By Bo Erickson and David Hood
WASHINGTON (Reuters) -President Donald Trump’s mass firings of federal workers during the second-longest government shutdown in U.S. history could hamper implementation of two tax incentives made permanent in his massive tax-cut and spending bill meant to boost investment in low-income communities.
The administration said in a court filing that more than 1,400 Treasury Department employees were fired. Those firings were put on a temporary hold by a federal judge, but according to two people briefed on the plan, they target about 95 staff members of the Community Development Financial Institutions Fund, which spearheads economic development programs within the department.
The fund’s staff works on two tax provisions made permanent by Republican legislation this year, administering the New Markets Tax Credits and helping the Internal Revenue Service establish the Opportunity Zones program.
For the last 25 years, the new market credits encouraged private investments into manufacturing, offices and retail locations in economically distressed areas with low median incomes and high rates of unemployment. Within the last seven years, governors encouraged more than 8,700 opportunity zones in every state to attract business and housing developments.
Without the CDFI fund staffers, money appropriated by Congress for the programs could be left unutilized, which would delay investments throughout the country, said Pravina Raghavan, the most recent head of the fund who stepped down in July.
“It blows your mind. You made something permanent, but you’re not going to run it, so why make it permanent?” said Raghavan, who now leads Locus Impact, a Richmond, Virginia-based CDFI.
The White House and Treasury Department did not respond to requests for comment.
CUTS HIT YEARS-LONG PROGRAMS
The programs use similar tax mechanisms to drive private investments into low-income neighborhood businesses and housing developments.
The New Markets Tax Credits offer investors lower taxes through credits. Opportunity Zones allow investors with income from selling stocks and property to lower and delay paying capital gains taxes.
In July, Republicans in a party-line vote approved $5 billion in annual funding for the new market credits and reauthorized the Opportunity Zone program in Trump’s tax-cut law.
Trump has boasted about opportunity zones since they were created in his first term, calling the program “probably the number one economic development project ever in our country” at a White House Black History Month event in February.
Both programs have gone to every state in the country, with more than $77 billion in new market tax credits awarded since 2000, and more than $100 billion invested in opportunity zones.
Six of the top 10 states with investments through the new market tax investments are represented by Republican senators, according to real-estate consulting firm Novogradac.
Yet the firings, which are separate from the temporary furloughs federal workers experience during a shutdown, threaten the program’s stability.
Trump recently said these actions were targeted at “Democrat programs,” a stance meant to increase pressure on Senate Democrats who have voted against Republicans’ stopgap funding bill 11 times so far in a bid to force a conversation about healthcare fixes. As of Wednesday, the shutdown is in its 22nd day, tying a record set in late 1995 and early 1996 for the second-longest government shutdown in U.S. history.
“It’s completely mind-boggling that the president’s own budget office would seek to completely dismantle the CDFI Fund. Makes you wonder if the president was even made aware,” said U.S. Senator Mark Warner, a Virginia Democrat who called the permanency of the new market tax credits “one of the few bright spots” in the Republicans’ legislation.
STAFF NEEDED TO ADMINISTER PROGRAMS
The Opportunity Zones fund staff help the IRS screen and approve areas state governors want to designate in an effort to attract new investments.
The IRS provides the New Market Tax Credits subsidies, while the CDFI Fund certifies organizations to hold investors’ money and allocates how much money each organization gets based on an annual application.
Without staffing, no one will be present to make the certifications and distribute the money, Raghavan said.
Republican Senator Mike Rounds of South Dakota said the Senate’s bipartisan CDFI Caucus has discussed the potential hit of staff cuts to new market tax credits.
“I do have a concern with it because CDFIs play a real role in my part of the country,” said Rounds.
Lawmakers also embrace these programs as job creators. Representative Mike Kelly, a senior Republican tax writer from Pennsylvania, advocated for making the tax credits permanent, saying they “revitalize Main Street” and three recent development projects created 518 jobs.
Similar to education programs for low-income Americans, the CDFI staff cuts follow a pattern of the administration pursuing its own cuts without Congressional approval. The president earlier this year proposed eliminating the CDFI Fund completely.
(Reporting by Bo Erickson and David Hood; additional reporting by Daniel Wiessner; Editing by Scott Malone and Bill Berkrot)
