WASHINGTON--Joint Economic Committee Chairman Erik Paulsen, R-Minn., delivered the following opening statement at a hearing entitled, "The Promise of Opportunity Zones."

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Remarks as prepared for delivery:

I call this hearing to order.

Good morning and welcome to today’s hearing on “The Promise of Opportunity Zones.”

America’s new economy is finally taking off. The Congressional Budget Office (CBO) now projects 3.3% growth for 2018, the highest annual growth rate since 2005, up from the meager 1.9% it estimated prior to the Tax Cuts and Jobs Act and regulatory reforms.

While all Americans benefit from faster growth, we can and should take special care of those communities who are in greater need of support.

Some communities, both urban and rural, are having a particularly difficult time.

The new tax law contains a provision that deserves more public attention, one that is designed to help lower-income areas.

The law provides a capital gains tax incentive to encourage long-term private investments in communities that have had difficulty attracting jobs and new businesses.

Unlike past targeted incentives, the areas are selected by governors, who know the unique needs of their communities, instead of by the federal government.

Opportunity Zones have been a bipartisan, bicameral initiative. The House author of the original legislation, the Investing in Opportunity Act, is former Representative Pat Tiberi, who chaired this Committee until January of this year. We are honored to have the Senate author with us today, Senator Tim Scott of South Carolina.

Opportunity Zones hold the promise of flexible, innovative solutions.

Flexibility is important because the reasons some areas lag economically vary across communities and regions.

A factory central to a town’s economy may have closed, leaving workers searching for new skills and jobs—that is, if they haven’t giving up entirely.

The area may have underperforming schools.

They may lack access to capital.

Excessive taxes and regulation may have made it difficult to start or maintain a business.

The community may be struggling with rampant drug and alcohol abuse.

This is why one-size-fits-all federal spending programs or incentives to invest only in particular activities are not well suited to address each community’s unique set of challenges.

This is also why Opportunity Zones, which allow the private sector and local communities to innovate and collaborate on the best solutions, have much greater potential for meeting those unique needs.

John Lettieri, one of our distinguished witnesses today, put it well in a recent op-ed in The Hill. He noted that previous location-targeted programs had an “…overly prescriptive, top-down approach that left no room for local experimentation.”

Opportunity Zones, on the other hand, will bring, “…the best possible mix of investments in new and expanding businesses, infrastructure and energy projects, commercial real estate, affordable housing, and more.”

Opportunity Zones also hold the promise of local knowledge and engagement. They are chosen by governors who know their communities well and not by federal planners with a formula-based spreadsheet.

Across the country, there are about 8,700 Opportunity Zones.  

My own state of Minnesota is hoping to attract additional long-term private investment into 128 census tracts recently selected as Opportunity Zones.

State and local leaders can also help their communities in thriving by collaborating and removing unnecessary barriers to starting a business, such as overly prescriptive occupational licensing or local zoning ordinances.

Opportunity Zones also hold the promise of access to a large amount of untapped capital. Investors who reinvest capital gains from another investment into these zones can temporarily defer taxes. 

Investments are pooled in Opportunity Funds so that no single investor has to have specialized knowledge about how and where to invest since those decisions can be made by experts who manage the funds.

The longer investments are held in Opportunity Zones, the more the capital gains relief grows—a strong incentive to invest in a community for the long haul.

This also encourages fund managers to invest in enterprises that will yield the most success and prosperity for a community.

With an estimated $6 trillion in unrealized capital gains and no up-front state or federal cost, the potential for investment flowing into struggling communities is almost limitless.

We have a highly knowledgeable panel of witnesses today who have been engaged in the Opportunity Zone initiative and whose observations and insights I very much look forward to hearing.

Before I introduce the witnesses, I now recognize our Ranking Member, Senator Heinrich, for his opening statement.