Opportunity Zones

I was at dinner with my friend Stephen a month or so ago and he was bending my ear about a provision in last year’s tax bill that provides very significant tax incentives to invest in businesses or real estate in certain locations around the US that have been underinvested in.

It all sounded way to good to be true and I kind of ignored him. This sort of thing has been part of so many economic development plans over the years that it sounded like more of the same to me.

We had dinner again last week and he started in again, but this time we were with some other friends and they chimed in.

It turns out the tax incentives are as generous as my friend said and what seemed to me to be too good to be true is in fact true.

These locations are called Opportunity Zones and here is a map that shows where they are located. I bet there are some near you. There are a ton in NYC.

Forbes has a long piece on how these rules came to be and how they work.

I have never been a fan of letting taxes drive my investing and I don’t plan to change that but there are plenty of good investments that can be made in these zones and these new rules seem like they are going to catalyze them.


Comments (Archived):

  1. Matt Zagaja

    In Boston where I live, but also in other places, folks become concerned about the issue of gentrification. The challenge in this new economy being that gentrification is when success happens around you instead of happening to you. There is a qualitative difference between making an area more wealthy by bringing wealth and investment into it and helping the people there become wealthier. I am not sure I subscribe to this osmosis theory of economic development.

    1. PhilipSugar

      Here is the real issue. Let’s say you are poor. Now you might or might not care about this (I know this is hard for people to understand). You might think I need to live cheap and then work to “improve” my life or my kids or you might not care. That is why improve is in quotes. I think you should “improve” your life but maybe you don’t. Many people are very happy. But now you come in I don’t own my place and my rent quadruples. Now I am bitter.

      1. LE

        I think it’s a way of thinking in life that has to be enforced on people (children) at an early age. It is what I try to do with my spoiled stepkids. Life will suck unless you work hard and are in charge. And that takes money and a career. Not handouts.This does not mean that if you grow up in the ghetto you can be Fred or Joanne or even Phil or Larry. But it does mean that instead of trying to rely on others you should simply work hard every day and do what you can do. The problem is people (most people) are not raised this way from the start. And sure it is difficult for them as well. But my guess is that there are more people that can pull themselves out than currently do. And those are the ones that can be saved by tough love.My stepson was complaining that he had to come down the shore with us. He wanted to stay home. We said you are to young. I told him I remember when I was young having to do everything my parents wanted me to do. And that was a major motivator for me to make money so that I could be in control. (Millenials today don’t have that attitude because parents aren’t hard asses like my parents are.) And I repeat this to him all the time. Stepdaughter has already gotten the point and understand. Stepson no he is stubborn and more or less doesn’t get it.

  2. jason wright

    Why did the US buy Alaska?

    1. Pointsandfigures

      It was originally called Seward’s Folly during the Lincoln administration but it turned out to be a pretty great buy.

  3. Gregg Freishtat

    I also thought this tax incentive was too good to be true but after quite a bit of diligence have some high quality Opportunity Zone funds that are literally just being created. LIttle dicey as regulations and details are still being published by IRS but the tax incentive, savings, and potential impact on economically depressed areas are quite compelling. Being in the Solar business now, it is fascinating how big an impact these tax changes may have on new starts for Utility scale solar (almost always in low income per capita areas, capital intensive, and produce cash flows during deferral period.) If you have material capital gains this year, it is worth investigating.

    1. joewaltman

      Thanks for the info. Realizing details are still being defined, in your diligence, did you see anything about how the interim cash flows (i.e. income generated by the solar panels) are treated from a tax perspective?

      1. Gregg Freishtat

        The benefits are three fold. Tax gain deferred till 2026 or till assets are sold. If he’ll for 5 years you get a 10% step up in basis and after 7 a 15%. If you hold the investment for 10 years all gains on income or gain is tax free. The math regarding a solid solar farm with long term power purchase agreement are compelling.

        1. joewaltman

          Gotcha. So you would just have to ‘lock up’ the cash flows until the end of the 10 year period….then you could collect with zero taxes.It seems like it could also be interesting for a ‘buy and rent’ thing for residential real estate.

          1. Gregg Freishtat

            That is the overwhelming majority of the opportunity funds. Think utility solar is somewhat untapped and great diversification.

      2. JLM

        .The incentive applies to capital gains taxes, not ordinary income. Taxes would not change on operating income.JLMwww.themusingsofthebigredca…

        1. LE

          What is your take on this as far as ‘to good to be true’?I don’t know much about this at all. But digging in this seems to summarize the idea:Investments kept in the funds for at least five years receive an effective 10% reduction on taxes owed, while those kept for seven years receive a 15 percent reduction. After 10 years, investors won’t have to pay capital gains tax the proceeds of the Opportunity Fund investment – just the original investment that was rolled into it.So let’s take this scenario. You have capital gains of $100k of which you owe (nominally) $20k in capital gains taxes let’s say. You then tie up that $100k for 10 years and you no longer owe $20k in capital gains taxes. If you tie up for 5 years you save $10000 in taxes you owe $10k. Any increase you owe tax on so fine.Meanwhile you are investing in a risky area or idea. If the area takes off (because other people do the same) then you make out well with the increase in value (which you owe taxes on). However it doesn’t seem to be (as Fred is saying) good enough to change investment strategy. Icing on the cake and (per my other comment) and an incentive to take a look and get you off the fence ‘we will throw in a year of maintenance if you buy today’. But it certainly doesn’t seem anything close to (per Fred) ‘to good to be true’?Am I right? Or am I missing something about the benefit here?

          1. JLM

            .First, both Treasury and IRS have to finish writing their rules, so nothing is finished yet. Recall how long everyone took for the JOBS Act and you get an idea – 2 years?If you have a $1MM capital gain, currently, you owe 23.8% tax (20% income plus 3.8% Obamacare). So, you owe $238,000.You invest the entire capital gain ($1MM) in an Opportunity Zone census tract with or without others and you hold it until 2026.Your capital gains tax from the original investment (the $238,000) is not due until 2026, which means Oct of 2027 if you file an extension.In 2026, your capital gain is reduced by 15% meaning you owe 23.8% on $850,000 = $202,300. This is a savings of $35,700. [Tax deferral, with a splash of tax avoidance.]Meanwhile, you have the free use of the balance $797,700 in the new investment though you do have to pay ordinary income tax on anything you earn from the new enterprise.You hold the new investment and sell it at a profit after 10 years, you pay no capital gains taxes. It is unclear if you would be subject to depreciation recapture on real estate, but one has to suspect you would be. [Clearly tax avoidance.]Let’s say you put up your $1MM in the OZ program and leveraged it 4:1. Let’s assume it doubled in value over the 10 year hold.You would be walking away with a $5MM return (liquidation value $10MM minus original investment $5MM — cash investment $1MM plus debt $4MM) on a $1MM investment with no capital gains tax owed.Let’s say you made the same investment without the OZ program and leveraged it 4:1. Let’s assume it also doubled in value over the 10 year hold.You would be walking away with the same returns but a 23.8% capital gains liability on the $5MM capital gain = $1,190,000.The over/under for investing in an Opportunity Zone is $1,190,000 as outlined above. [You could throw in the $238,000 if you want.]The untouched variable is the underlying, fundamental quality of the OZ investment which by intent is a shitty market.In a great marketplace, maybe the non-OZ investment hits a 3X return making the entire comparison silly.My instincts tell me some sharp operators will crush it because the OZs will not really be troubled markets.Applying real estate fundamentals, I would pass on such a deal. I would rather take my chances on a superior market. There are a multitude of things which can go wrong with real estate, but location – bad location – is always fatal.A professional real estate guy would do a “deferred Sec 1031 like kind exchange”. This just transfers your basis from the old property to the new property plus any new money.If you bequeath the property to an heir (or do some fancy generation skipping trust work), you deliver it to an heir at a stepped up basis (market value) and, ultimately, completely cheat the tax man.I have never seen taxes trump real estate fundamentals, though a lot of money has been made by riding the wave. There will be a lot of “sharp” deals done, but it will no meaningful impact on jobs, poverty, or the economy.JLMwww.themusingsofthebigredca…

          2. LE

            <Great writeup.Your capital gains tax from the original investment (the $238,000) is not due until 2026, which means Oct of 2027 if you file an extension.Is this really true (October with extension)? Normally when you file an extension you still have to pay the tax when due just the paperwork gets the October extension (long time October filer here). Also I think you meant 2028 not 2026 no? 10 plus NOW = 2018.Also for this:You would be walking away with a $5MM return (liquidation value $10MM minus original investment $5MM — cash investment $1MM plus debt $4MM) on a $1MM investment with no capital gains tax owed. Let’s say you made the same investment without the OZ program and leveraged it 4:1. Let’s assume it also doubled in value over the 10 year hold. You would be walking away with the same returns but a 23.8% capital gains liability on the $5MM capital gain = $1,190,000.That is not the way I read it on a quick read. My take is you don’t have that benefit. I didn’t dig into this but a few things I saw seemed to focus on how the return (for a professional investment manager) seemed to appear much better numbers wise because of this. So that to me was the flag I look to think ‘this doesn’t matter to me’. Point being you still owe full tax on any gain. I would rather take my chances on a superior market. There are a multitude of things which can go wrong with real estate, but location – bad location – is always fatal.I agree 100% but with one exception. As a person we both know of once said (DT) ‘it is not risky to buy when all the risk has been taken out’ (from the guy before you who defaulted in other words). I just bought something along those lines. It’s at 60% of the price that someone else paid (that didn’t have the inside track) the same month. I can afford to be vacant for years and still not be in the same place as the person who paid ‘rack rate’ this year.

  4. PhilipSugar

    Here is the issue I have. When the government starts putting in incentives two things happen. It creates an un-level playing field, and you get players that are just playing for the tax game. As Fred points out good players do not do that.This is better than most as it applies to everyone that plays the game. But what if you were building a company right on the wrong side of the border? How did the borders get drawn (seeing the sausage get made would be an apt analogy)What really steams me is when I see specific companies get incentives. Here in tiny Delaware we have had Fisker Electric Cars (complete debacle), Solar Energy Panel (complete debacle), and Bloom Energy (fuel cells) which puts a surcharge on every electric bill. I go past the place every day. They might have 50 people 277 is a total lie. My parking lot has more cars. https://www.delawareonline….Over the last four years, Delawareans have paid nearly $130 million in energy surcharges – a benefit used to attract fuel cell company Bloom Energy to the state five years ago in exchange for a promise of 900 new jobs.Counting the surcharge alone, to date, the cost for each one of those pledged 900 jobs for Delmarva Power ratepayers amounts to nearly $145,000 per post.But in reality, Bloom didn’t create 900 jobs. The real number is 277 positions, meaning each one, to date, has cost ratepayers almost $470,000.The median annual household income in Delaware, according to the U.S. Census, is $60,235.And the surcharge continues until 2033.

    1. DJL

      You can thank Obama, and the coal-killing EPA for all of this crap.

      1. PhilipSugar

        I’m not going partisan, I am an equal opportunity hater. Just business. Detroit benefited for a long time from both parties that enforced regulations that made it hard to start a new car company…..look at Tesla’s problems trying to buck the dealership system and go direct. Union’s benefited from government regulation. When that was disrupted and when you got policies that said you get to import cars here made with labor with no OSHA laws, factories with no EPA laws, to places that charge a 50% tariff on ours. You got Detroit.

        1. Pointsandfigures

          I served on a committee in Chicago for exactly one meeting on Tax Increment Financing Districts or TIFs. Turns out it’s a big kitty for the alderman and they use it for pals. There is a lot of paperwork to be filed etc. I didn’t know much about TIFs at all and listened the discussion. The goal was to get businesses to move into areas where the locals needed employment. They had to run the alderman gauntlet to get the TIF deal. When asked to comment, I said if it were me I would just lower taxes for everyone with no paperwork and no government oversight. Let any business move in and receive lower taxes. In Chicago, they didn’t like that idea and it was my last meeting as a member of that committee.

          1. PhilipSugar

            Here is the biggest fallacy. Newsflash to you that live in big cities. Most of us drive to work. That’s right we actually drive. What does that mean? “locals need employment” doesn’t mean jack shit. Even the people building the buildings. You think they drive to work?? Newsflash since people live in their echo bubbles. When you get any sort of building done with specialties they actually fly people in. Yup, fly. Why? The tenth time you’ve done it you are fast. Then people drive in. See one of the fastest growing places in the U.S. https://www.bestplaces.net/…Look at the tax rate.

          2. LE

            What nobody ever talks about is the reason that people fled the cities in the first place. Cities were full of people that most people didn’t want to be around. Plus they wanted grass, a lawn, and the suburban lifestyle. And to get away from crime and ‘undesirables’. No way around that. People love the diversity of NYC but that’s because the ratio is heavily tilted in favor of ‘desirable’ or ‘acceptable’. Arnold thinks that graffiti in NYC is foundational to the experience but that’s because it’s juxtaposed against things he finds attractive and it’s not on his property. It’s almost like the cancer warning on cigarette boxes that triggered a positive reaction (not negative) in smokers. (Yes this really did happen and makes sense..)All those rich New Yorkers? Where do they go in the summer? They get out of the city to places that are like communities that many people live in every day. (It’s not all that there is a beach and water for sure. If it was just beach and water they’d buy a place in AC for less than you pay for a parking space in NYC). 2 hours on the Garden State Parkway south maybe 3 in traffic. View of Beach high floor for less than $200k.

    2. LE

      and you get players that are just playing for the tax game. As Fred points out good players do not do that.Not sure that I agree. What incentives do (whether it be ‘Prime Day’ or a car promotion) are draw attention to something. The incentive gives a person or a company a reason to at least consider and potentially choose A over B (with no incentive). People often need something to get them off the fence or at least looking in a certain direction. And people love a bargain. Even rich people. Even people or companies with money. Or to do something ‘today’ instead of waiting. [1] I don’t care about the savings but I actually did check in on Prime day and bought some things (that honestly I wasn’t even thinking of buying at the time. I then (because of my first class discipline) resisted the temptation to buy things I didn’t need. But that is me. My guess (and you know this it’s called ‘Christmas spending’) is that most people spent money they weren’t intending to spend at Prime day on things they didn’t need. (Impulse buying).Also as someone who manipulates people around this topic I can attest to the concept first hand btw.[1] Never make open ended offers always need a time limit and a ‘what if’. Got a big deal done recently with this when dealing with otherwise super smart people who simply didn’t want to take the chance that I wasn’t bluffing (I was bluffing…The Facebook deal that I told you about).

    3. sigmaalgebra

      But, but, but, you are not counting the externalities, the benefits to the commons of 100%, all-natural, renewable, clean, green, carbon-free energy to protect the pure, pristine, sensitive, delicate, Mother Earth environment!!!!Yup, as usual “Always look for the hidden agenda” and “Follow the money.”.

  5. DJL

    Almost the entire part of downtown Detroit is one. The Detroit comeback – while slow – is becoming real.Amazing, no one has died from Tax Reform yet. Almost all indications are positive – but you will never hear it reported in the news.

    1. Rick Mason

      With the Democrats, the schools and the media lined up against it tax reform’s successes are a rather well kept secret. Detroit’s comeback is real, but also something that has to be almost force fed to the media.

  6. Mac

    Yes, the Forbes article is long, but it is well worth the time it will take to read it and understand what is happening. We have 50+ designated O-zones here in South Carolina alone. The possibilities and opportunities are exciting.I encourage the AVC regulars to familiarize themselves with the provisions. The value proposition, for all parties involved, makes it a win-win. The growth potential, in these areas, along with the positive impact on social change, will make it well worth your time to at least become familiar with the effort now underway. Like Senator Scott, I’ve spent my entire life in this area and have seen first-hand that charity hasn’t helped turn the corner. It’s wonderful to see that Sean has teamed up with Tim Scott. He is one of the most descent individuals you will meet.

  7. Frank W. Miller

    Well, on the surface it looks like Sean and his brethren (you included I suppose) just worked themselves a great tax break. Find the next kewl startup, have them open an HQ or facility on the border of one of these zones which are probably close to some area thats already kewl and let the cash register ring on their equity stake. When they IPO or get acquired, they pay no taxes on the gain. The rich getting richer…

  8. Jud Waite

    This may “revitalize depressed communities”, but it will do so by pricing out a majority of residents. In this sense, these depressed communities aren’t revitalized at all… just relocated. This will only hurt the most vulnerable. https://nyti.ms/2NqjL0K

    1. Jud Waite

      Many of these communities aren’t depressed in the slightest. The Burlington, VT waterfront is one of the wealthiest communities in the entire North East. Nothing depressed or impoverished about this area, yet it’s one of the few “opportunity zones” throughout the state. https://uploads.disquscdn.c

    2. LE

      Well let me present a different perspective. Nobody has a right to live somewhere just because they have lived there. People can and do relocate to places that are less expensive to live than NY Metro area. The fact that someone grew up in a neighborhood (and was born there etc.) does not make them any more entitled to live there than someone who decides today they want to move in and pay vastly more for the real estate. That is what happens in a free market system. You don’t achieve rights by longevity. It is and always has been driven by money.People and families can always relocate to other areas and ok so maybe their friends and family will not move with them but unfortunately that is a cookie crumble issue. Not everyone gets the long end of the stick in the US. (Harsh thoughts, yes but that is the truth). [1]People move and are dying to get into the US from foreign countries where the distance to see friends and family makes it impossible. Not like simply driving 90 or 300 miles. They can more down to where I am (or where Phil Sugar is) get a job (there are plenty because the labor market here is shit) and live like a King for the rent that they pay in New York.Now of course they will not do that because there is no system that makes it easy or has available information that people priced out can take advantage of. So that is actually a problem that could be tackled by someone.Guess what? I would love to live in NYC. But it’s to expensive. But that’s the reason I want to live there. It’s not a shithole city because it’s to expensive![1] Along the same lines terrible what happened to the Papa John’s founder.

      1. jason wright

        “That is what happens in a free market system.”what’s free about it?

        1. LE

          Drugs in the Tom Petty song Free Fallin were not free either.

          1. jason wright

            free falling and no parachutes. that’s the American way. it’s a harsh system because by definition it guarantees that there will be mass socio economic casualties.

      2. PhilipSugar

        His point is exactly correct. Make a desirable area like waterfront tax advantaged. Then you gentrify and move the poor people out. Yup that is what happens, but like squeezing a ballon they go somewhere else.We can debate if that is bad or good. Or as you say free market or not.What we cannot debate is that it doesn’t help the poor people living there.

        1. LE

          Not disputing that. But by the same token that is not what Fred is saying. Fred is not claiming (in this post) that this helps any poor people. The quote in the parent comment ‘”revitalize depressed communities”‘ does not appear in anything that Fred is saying. The quotes make it appear to be Fred’s words. For some reason people think Fred has some higher duty or answers to a higher calling than he does as an investor. (In some cases he might but he is under no obligation anymore than either of us is).By the way the reason Atlantic City sucks today is because they didn’t move the poor people out (like apparently Las Vegas did). As a result it was never able to achieve the glitz and attraction of Vegas. The poor people (and seeing them) is a buzz kill. Not that you don’t go to island and see poor people. But they aren’t your poor people they are the poor people that are on an island.I always thought this. And if it wasn’t the case AC real estate would be 5x the value that it is today.The other dynamic that happens here is that existing owners of real estate tend to sit on things because they think they have a lottery ticket. So if they wait someone will come along and offer them millions. This also happened in AC when casinos came. That was the 70’s and some of the real estate is now worth much less than even then.

      3. Michael Elling

        LE, you, like most, may be missing the point that these examples are network effects at their finest. Value is captured at the core (and top) while costs are borne at the edge. Value grows geometrically. Costs grow linearly and more or less uniformly. What’s missing is a better redistribution of the value that is generated by those end-points. The investors/landlords are the (lucky) few who benefit from good timing, shrewd analysis, a lot of regulatory capture and natural network effects.Note, I am a fan of private investment over public investment as it better allocates resources and handles risk. But I’m not a fan of those who benefit unduly from regulatory capture and take the benefit of short-term network effects without recognizing the issues around sustaining the networks long-term; and there are many socio-economic and political networks intertwined around this issue.Achieving sustainability requires some form of equilibrating the value capture at the core with the costs at the edge. The imbalance is not sustainable. There need to be incentives and disincentives on both sides that balance, hopefully lowered, overall risk.Lastly, there is a moral aspect since those who have been there previously, either by choice or bad circumstances, and then are forced to leave due to changes outside their control, who are not adequately compensated. Note I witnessed my son, who works for such an investor, handing over a $30k check to a section 8 housing resident. The resident lived in absolute squalor and filth in one of the worst buildings I have ever seen that wasn’t condemned. Both sides (govt and investor) are wrong, albeit at different times, in the issue.

        1. LE

          Some good points but this:Note I witnessed my son, who works for such an investor, handing over a $30k check to a section 8 housing resident. The resident lived in absolute squalor and filth in one of the worst buildings I have ever seen that wasn’t condemned.This happens all over and you are just not seeing it. I don’t know what the solution is for that either. That said I am wondering what the squalor exactly looks like. The government for example and also the press and people didn’t seem to care much about Puerto Rico. I think they felt ‘yeah it’s ok this is how people like that live so what if they have no power or running water they are used to it’.

          1. Michael Elling

            This is why I am against most big government social welfare programs. They lack incentives and are not tied into network ecosystems. They are implemented in silos that are meant to solve for the “average” not “marginal” end-point. BIG will be a big failure if it is ever implemented.I saw “Leave No Trace” over the weekend. Whether it’s folks in PR or war veterans, it’s obvious that the current system (embodying the worst aspects of keynesian and neo-liberal thought) crushes the individual or societal group at the margin. It ends up having the exact opposite effect from what was intended.

  9. LE

    I have an investment in one of these zones actually. One of the motivators for me was because in the same zone a college and a utility company are doing new construction. Company headquarters and college campus. So that was the deciding factor for me to buy a piece of real estate right next door to the college (at a bargain price). I actually have a 2nd one that I am buying as well there. Without the OZ most likely I would have never done that. Nearby there is an appliance dealer that will typically get deals over even Home Depot or Lowes. Reason is they are in another zone and customers get charged 3% sales tax vs. state close to 7%. No question that drives business to them.That said property taxes are sky high in this area. You have no idea. You can buy dilapidated houses for nothing however the property taxes are higher than for a million dollar place in Brooklyn. [1][1] Rough arithmetic to prove a point.

  10. Daniel Silvermintz

    The challenge will be making investments that satisfy the requirements of the bill. There are two types of investments that satisfy the Opportunity Zone requirements – substantial improvement, which requires an investment equal to the purchase price of the asset (so you are investing 2x purchase price) – or original use, which requires the asset to be put into service with the Opportunity Zone investments. These requirements mean this provision is most conducive to real estate development deals, specifically ground up and heavy value-added deals

  11. bfeld

    Michael Hirshland at Resolute has created a non-profit to address this and is considering doing a fund as well. If you (or anyone interested in this) want a connect just tell me.

    1. Kelly Quann Bianucci

      Brad, we are working urgently in Colorado to raise awareness and educate the broad investment community about the Opportunity Zones and how/why they should engage. I will send you an email to connect with you and Michael on this so we combine these efforts. Thanks!

  12. kidmercury

    we’ll come to discover that these type of initiatives are far better executed by blockchain governments that airdrop collateralized tokens into an area to create a new centrally planned economy. in sum, central planning works far better when executed by an information rich digitally native government than an old school nation-state entity. coase or someone like him has a long paper somewhere about how centrally planned economies can work as well if not better as marketplace environments if information is perfectly distributed — which distributed ledger technology pushes us one step large, meaningful closer towards existence.anyway, that is all theoretical for now, though once one blockchain government figures it out, the formula will be obvious and everyone will rush in to replicate it in their own vertical/locality. the sun is rising on the golden age…..

    1. Michael Elling

      “information rich digitally native government”. How much local government are you involved in or with?

      1. kidmercury

        nothing besides voting and reading local news

        1. Michael Elling

          It might be worthwhile to attend some local political meetings, including board of ed meetings. They are mostly open. Then you will witness how few well informed people there really are, how many feel like they have some power over others, and how little they care about broader societal goals. As at the individual level, it is “what’s in it for them.”No understanding of micro or macro network effects and inter-working.A new order of governance at all levels needs to develop; starting with digital network infrastructure locally. That’s where I’m applying equilibrism first to universal gigabit access and secure, self-perpetuating and economically efficient sensor networks.And no, fully distributed blockchain based systems are not the answer.

          1. kidmercury

            IMHO monetary sovereignty is the answer. if that comes to fruition via blockchain technology, as it seems to me to be the case, then so be it. failure to establish a new monetary paradigm means more infrastructure collapse, pension crises, etc.

          2. Michael Elling

            You cannot resist natural forces evident in networks everywhere in the universe.All networks tend toward centralization. A centralized hierarchical stack. But in nature there is a component that tends towards decentralization and disruption at the same time. We (our socio-economic and political institutions) try to mitigate the risk of that happening. But we need to let it happen. I understand that is what you are trying to get at. But it cannot happen in fully distributed systems.The answer lies in Centralized/Decentralized Hierarchical Networks. CDHNs; everyone likes a good acronym. They account for marginal differences we see everywhere in nature: Zipf/Pareto distributions, normal/bell distributions, etc… At the individual level this means strength, intelligence, desire, emotion, natural abilities, etc… In terms of networks it’s the best way to clear supply and demand ex ante.Decentralized thinking is worse than communist ideology. (See my comments elsewhere here to LE). Where are the incentives? Where is the protocol stack (there can not not be one)? How are differences accounted for? In my model differences get managed at every layer of the stack, starting at 1 going to 7 and are visible across all density/geographic boundaries (PAN/LAN/MAN/WAN) and across all application or market segments. Note EVERYONE is on a unique demand curve. There are NO AVERAGES. There are steady state of tradeoffs across all these boundaries in the 3 dimensional framework.What goes for physical digital networks holds for virtual (socio-economic and political) networks that man has developed in likeness to natural ones found all around us.

          3. kidmercury

            i agree, though i prefer the acronym SCAB: semi-centralized applied blockchains. many blockchains are already becoming more centralized, though they can still retain some elements of decentralization, such as a mining/staking process that is more open to participation to computers beyond the control of a single organization.

          4. Michael Elling

            I question the economic efficiency of blockchain. To me it is nothing more than glorified database management; that doesn’t do the latter particularly well. I started looking at Hashgraph at the beginning of the year, but part of the (dis)trust, consensus and uncertainty aspects around data and transactions can also be solved by implementing some type of terminating settlement in all transactions which puts “economic skin in the game” for the sender. It balances risk This way of thinking is anathema to most who code.

          5. kidmercury

            IMHO it’s all moving towards semi-centralized chains, that will allow efficiency to be forced in as needed.

  13. Guy Lepage

    I personally feel this is a great idea. Smart. I feel as though you’re putting dollars to work in areas that could use it. And if this is correct…>With real estate projects come new office buildings, industrial districts, restaurants and affordable housing—all of which can lay the groundwork for an economic boom.The added affordable housing should assist with gentrification somewhat.As someone who grew up not well-off, I do recall moving a lot. But all my friends and everyone I knew did as well. It was just a fact of life.. I didn’t know anyone who dwelled on it. Especially friend’s who had it the worst tbh..New areas get developed and old one’s receive new life and prices go up. But there were some people in the older areas that gained from the housing increase. It was an opportunity for them to make a large leap forward in life. Rebirth is a good thing imo.

  14. LE

    I am reading the Forbes article [1] The article says this for example (my emphasis):Democrats, meanwhile, liked the prospect of pouring money into areas in dire need of funding. Also in the idea’s favor: It was new. “If you come up with something that’s completely novel,” Parker says, “there’s no organized opposition against it.”It’s not completely novel and it’s not new. The particulars might have changed but it is not new. I remember in PA hearing about KOZ’s (Keystone Opportunity Zones) way back in the mid 90’s from a man that ran for Mayor of Philadelphia that was hyping them. (Sam Katz). As I recall (fuzzy) his tact was specifically for ‘startups’ and that was part of the discussion. Same driver as Booker today. That is ‘the road is paved with gold we have to get some of this Internet magic’. (Was not called startups back then btw, that is something that came later possibly from Ycombinator time period.)https://en.wikipedia.org/wi…Forbes article is also full of ‘Sean put a great deal of effort into this it didn’t come easy so check your jealousy at the door please’. I am not doubting that that happened (effort) but it’s interesting that it’s actually more relevant than the fact that they want to make it appear that he pulled it off primarily by selling it and persevering (if you believe the article that is) more than the fact that he was someone who a clueless politician (Cory Booker et al) thought had some super special magic and gave him more meetings (or whoever he met with I don’t mean to single out Cory) than Joseph Blow. [3]This is illustrated by what Booker said here in particular:“If we can get the trillions of dollars of capital off the sidelines and get the best investment minds coming into our communities,” adds Booker, a New Jersey Democrat who cosponsored the bill, “we can end up creating jobs and opportunity.”That ‘best investment minds’ is one of the things that always hangs people up. Concentrating on the person who has the idea vs. the idea and the halo somehow creating a situation whereby the idea which doesn’t stand on it’s own is taken more seriously. Even Fred is guilty of this. Apparently for some reason ‘Stephen’ was ‘bending his ear’. (Kind of disrespectful and parental ie ‘whining for a toy’). On the other hand when other people said the same thing all the sudden Fred listened to his whining kid. [2][1] Full of emotionally provoking fluff ie ‘met over expensive sushi’ and ‘flew in by private jet from Los Angeles’ ritzy Holmby Hills’ and as always you have to understand that this is a news article and not rigorous research.[2] Of course maybe Stephen is constantly pushing cockamamy ideas to Fred and there is a reason he doesn’t take what he says with any seriousness.[3] Also known as “Joe Blow”.

    1. sigmaalgebra

      Ah, the Do Good, Feel Good, Good Fellows Bandwagon Is Coming to Town!!! Direct from Silicon Valley, billionaire magic money celebrities flying into town in their private jets, arriving in stretch limos, to receive the Keys to the City! Get on the bandwagon! Big smiles and handshakes for everyone! Live coverage at 5!! Soon bails of money will be falling out of the sky, and we will passing out $1000 bills to ordinary people on the streets! The only downside is that we will make so much money that people who don’t get on the bandwagon early will be priced out of their homes. But, no naysayers, skeptics, or killjoys accepted!!!

    2. Adam Sher

      KOZs in Philly are often used for large business (e.g. CBRE, Urban Outfitters, GSK) to lower their operating costs at the expense of landlords and the tax base. There is also a large KOZ around Penn and Drexel (University City). University City has the highest occupancy and rents in the Philly MSA; it is not an area in need of tax incentives.

      1. PhilipSugar

        Exactly (I went to Penn)

  15. JLM

    .This is the kind of tax program which can only be approved by a Republican administration under the sponsorship of a Republican Senator, Tim Scott.The Republicans are always willing to tamper with the Tax Code and let a guy shoplift a bit of their own taxes, while the Dems only want to increase everybody’s taxes.It is good to see that people on all sides, even Freddie, appreciate the governance philosophy of the Republicans.Thanks, Donald.JLMwww.themusingsofthebigredca…

  16. Salt Shaker

    Builders often get tax incentives by requiring a certain percentage of units are allocated to low income residents. Why isn’t a similar base requirement included in these tax incentives wrt local employment? At some level, this will insure that local displacement doesn’t occur and it gives consideration to gentrification concerns.

    1. LE

      this will insure that local displacement doesn’t occurNot true. No way there will ever be enough set aside so that that happens. Also it raises the cost of the project. Thereby in theory further inflates other real estate (comparative value). Plus you are not factoring in that you can’t control people moving into an area and competing in some way for the some low cost housing.Summary: Drop in the bucket but one of those ‘check the boxes’ and/or ‘providing for the poor theater’. That is where a politician does something that justifies an action that in reality has little to no impact.

      1. Salt Shaker

        Le, I said at “at some level.” Wasn’t suggesting this is a panacea. The current quid pro quo isn’t strong enough, imo.

        1. LE

          Since you said the following’this will insure that local displacement doesn’t occur’My reply means that I think that what appears before ‘at some level’ means the actual impact is near meaningless and is actually ‘providing for the poor theater’.But forgetting that (we different in opinion which is fine) what exactly would you say should be required by a company that is offering to bring jobs into a OZ exactly? (It’s not the same as housing and obviously in theory they are already employing local residents if they can.In other words what is ‘the similar base requirement’ example that you would try to require?

    2. Adam Sher

      Builders often forsake low income credits or requirements because it’s more valuable to fight the city, or pay a fine/bribe, to not build low, or controlled, priced housing.

  17. Dorian Benkoil

    Well, since politics is coming up: Glad to see there are both “blue” and “red” areas on the map.

  18. JLM

    .There are and have been a number of similar programs which allow developers to get rich(er) while doing their core mission – developing stuff.MUDs (municipal utility districts), RFDs (road financing districts), TIFs (tax increment finance districts), EZs (empowerment zones) and now, OZs (opportunity zones).MUDs/RFDs/TIFs allowed developers to install utilities and roads and be reimbursed by the cash flow from incremental property taxes and to eventually force the debt into the sponsoring entity which collected the property taxes directly.A lot of marginal deals got greenlighted because they could finance the improvements with these property taxes to be paid subsequently by others.I mention this to make the point that none of these programs really benefited society at large. They benefited the sponsors.JLMwww.themusingsofthebigredca…

    1. Adam Sher

      Yes, yes, yes.

  19. Banet

    The zones around me in Brooklyn are bonkers. Most of Red Hook and most of Gowanus are on the map. Real estate has doubled or tripled in the last decade there. No incentive is needed to invest there.Even stranger, about 1/3rd of Brooklyn Heights is listed. This is one of the wealthiest neighborhoods in all of New York City. Townhouses routinely sell for $5MM and a number are on the market for $10MM.(Interestingly, Jared Kushner was part of buying up a few hundred million dollars of Jehovah’s Witness buildings in the neighborhood… right in the middle of this zone. Kind of suspect if you ask me…)

    1. PhilipSugar

      Same for me. Some are poor, but the boundaries go to where houses are $1mm+

    2. Vasudev Ram

      Sign of a scam of some kind, maybe? A pump-and-dump scheme, or similar?

  20. "one for you, nineteen for me"

    “I have never been a fan of letting taxes drive my investing and I don’t plan to change” That was asserted like a true cowboy.I posted the following comment on AVC.com back on June 18, 2018….https://avc.com/2018/06/rap…Mega venture funds, such as Sequoia Capital, will gradually use their economic and political advantages to crush small VCs like Union Square Ventures.For example, how much money can Union Square Ventures afford to spend on lobbying and political contributions? Sequoia Capital can probably easily afford to spend 5 million to 10 million dollars per year on lobbyists. Small changes to, say, the tax code could save them hundreds of millions of dollars per year. But, unsurprisingly, such changes might not help small venture capitalists much at all. Who woulda thunk it?The Beatles – Taxman (Cover) lyrics description.https://youtu.be/MbQiVQuiu0

  21. apedraza

    seems like a great option for crypto investors to diversify some of those LT gains while investing in projects that have a positive impact on undeserved communities.

  22. Adam Sher

    The idea smells like trickle down economics by another name. However, it’s a great example of the private sector (Sean Parker in this case) using their time and money to create policy. Below is a paper from the St. Louis Fed on the effects of gentrification on the incumbent residents.https://www.stlouisfed.org/

  23. Per Hansa

    Instead of offering tax breaks to the wealthy to put money in poor areas, we should make it easier for poor people (or anyone) to move to wealthy areas. Get rid of zoning restrictions in the west side of San Francisco and you’ll create an “Opportunity Zone” for perhaps as many as a million new residents at zero cost to the tax payer.There is a tremendous amount of research suggesting that programs that make it easier to move from poor to wealthy areas are an effective way to reduce poverty, see Raj Chetty’s research on small area fair market rents and other such tools.ps next time invite me to dinner and I’ll be happy to discuss 🙂 Or you could invite any of the following economists Austin Goolsbee, Ed Glaezer, Enrico Moretti, Chiang Tsieh. Even Kevin Hasset, in the administration, admits these are an experiment with no strong evidence to support the claim that such schemes have worked in the past.