(NOTE: City Council will give final approval Tuesday, Oct. 29, to the lifting of a temporary moratorium on the proposed Opportunity Zone.)

It was 12:03 a.m. on Oct. 16, one hour into Boulder City Council’s deliberation on lifting the development moratorium on the Opportunity Zone — a green light for investors to cash in big in Boulder — when Council Member Lisa Morzel brought up a matter that had received no attention:

“One thing we didn’t do is identify displacement of small, local businesses. I think that’s something the future Council might want to look at, because it’s our small, local businesses that make Boulder so unique…”

Here she was interrupted by Council member Mirabai Nagle, who quietly said: “Made. Past tense.” Nagle looked exhausted and defeated.

One minute later Sam Weaver, then acting as Mayor pro tem, asked: “So does somebody want to put a motion on the table?”

The vote that ensued was the culmination of a process that started in spring of 2018 with Boulder joining up with a federal tax-benefit program affecting 2.5 square miles of the city – an irreversible step that took place without knowledge of the Council.

Close working relations between staff of the City’s Economic Vitality program and leadership of our local business-boosting organization, the Boulder Chamber, propelled the designation forward over a period of two and a half weeks in February and March of 2018.

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The Opportunity Zone in Boulder will produce the same sort of profit-maximizing, luxury development as has been documented in cities across the country.
 
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The continued treatment of the Opportunity Zone by the Council has been characterized by narrow vision, blunders and blurry, late-night decisions.

Like Opportunity Zones across the country, the Boulder version promises to be what the New York Times has called a “once-in-a-generation bonanza for elite investors.” That article described a list of unsavory characters, starting with the Trump and Kushner families and including Gov. Chris Christie and Anthony Scaramucci as among “the early beneficiaries.” Major investment bankers such as Goldman Sachs are funding a nationwide gold rush.

It should be clear to anyone who cares to know that the Opportunity Zone in Boulder will produce the same sort of profit-maximizing, luxury development as has been documented in cities across the country.

The program, a component of the 2017 Trump-led tax-cut act, offers tax deferrals and outright exemptions on capital gains, when the money is funneled into Opportunity Zone funds. These funds typically purchase real estate and redevelop property within 30 months to meet the requirements. The program encourages a rapid and very substantial overhaul of real estate, as the investment in construction must at least equal the value of the original structure. It is not surprising, therefore, that gentrification has been repeatedly described as one of the main results of the Opportunity Zones.

How Boulder got on board

To understand how Boulder came to have an Opportunity Zone, a fast rewind to February, 2018, is in order. Between Feb. 15 and March 5, when the City Manager, Jane Brautigam, made the decision to submit an application for Opportunity Zone status, the president of the Boulder Chamber, John Tayer, and the executive director of the Chamber-affiliated Boulder Economic Council, Clif Harald, exchanged or shared 10 emails with City staff on the topic. During this period, no communications with the Council seem to have occurred. Based on the emails released, Brautigam was brought in on March 1 and the City’s Planning & Development Services department was brought in on the day of the deadline, mere hours before the application was submitted.

The story the emails tell is of City staff members who don’t understand how the program works or its likely impacts but keep pursuing the idea, with growing enthusiasm, at the encouragement of Tayer, Harald and Jeff Kraft, a division director at the Colorado Office of Economic Development and International Trade (OEDIT). A phone meeting between City staffer Jennifer Pinsonneault, business liaison in the Economic Vitality program, Harald and Kraft presumably followed on Feb. 28 according to email records.

The federal government had created a list of thousands of eligible census tracts and tasked the nation’s governors with whittling it down. Gov. John Hickenlooper could submit up to 125 tracts. On Feb. 15, OEDIT issued a letter requesting input from “economic development partners, legislators and community stakeholders.” Apparently neither Boulder City Council members nor City staff fell into any of those categories, though the letter was sent to 384 local officials and other perceived city- and county-level partners. The non-governmental Boulder Economic Council, directed by Harald, was a recipient, however, making Harald a key link in the Opportunity Zone exchanges.

The letter explained that states were given “the ability to create ‘Opportunity Zones’ to address uneven economic recovery and a persistent lack of growth in low-income urban and rural communities.” It further said that the goal was to encourage “private investors to support distressed communities.”

What…Boulder qualifies?

Unsurprisingly, in the first email, which accompanied the OEDIT letter, Harald wrote: “Because of Boulder’s economic affluence (compared to, say Grand Junction or Sterling), we never qualify for these kinds of programs and I don’t see us getting involved in this effort, but let me know if you have other thoughts.” Brautigam reacted similarly on March 1: “I am surprised that we have any eligible tracts, but we should totally submit for Diagonal –- and others like NoBo if we have time.”

However, need was only half the calculation. In Boulder, 12 census tracts were eligible, and OEDIT had conferred two scores on each tract, one based on a need index and the other on an opportunity index. The tract that was eventually submitted received the highest opportunity score (though tied with two others), which signified that it would have great appeal to investors –- and one of the lowest need scores. OEDIT was intent on drawing money to Colorado, stating: “Colorado will frequently be competing with zones throughout the United States for capital investments so it is important that we designate zones that will be attractive for investors.”

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City Manager Brautigam, upon reading a Daily Camera article, wrote: “I saw the article and did not realize this zone included all the way down to Arapahoe.”
 
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City staff agreed, giving the application for Census Tract 122.03 a green light on March 5. The application laid out the attractiveness of Boulder as one of the top reasons this tract should be chosen. At the last minute, Brautigam had decided against submitting a second census tract in Gunbarrel out of concern that “that area is so sensitive.”

On the previous day, Tayer, who apparently wanted to make sure Boulder would not miss the deadline, had written to Kraft of OEDIT: “Thanks very much for accommodating our slight delay and for the chance to get our census tracks [sic] in the mix for the Opportunity Zone consideration!”

The use of “our” before “slight delay” is noteworthy.

Council members learned of the Opportunity Zone through a Daily Camera article on March 27. Brautigam, upon reading that article, wrote: “I saw the article — and did not realize this zone included all the way down to Arapahoe,” suggesting she approved the specific tract and the application in a state of ignorance.

(Contrary to some reports, City staff consistently referred to the tract as including the Diagonal Plaza, showing they knew that it not only included but stretched well beyond the semi-abandoned shopping center, which they consider in need of redevelopment.)

A heads-up announcement to Council by Brautigam on March 29 about the new designation triggered no action. It would be about seven months before City Council began to ask questions about the new magnet for capital gains in the heart of Boulder.

OZ covers big, sprawling area

The Boulder Opportunity Zone stretches from 28th Street to 55th Street and from the Diagonal Highway to Arapahoe Avenue. It encompasses the expanding Google campus, the 29th Street mall, Whole Foods, new hotels and luxury apartments. It qualified for the program because many of the city’s last remaining, aging apartments — in buildings with somewhat affordable market rents — lie in this area, providing lower- and middle-income people with a way to keep living in Boulder. Two mobile home parks and some no-frills condo complexes helped the tract qualify.

As of January, 2018, the Opportunity Zone was home to approximately 8,300 residents. The city estimated that 1,500 businesses were situated in this area, employing 23,000 people. Most of the businesses are deemed small, with fewer than 50 employees.

What happens to the individuals living and working in this part of Boulder should be of broad concern.

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A fiery City Council hearing on Dec. 18, 2018, in which upset citizens pleaded with Council to prevent widespread displacement of residents and local businesses, culminated in a 6-3 vote to place a development moratorium on the Opportunity Zone. Council members Bob Yates, Aaron Brockett and Jill Grano (who has since left the Council to go to work for Rep. Joe Neguse) opposed the moratorium. Yates was quoted in the Camera as saying, ”With this moratorium, we just turned an Opportunity Zone into an opportunity-free zone.”

For investors, the Boulder commercial real estate market keeps on giving, as you may have noticed. Consider a couple of statements about the office sector in a First-Quarter 2019 report by Denver-based real estate firm Unique Properties Inc.:

“Office rents in Boulder have surpassed the last cycle’s highs by 35%, the best performance in the Front Range and a top 10 performance nationally out of 200 metro areas.” And: “Sales volume surpassed $200 million for a fourth straight year in 2018 … Boulder attracts an atypically high amount of institutional investment for a smaller office market.”

Among the companies that made major commercial real estate deals in Boulder over the last couple of years are Unico Investment Group in conjunction with Goldman Sachs (the 11-building Pearl East as part of a larger portfolio transaction at the start of 2019); Goldman Sachs in conjunction with Texas-based Crescent Real Estate and Lionstone Investments (20 office buildings in Flatiron Park for $170 million in 2017); NYC-based Blackstone Group and JPMorgan Chase (the former sold three downtown office buildings to the latter for $101 million in 2017), and Google, which acquired its campus from Forum Real Estate Group for $131 million. Other tech companies have been moving in apace, including Amazon, leasing at 1900 15th St.

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“Developers have targeted the city thanks to the sky-high rent prospects.”
 
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No prodding was needed to ensure continued new development. For offices alone, 750,000 square feet of new construction were completed between 2016 and early 2019, according to the report by Unique Properties. Ground has since been broken on another 200,000 square feet of office space. The report also explains that though Boulder is not an easy city to build in, “developers have targeted the city…thanks to the sky-high rent prospects.” No surprises there.

What is surprising is the City Council’s inertia in the face of the uninvited Opportunity Zone status conferred on a vital composite of properties running along major arteries and in business and industrial zones, many of which serve the local populace. The Opportunity Zone is home not only to some of the last affordable apartments available to middle class residents but also to some of the last affordable commercial spaces. Tenants of these commercial buildings include martial arts studios, fitness gyms, ethnic groceries, repair shops, a theater school, inexpensive restaurants and foodie startups.

An obsession with “use tables”?

For nearly nine months, during the moratorium, City staff toiled away at the revision of “use tables,” a citywide project that had previously been assigned to them with the goal of bringing land-use codes into alignment with the vision of the Boulder Valley Comprehensive Plan. In particular, Council had concluded that fewer office buildings and more housing would befit a city with some 60,000 daily in-commuters.

Reading Ordinance 8314, which laid out the goals of the moratorium, it is unclear how the focus on updating land use codes became the one and only tool to address the risks, raised by the public, of displacement and gentrification posed by the Opportunity Zone.

On Sept. 3, the Council heard a second reading of proposed ordinances governing the use table revision and removal of the moratorium. The fate of thousands of renters in the Opportunity Zone had apparently been outside the scope of the Council’s guidance to staff.

In page 16 of a 198-page memo, you can read the following: “Unfortunately, staff has not discovered any specific way through the Use Table to prevent demolition of the existing market rate affordable housing stock within the Opportunity Zone. Such a change goes beyond the project scope of this ordinance which was limited to updating the use standards.” Staff recommended keeping the moratorium in place for apartment buildings and provided legal wording for doing so. At the very least, this provision, which barely got mention, highlighted the challenge Council was running into in its fixation on the use tables, while the homes of thousands of people hung in the balance.

In an email response to my question as to whether staff had indeed been instructed to view the Opportunity Zone through the prism of use tables only, Weaver wrote: “We discussed the entire issue on Dec. 18, 2018. … I do not recall there being any discussion of ‘use tables only.’” He further said that the meeting minutes did not support that.

That night about a dozen citizens addressed Council (myself among them), pressing our city government to keep the moratorium in place to protect apartment buildings and small businesses, and to allow for an analysis of the impacts of tax incentives on development. How many buildings would be torn down and replaced with Opportunity Zone projects tailored for maximum rent? The New York Times article had just come out, and it cited the work of an accounting firm that had calculated up to 70% higher returns in Opportunity Zones for investors exploiting the incentives on offer. Speakers that night expressed hope that a way would be found to raise linkage fees, impact fees or affordable inclusionary housing requirements on development in the Opportunity Zone. With redefined imperatives, they urged, creative solutions would surface.

Concern for property owners and investors

A pattern in the Council’s attitude was beginning to emerge. Council members Brockett, Yates and Weaver were expressing concern for owners of property in the Opportunity Zone who were adversely affected by the moratorium. Weaver, while agreeing that higher investor returns should benefit the community as well, did not seem to be able to move past the question of how to identify which investors and development projects were indeed linked to Opportunity Zone funds. Yet no directive was issued, at any stage, to try to tackle this problem or to do any quantitative research. (A host of reports show property values in already-flourishing Opportunity Zones shooting up soon after the designation. The gains appear to be well distributed among property owners and new investors.)

The hearing ended on an uplifting note, with Council deciding to defer a decision on removing the moratorium, pending further work by staff, particularly with the aim of preserving apartment buildings in the Opportunity Zone. A highly technical solution called an “overlay zone” to apply a targeted demolition ban would be studied. Representatives of the Chamber and the 29th Street mall had made the case to lift the moratorium immediately and, in the case of the Chamber, to avoid a proposed office development restriction.

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While the public would not be heard again, the Chamber orchestrated a roundtable meeting for what was described in the Oct. 15 memorandum as “the business community” and City staff. Tayer had been vocal about his opposition to the moratorium, complaining in March to the commercial real estate publication Bisnow that “In general, we think the moratorium is an irresponsible way to practice land-use planning. There is the concern that we are going to miss the opportunity to use this land-use vehicle in our community.” Bisnow cited OEDIT to make the point that for “full benefits of the incentive, an investment must occur by the end of this year.”

Triumphant night for the Chamber

The Chamber was particularly keen to ensure that citywide office development would not be severely shrunk. The planning department changed its recommendation for future office construction in a number of Boulder’s “Business Zones” to allow for up to 20,000 square feet developed by right and 40,000 square feet with an affordable housing component. It is hard to see how this ordinance aligns with the stated policy of increasing housing and limiting office construction, given that the median existing office building in the relevant zones is just under 6,000 square feet.

At its Oct. 15 meeting, the Council accepted the argument that the City should avoid marking hundreds of office buildings as non-conforming –- a known consequence of the earlier proposed ordinance which was set to limit office use to 25% of a building’s floor area in business zones –- and dutifully went along with staff’s recommendations to restrict office use above the rather high number of 20,000 square feet. Overall, it was a triumphant night for the Chamber.

Referring to the September public comments, the staff memorandum to Council for the Oct. 15 meeting noted that staff didn’t see it as part of its mandate to find ways to create more affordable housing or preserve or increase affordable commercial space, as many Council meeting speakers had requested. Likewise, staff had not been able to consider “possible displacement issues with additional development, should the moratorium be lifted.”

Paradoxically, back when the application for Opportunity Zone status was submitted to OEDIT, Pinsonneault, representing the City, had been promoting affordable commercial space as one of the top objectives. She wrote: “As the cost of leasing commercial space in Boulder continues to rise, the city is looking for ways to provide more affordable options for startups and small businesses including those that provide important goods and services for residents.”

Midnight vote

But none of this mattered around midnight, when Weaver suggested delaying the lifting of the moratorium by 120 days to allow for additional analysis. He quickly backed down under pressure from Brockett and Yates and after hearing from Chris Meschuk, assistant city manager and interim director of planning, that further study by City staff would take at least until June 2020. Specifically, Meschuk noted that the legality of higher impact fees would need to be scrutinized.

“I’m going to vote against [Weaver’s proposed delay], maybe Aaron [Brockett] will join me, for the reasons Chris said,” Yates stated unequivocally. “I think the deal was, as Aaron said, that once we got the use table revised the moratorium would be lifted. This kind of feels like it’s shifting away from that deal.”

Weaver was quick to reassure his peers: “I usually try to go along with the deals we make [in] the beginning of a process.” In a later email, Brockett explained that “the use of the word ‘deal’ was informal.” It referred to his understanding that “when the council majority implemented the Opportunity Zone moratorium, they expressed an intention to lift the moratorium after the use table project was completed.”

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One accounting firm calculated up to 70% higher returns in Opportunity Zones for investors exploiting the incentives being offered.
 
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Council voted 6-1 to lift the moratorium. Carlisle was the only dissenter. Morzel’s eyes were cast down. She glanced to the left and right to see how others were voting and then, for an instant, raised one finger.

Council member Cindy Carlisle’s heartfelt protestation swayed no one. “It is the most inopportune Opportunity Zone,” she said, and added: “I’m not going to support lifting the moratorium. I think there’s more that can be done at least in terms of knowing and looking at other communities and trying to figure out how this is not a way by which we are taken advantage of, but rather we are at least able to get the benefits that should accrue to the community when this was originally put into place.”

One major piece of good news was that Council made a crucial decision that night to protect the residential renters through an overlay zone with a demolition ban on any attached dwelling units for about 10 years. Thousands of residents can sleep easily for now, as long as future Councils preserve this shield.

But Council also decided to ignore the rest of the problem: the avalanche of redevelopment, Opportunity-Zone money that may rumble over the commercial districts — the landscape of small, local businesses.

There has been no reckoning with the role played by the City Manager in imposing an unwanted Opportunity Zone, which will exacerbate inequality in Boulder. Council voted in September 7-1 to bestow a pay raise on her. Carlisle was again the only opponent. The Chamber is riding high, counting the days until the election of a new, possibly even more compliant, Council on Nov. 5. As of Oct. 15, the Chamber’s independent expenditure committee reported spending over $14,000 in this election season on what it called “educational materials.”

The Opportunity Zone ordinances still require final approval by Council on Oct. 29. If adopted, they would go into effect 30 days later.

Martha Larson, an activist who lives in the Opportunity Zone and was one of the speakers who addressed Council on Sept. 3, was dismayed by the vote to lift the moratorium. “As a well-educated person who is now working poor and struggles to make it in this community, I’m sad and angry that our City Manager and City Council have paved the way for this travesty,” she recently said. “Residences are protected for now. But they’ve given a carte blanche for the rest of the Opportunity Zone.”

(NOTE: This story was slightly edited after initial publication to clean up a few typos and clarify one paragraph. – Ed.)