A bill on the verge of reaching the floor of the Oregon House of Representatives would require opportunity zone funds in Oregon to provide information to state agencies, which would then study whether the tax benefits are providing public benefits.

House Bill 4010 would also reduce the generous tax treatment in state law of capital gains from opportunity zone funds, but not eliminate it entirely, as a previous version of the bill would have done.

Investors would pay capital gains tax on half the gains from the original basis after 10 years.

Bennett Minton, a tax watchdog with Tax Fairness Oregon, said the bill is a step in the right direction.

“Here we’re going to get a chance to study right now how it’s working,” he said.

Each opportunity zone fund would be required to submit an annual report to the Department of Business and Consumer Services. The reports, which would be due by Oct. 1, 2020, and each year thereafter, would contain a description of all assets held by the qualified opportunity funds, including addresses, and the ownership structure of any business in which the fund is invested, including whether the business is minority- or women-owned.

The House bill is in limbo, along with the rest of the short session, after Republican legislators walked out Monday, depriving the Legislature of a quorum.

The bill had its second reading Monday, and a third reading is scheduled for Tuesday. It’s sponsored by Rep. Nancy Nathanson, D-Eugene.

Opportunity zones have sparked considerable interest from investors, particularly in Portland, where an opportunity zone covers valuable real estate including much of downtown, the Pearl District and Central Eastside. Several projects, including the Block 216 tower, are using the funds.

Critics charge that the tax gains go to projects that would be built anyway, and decry the lack of information on how opportunity zones are being used. At the federal level, Sen. Ron Wyden, D-Oregon, has sponsored legislation that would institute reporting requirements.

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A major affordable housing developer has requested an exemption to proposed legislation that would decouple Oregon’s tax treatment of opportunity zone projects from federal tax benefits.

Legislators are considering a bill that would eliminate state tax benefits for one year while the federally recognized opportunity zones play out in Oregon and across the nation.

While most opportunity fund investments in Portland have flowed to large and expensive market-rate projects, some affordable housing developers are using opportunity zone benefits to attract investors.

“We are using opportunity zones – mostly in affordable housing deals,” said Cynthia Parker, chief executive of BRIDGE Housing, one of the West Coast’s largest developers of affordable housing.

Parker submitted written testimony to the Oregon Legislature lobbying for an exception for affordable housing if the bill, House Bill 4010, is passed.

“Since the 2017 Tax Cuts and Jobs Act was passed, BRIDGE has worked diligently with investors to educate and promote usage of the (opportunity zone) program for the benefit of affordable housing developments,” Parker wrote. “We strongly recommend that a carve-out be made that would allow (opportunity zone) investors to receive tax benefits from both the federal and state if the underlying Qualified Opportunity Zone Business were an affordable housing development.”

A carve-out would create a 10 percent to 20 percent increase in yield for investors, Parker estimated. That makes it appealing for socially minded investors.

“It’s going to be a special-impact investor who wants to make a difference,” Parker said. “It’s not a deep subsidy; it was never intended to be a deep subsidy.”

BRIDGE Housing is seeking investors for an affordable housing project in Southwest Portland’s RiverPlace area, Parker said.

The so-called “decoupling” bill would dent the tax benefits for investors in Portland’s opportunity zone, which has received national attention for its location in highly desirable areas including downtown, portions of the Pearl District and Central Eastside Industrial District.

By reducing the tax benefit investors could expect, it could also make it more difficult for affordable housing developers to raise funds.

Democrats and tax-fairness critics have blasted opportunity zones for offering capital gains tax benefits that go to wealthy investors. Critics argue that many opportunity zone projects would still get built without the subsidies.

“Who’s going to not invest because they got a haircut?” said Bennett Minton, a tax policy watchdog with Tax Fairness Oregon. “Either the projects work or they don’t.”

Bill sponsor Rep. Nancy Nathanson, D-Eugene, did not directly answer questions about Parker’s carve-out request. Nathanson serves as chairwoman of the House Revenue Committee.

“The conversation is ongoing about the opportunity zones legislation and the issue remains in flux,” she stated in an email. “I remain committed to a conversation about the value of opportunity zones.”

In Portland, opportunity zone investments have so far gone to large market-rate projects including the Block 216 mixed-use tower, the PAE Living Building and a proposed Sturgeon Development Partners office building.

Opportunity zones offer a number of tax benefits. Primarily, they encourage investors to hold onto a property for 10 years to avoid capital gains tax.

Other affordable housing developers are watching and waiting. Dan Valliere, CEO of REACH Community Development Corp., said the nonprofit is not actively pursuing opportunity zone funding. He questioned whether opportunity zones will help spur investment where it’s most needed.

“The way it’s structured now, there’s very little accountability to make sure this is creating social impacts,” Valliere said. “They’re just standard real estate investments, which is fine. But it doesn’t really make sense to give it a tax benefit.”

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Legislators are gathering in Salem for a five-week session that could have long-lasting effects on construction, commercial real estate and development.

Or, it could end with another walkout by Senate Republicans, limiting legislative progress on a host of priorities set forth by Gov. Kate Brown, House Speaker Tina Kotek and other Democratic leaders.

The Oregon Legislature will convene on Monday. At the top of the agenda for Democrats, who control both chambers, is cap-and-trade legislation that would limit carbon emissions. It’s broadly similar to systems in other states that cap emissions and let polluters trade for credit, with twists to address Oregon’s urban-rural divide.

Conversations are under way to persuade Senate Republicans to stay in Salem for the session.

“We’re hoping that they’re not going to use the same tactics and basically kill the short session, because there’s other important legislation that needs to be dealt with,” Rep. Mark Meek, D-Clackamas County, said.

Brown made a case for climate change legislation on Monday at a City Club event in Portland.

“We must do something meaningful and soon about climate change,” she said. “This is the challenge of our time.”

Yet Brown turned aside a critical question about the Oregon Department of Transportation‘s nearly $1 billion Rose Quarter project.

“We absolutely must address the Rose Quarter issue to increase safety and, at the same time we can do this with a layer of congestion pricing, and that should make sure it’s carbon neutral,” Brown said Monday.

Several changes have been made to climate change legislation that the House passed last year. The new Senate Bill 1530 would sharpen different approaches for urban and rural Oregon. The bill would require 80 percent of fund raised to be spent locally. ODOT would receive the remaining 20 percent, but the agency would be required to spend much of the revenue where it’s raised.

The cap-and-trade – or, to supporters, “cap and invest” – bill would roll out gradually by region, with Portland first subject to the requirements in 2022. Other cities would follow in 2025. Rural areas would have the option of opting in thereafter, but would not be required to do so.

“The majority of truly rural communities will be exempted from price increases at the pump,” Brown said.

The city of Portland has supported legislation to reduce greenhouse gas emissions, but hasn’t taken a position on the Senate bill, said Elizabeth Edwards, director of the city’s Office of Government Relations. “We’re reviewing it now and getting input,” she said.

The Senate Republican caucus did not immediately respond to a request for comment.

In other legislation:

• Brown has filed a resolution, H.J.R. 203, which would authorize real estate transfer taxes to fund affordable housing. The resolution would be referred to voters as a constitutional amendment. It would essentially undo Measure 79, a 2012 ballot measure that prohibits real estate transfer taxes.

If the new measure were approved, the transfer fees would not apply to the first $500,000 of real estate value, exempting most home sales. (The median price of a Portland-area home was $410,000 in 2018, according to RMLS, and most rural areas have lower property values). The bill is likely to attract fierce opposition from the real estate industry.

• State Rep. Nancy Nathanson, D-Eugene, is sponsoring a bill that would “disconnect” state taxes from federal opportunity zone tax breaks. Investors would still earn federal tax breaks, but not additional state tax breaks, she stated in an email.

“The intent was to provide incentives for investors to invest in low-income communities,” Nathanson stated. “The cost to the state, however, is significant – estimated at $10 million or more for the first year – and legislators, constituents and some advocacy organizations are questioning whether the public benefit is worth the loss of revenue to fund critical programs.”

The bill would suspend state opportunity zone tax breaks for a year to allow time for a study of Oregon’s zones.

Portland’s opportunity zone has received national attention for its location covering downtown, Pearl District and Central Eastside real estate that is highly desirable to developers. Opportunity zone funds have been created in Portland for the 35-story Block 216 tower, a luxury hotel and condominium project; 11 West, a 25-story mixed-use building; and a proposed eight-story office building in the Central Eastside.

“The goal would be to come back next year and find out whether we want to reconnect with these opportunity zone breaks with a better understanding of what would best suit Oregonians and how we could best support Oregon,” Meek said.

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