"Byrd droppings" and bipartisan bills: Why economists wait for the data that will reveal the effectiveness of Opportunity Zones

• Opportunity Zones (OZs) were part of the 2017 Tax Cut and Jobs Act, but were introduced without any reporting requirements, due in part to a legislative rule known as "The Byrd Rule."
• Kenan Fikri, director of research at the Economic Innovation Group, which helped push through the OZ legislation, said he and his team have had to use local media and other public sources to understand how OZs are playing out in the real world.
• OZs have been the target of criticism recently for investments that appear to support communities that are not low-income, and might benefit wealthy investors. New legislation proposed last week would supposedly bring new transparency to the program.
• Fikri said that real-time data of any new policy is unrealistic, and that economists understand this.
• This story is part of our series Practical Economics.

Kenan Fikri saw first-hand how a once-prosperous region can become blighted by technology innovation and economic downturn.

"Growing up in upstate New York and seeing Kodak, Xerox, really high-value companies - seeing that model and those communities fade away gave me a personal interest in how investment plays out in communities across the map," Fikri said.

Fikri now is director of research at the Economic Innovation Group (EIG), an organization founded by early Facebook investor Sean Parker, who originally worked to conceive the idea of Opportunity Zones (OZ). EIG collaborated with lawmakers to include OZ investment options in the 2017 Tax Cut and Jobs Act. He and his research team of four are waiting to analyze official data from the OZ program to uncover insights that will expose its successes and lapses.

But his team, and the rest of the country, will have to wait. Through a bureaucratic quirk of the legislation's passing, that data is not available - anywhere. Upcoming bills may change that, but for Fikri and the rest of the country, the wait to see exactly what these investments are doing continues.

The situation is a lesson on how data, and the work that economists do to interpret and socialize it, underpins some of society's most important stories.

Bipartisan bills and "Byrd droppings"

To begin at the beginning: An OZ is an area of low income, identified by state governors through census data. The rule allows people who are holding onto capital-gains wealth to reinvest it into these OZs, in exchange for various incentives, including a tax deferral. When first introduced, the legislation was only applied to real-estate investment but, since additional regulation in April 2019, now includes business investments.

At its inception, the OZ program had broad bipartisan support, but recent national headlines have brought new skepticism to the program and its investors, culminating in late August with a New York Times story headlined, "How a Trump Tax Break to Help Poor Communities Became a Windfall for the Rich."

EIG and others who support OZs lack data to either affirm or refute the criticisms, because the information that is known about implementation of OZs is largely anecdotal and fragmented. That's because no systematic reporting requirement was included in the 2017 Tax Cuts and Jobs Act.

"In the absence of that data, we are operating in a kind of information void," Fikri said. "In an environment that is completely new, and we don't know what places are benefitting from the tax policies and the dollars unlocked."

Why no transparency requirement in the first place?

The reason the legislation went through without a reporting requirement, Fikri explained, was because the bill passed "by reconciliation," in which simple majority wins. The reconciliation process is intended for tax and spending bills so the government keeps functioning and doesn't get entangled in complex debates.

Anything more complicated in the bill, like reporting requirements, would be subject to "the Byrd Rule" - named for the late West Virginia Senator Robert Byrd - and stripped out, a process that is known colloquially as "Byrd Droppings."

As a result, the only known paper trail related to OZ investment is the required IRS filings, but privacy requirements may limit the amount of information from those filings that ever make it to the public.

As of last week, OZs are the focus on two new pieces of legislation intended to tackle the lack of data collection, as well as the legitimacy of certain designated OZ sites. One bill was introduced by Senator Ron Wyden (D-OR) that would require public information reporting on investments, as well as a culling of any current OZs that are not actually poor areas. The other is a bipartisan House of Representatives bill, introduced by Ron Kind (D-WI), Mike Kelly (R-PA).

EIG has praised the portions of both bills that lay require reporting and transparency, while taking some issue with Wyden's broader goal of declassifying certain areas deemed OZs.

Data always lags behind, economists are used to it

Fikri and team, meanwhile, are doing what they can to source information about OZs successes and failure by other means, including scouring local media sources reporting about investments in towns and cities. "It's coming from news clips and press releases from Google alerts that we have set up here," he explained. "That's an example of what you have to do when you don't have consolidated data."

EIG has also planned for the long haul by creating a database of information about the communities that have been designated OZs, including profiles of residents, businesses, and income levels, so they can benchmark progress.

Next week, EIG will launch a new information platform that will, according to Fikri, "demonstrate the diversity of investments and initiatives being catalyzed by the new policy, and the broad geographic reach of the money that is starting to flow."

Even as demand grows for more accountability around OZs and who is investing in them, Fikri said it's important to remember this is a new program. "There's understandably a huge hunger to know more about its impact. But we have to be realistic: no policy offers real-time national data," he said. "Data always lags. Economists are used to that."