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Daily Tax Report: State

Fellow Democrats Stop California Governor’s Opportunity Zone Push

Sept. 11, 2019, 8:16 PM

California Gov. Gavin Newsom has failed to win support from lawmakers to create state-level opportunity zone tax breaks this year.

Newsom narrowed an already narrow proposal in last-minute negotiations this week with fellow Democrats, who control both houses of the legislature. But his plan never emerged by the Sept. 10 deadline for bills to be eligible for votes before lawmakers adjourn for the year Sept. 13.

“The administration remains committed to advancing the key priorities of affordable housing and green technology,” Newsom spokesman Jesse Melgar said.

Newsom wanted to give investors in California projects the chance to defer or reduce state tax gains on investments in the zones—a move that would complement the federal program. He tried to convince legislators that his plan was more focused, effective, and transparent than the federal opportunity zone tax breaks.

The governor faced stiff opposition from labor groups even though he agreed to limit the program to housing and green energy projects, cap investments from individual funds at $100 million, and cap total state allocations at $5 billion.

The California Tax Reform Association—representing unions including the California Labor Federation and Service Employees International Union—pushed lawmakers to reject Newsom’s plan as a tax break that wouldn’t result in more investments. Such criticism has also plagued the incentive at the federal level.

“Rather, such an effort would simply be a giveaway of California’s taxpayer dollars to wealthy investors: the epitome of corporate welfare,” the group’s leaders said in a Sept. 9 letter to the chairs of the Assembly and Senate budget committees.

CalOZ, an organization representing investors and business groups advocating for state-level zones, will continue to push for creation of a state-level benefit in 2020, President and Co-Founder Kunal Merchant said. Forty-six of 50 states have enacted state OZs already.

“We were already behind and this just puts us more behind in terms of attracting investment,” he said.

California designated 879 Census tracts as opportunity zones in March 2018. They are spread across 57 of California’s 58 counties, and many have poverty rates of at least 30%.

To contact the reporter on this story: Laura Mahoney in Sacramento, Calif. at lmahoney@bloomberglaw.com

To contact the editors responsible for this story: Jeff Harrington at jharrington@bloombergtax.com; Colleen Murphy at cmurphy@bloombergtax.com