revitalization Council.  Retrieved at: https://www.hud.gov/sites/dfiles/Main/documents/WHORC-Implementation-Plan.pdf

Endnotes


[1] Investors who claim Opportunity Zone tax benefits are not required to coordinate their investment decisions with local stakeholders (including local government).  Experience with the New Market Tax Credits (NMTC) program showed that community and local government stakeholder participation in NMTC projects was very uneven.  An Urban Institute evaluation found that discussions with public development agencies, community development corporations, or other community stakeholders occurred at some point during project development in only about half of the projects examined (Abravanel et al. 2013, 66-69).  Unlike PZs (which were designed to encourage local coordinate in grant seeking through the lead PZ agency), no mechanism currently exists to coordinate local Opportunity Zone grant seeking.

[2] Authors’ analysis based on PZ and Opportunity Zone shapefiles obtained from the U.S. Department of Housing and Urban Development, Office of Policy Development and Research, Enterprise Geospatial Information System (eGIS). The Promise Zone data was last updated on 9/19/2019 and the Opportunity Zone data was last updated on 2/20/2018.

Read the original UAR article here.

Photo by René DeAnda on Unsplash

Author Biographies

Robert P. Stoker is professor of political science, public policy, and public administration at the George Washington University. He coedited (with Clarence Stone) and contributed to Urban Neighborhoods in a New Era. He coauthored Collaborative Governance for Urban Revitalization with Michael Rich. His current research focuses on collaborative governance, neighborhood revitalization, and the nexus of poverty and work.

Michael J. Rich is professor of political science and environmental sciences, and director of the Policy Analysis Laboratory at Emory University. He is the author of Collaborative Governance for Urban Revitalization (with Robert Stoker) and Federal Policymaking and the Poor and several publications on a variety of urban public policy topics, including community development, housing and homelessness, crime, and economic development. His current research focuses on community building, neighborhood revitalization, and local poverty reduction strategies.

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