Middle-Market Public Policy Roundup

Capitol Hill will be focused this week on the impeachment trial of President Donald Trump, but work elsewhere in Washington, D.C., continues. In this week’s roundup, we look at legislation that would require opportunity zone funds to invest in smaller projects in poor and rural communities. Also, we examine a letter sent by House Financial Services Committee leadership about lack of diversity on SEC advisory boards, and the departure of the SEC’s Robert Jackson.

Proposed Law Would Require Opportunity Zones to Spread the Wealth

The opportunity zone program is still taking shape more than two years after it was passed as part of the Tax and Jobs Act. Some lawmakers say the program doesn’t go far enough to reach poor and rural communities, and they’re backing a bill that would expand its mandate.

Last week, two additional members of Congress, Reps. Frederica Wilson, D-Fla., and Steve Cohen, D-Tenn., were the latest to sponsor the Opportunity Zone Fairness and Inclusion Act, a bill that would encourage investors to support smaller projects and require them to be advised by members of target communities.

The bill was originally introduced in the House by Rep. Hank Johnson, D-Ga., in November to ensure opportunity zone investment reaches the economically distressed neighborhoods the effort was meant to benefit.

“As it currently stands, the Opportunity Zone Program is a tax relief program—not an economic development program,” Johnson said in a statement after the bill was introduced.

In a letter sent to other members of Congress on Jan. 8, Johnson said a major failing of current opportunity zone rules is they only incentivize large investment and development projects that don’t necessarily benefit the people who reside in a zone.

“There is a real danger that small businesses and individuals that live in those communities [targeted for opportunity zone investment] will be displaced or remain underserved,” he said.

If passed, the bill would require opportunity zone funds to devote a minimum of their funding to poor and less-populated areas of the country in order to take advantage of the program’s tax incentives.

For example, according to the bill’s text, at least half of the investment of a fund’s qualified opportunity zone property must consist of interests related to small businesses owned by women and “socially and economically disadvantaged individuals.” In addition, at least 30% would have to be invested in jurisdictions with fewer than 200,000 residents and at least 40% of the fund must not be invested in businesses and projects worth more than $20 million.

Additionally, the bill requires opportunity zone funds to work with investment advisory boards appointed by local governments inside the zone that will advise on where investment funds are directed.

The bill currently has seven co-sponsors in the House, but it not known when or if it will come to vote.

SEC Criticized for Lack of Diversity on Advisory Boards

In a letter sent to the Securities and Exchange Commission, two congressional leaders expressed concern for the lack of ethnic and racial diversity on the agency’s four advisory committees.

House Committee on Financial Services Chair Maxine Waters, D-Calif., and Subcommittee on Diversity and Inclusion Chair Rep. Joyce Beatty, D-Ohio, sent the letter to SEC Chairman Jay Clayton after a review found that none of the 23 members appointed to the agency’s newly created Asset Management Advisory Committee were black.

“Advisory committees play an important role across the federal government by providing advice and recommendations to the executive branch,” Waters and Beatty said in a statement. “To most effectively articulate industry concerns to the SEC, these committees should represent the diversity of the issue areas as well as reflect the demographic diversity of the businesses and consumers under SEC authority and purview.”

The review of the SEC’s other three advisory committees—the Investor Advisory Committee, the Small Business Capital Formation Advisory Committee and the Fixed Income Market Structure Advisory Committee—found only a limited number of Latinos and African Americans serve as committee members.

The review also found there are only three black committee members across the SEC’s 79 advisory committee seats, and only one member is Latino.

Waters and Beatty highlighted the lack of diverse perspectives at the inaugural meeting of the Asset Management Advisory Committee on Jan. 14.

“It is no surprise that the Asset Management Advisory Committee with its limited diverse membership would propose an agenda for its inaugural meeting with no plan to discuss the historical bias against and limited investment with diverse-owned asset management firms,” the lawmakers said in the letter.

Waters and Beatty said they want to examine the issue further and requested the SEC provide their committee with information by Jan. 31, including data on the demographics of advisory committee members going back to 2015 and a description of the committees’ appointment processes.

SEC’s Jackson to Step Down in February

Robert Jackson said he will step down from the Securities and Exchange Commission next month, temporarily giving advantage to the agency’s Republican-leaning appointees.

Following his planned departure on Feb. 14, Jackson said he will return to teach at New York University, where he is a tenured law professor.

“Serving on the commission has been the privilege of my lifetime,” Jackson said in a statement. “I will always be proud to have served with my fellow commissioners, Chairman Clayton and especially the commission’s staff, who dedicate their careers to protecting ordinary investors.”

Jackson is an independent who was described in the press as leaning Democrat for repeatedly opposing the commission’s two leading Republicans. He will leave a political imbalance at the agency—with one sitting Democrat—until his successor is nominated.

Caroline Crenshaw, an SEC lawyer and an aide to Jackson, is expected to replace him.