The city of Berkeley is exploring the prospect of creating an opportunity fund — an investment vehicle created under President Donald Trump’s 2017 tax bill — to direct investment into poor areas by outlining “opportunity zones” where real estate investments may significantly reduce federal taxes.
Berkeley City Council members voted at their regular Tuesday meeting to refer the future opportunity fund to the Land Use, Housing and Economic Development Committee, which will explore ways to repurpose the controversial tax provision into a progressive vision. Though many people are criticizing the program as a tax break for the wealthy that accelerates gentrification, the city of Berkeley hopes to use the program to do the opposite — primarily to construct low-income, subsidized housing.
For Berkeley City Council members, an opportunity fund could present a means to seriously bolster the city’s affordable housing numbers. In order to maximize its potential investor base and the amount of money that investors would be able to shield from federal taxation, the city would have to set up the fund before the end of 2019.
“When (this proposal) came to me, I was actually very offended because it is really just a tax shelter for extremely wealthy people who ought to be paying their fair share,” said Councilmember Rashi Kesarwani. “Nevertheless, here we are, so I think we can use this as an opportunity to impose our Berkeley values around tenant protections.”
The opportunity fund provision was added to Trump’s 2017 tax bill in an effort to lower capital gains taxes for investors who finance projects in about 8,700 opportunity zones throughout the United States. By transferring their dividend income to real estate investments in these zones, investors can defer their capital gains and even avoid taxes on the gains they make from the opportunity funds themselves.
One opportunity zone in Berkeley surrounds the southern section of Shattuck Avenue. A second zone covers an area adjacent to San Pablo Avenue in West Berkeley. The U.S. Department of the Treasury’s decision to place the two zones in Berkeley contradicts its provision to revitalize low-income neighborhoods, according to Councilmember Kate Harrison, who represents Downtown Berkeley, which is partially covered by one zone.
Harrison saved no criticism for what she excoriated as a deeply flawed program benefiting wealthy individuals at the expense of communities of color. She also suggested that, beyond creating its own equity-minded opportunity fund, the city should also look at ways to limit the harmful impacts of investor bank-led real estate development in the city’s opportunity zones. One such tactic would be to implement zoning overlays that raise the number of mandated affordable units in newly built developments.
Despite her concerns, Harrison agreed to take advantage of what Councilmember Ben Bartlett called a “powerful but blunt instrument.” Bartlett, who penned the proposal, said the fund would attract individuals looking not just for a return on investment, but also to make a positive social impact. He pointed to recently made millionaires who could potentially support the opportunity fund through tech companies that are planning to go public, such as Airbnb and Lyft.
“If we were to brand it as the Berkeley fund, many young professionals would want to line themselves with our values,” Bartlett said. “Other jurisdictions around the country are watching us to see what the protocols are, even if we don’t get it done.”