New analysis has found that Louisiana’s popular industrial tax subsidy reforms appear to have strengthened the state’s business climate. Proponents of the changes made six years ago say the results should allay fears that the incentive reduction could kill jobs or drive investment out of the city.
The study, released Tuesday, focused on the state’s Industrial Tax Exemption Program (ITEP). The Institute for Energy Economics and Financial Analysis (IEEFA) – a think tank that examines issues related to energy markets, trends and policies – conducted the analysis on behalf of Together Louisiana. The umbrella network of more than 250 local religious and civic advocacy groups lobbied for the ITEP reforms to be signed into law by Governor John Bel Edwards by executive order in 2016.
The think tank compiled publicly available tax data for 206 Louisiana businesses, including the top 100 ITEP recipients and each parish’s top two recipients. In total, they represent 95% of the value of goods exempt ITEP from 2016 to 2020.
Edwards’ ITEP reforms, which effectively forced businesses to pay more than they owe in property taxes, added more than $16 billion worth of industrial property to local government tax rolls statewide from 2016 to 2021. In turn, this generated new parishes annual property tax revenue totaling $113 million for schools, $55 million for law enforcement, and $115 million for utilities such as roads, levees, drainage, parks and libraries, according to the report.
The IEEFA study also noted that not only did the reforms not hurt Louisiana’s business climate, but they likely strengthened it.
“The ITEP reforms do not appear to have had a negative impact on industrial capital investment statewide,” the report said. “In fact, overall capital investment in ITEP-eligible industrial property increased by 50% in the post-reform period. [versus] the five years preceding the reform.
History of ITEP
Administered as part of Louisiana Economic Development (LED), the ITEP is Louisiana’s flagship tax incentive for the manufacturing sector. For decades dating back to 1936, industrial manufacturers, including some of the world’s largest oil and petrochemical companies, have enjoyed 100% Louisiana property tax exemptions for up to 10 years on capital investments such as new facilities and upgrading of existing facilities.
The stated goal of the program, according to LED, is to encourage job creation. ITEP supporters, mostly business and industry lobbyists, have long argued that companies will move to areas with lower taxes or credits and exemptions that lower their tax burden, allowing them to hire more people.
The program has drawn public criticism, especially after Hurricane Katrina, said Erin Hansen of Together Louisiana. After the storm, some questioned whether New Orleans and southeast Louisiana even needed to be rebuilt, prompting local and state leaders to respond by emphasizing the important role Louisiana played in the national economy.
“If we are such an important economic engine for the country, how come our public services are collapsing and how come our people are so poor?” Hansen said, recounting some of the questions she and others had at the time.
Surveillance of the ITEP increased following the Great Recession. According to LED, ITEP contracts deprived local governments of $10 billion in property tax revenue from 2008 to 2015. Residents, journalists and government officials questioned whether the program actually created enough jobs to justify $10 billion. dollars in tax relief.
At that time, the ITEP program did not oblige companies to create jobs. In addition, a single state entity, the Board of Trade and Industry, had exclusive authority to approve or deny ITEP applications for any project in the state.
Comprised of appointed members not accountable to voters and often remote from parish leaders and residents most directly affected by ITEP, the Board of Trade has approved nearly every ITEP application it has received. From 1998 to 2016, it received 12,000 requests for exemptions and approved 99.95% of them, according to the IEEFA report.
Together, Louisiana has characterized the Board of Commerce as a “rubber stamp” endorsement for “corporate welfare.”
What’s at stake
One of Edwards’ first acts as governor ushered in ITEP reforms that maintained widespread bipartisan support in the Louisiana Legislature. Most notably, his executive orders added local control to the approval process so that ITEP applications receive parish or city approval. In addition, businesses must commit to creating a set number of jobs and are limited to an exemption of 80% instead of 100% of their estimated land value.
The future of the reforms is uncertain. Because they were introduced by executive order, a future governor can easily overrule them. Efforts by lawmakers to codify them into state law have so far failed, facing strong opposition from corporate lobby groups.
Bills to codify local government control over the ITEP have gained traction in recent years, but have run into obstacles in the Senate. The one filed this year by Sen. J. Rogers Pope, R-Denham Springs, failed in a 14-21 vote. Another filed in 2021 by Rep. Barry Ivey, R-Central, received unanimous support in the House but failed in the Senate Committee on Revenue and Fiscal Affairs.
Although some lawmakers expressed support for the reforms, they did not back them with votes. When Pope’s bill was being considered earlier this year, Sen. Jay Morris, R-West Monroe, suggested a compromise amendment that would give local tax agencies control of some of the property taxes that accrue to them. are due. This effort also failed.
At the time, Morris said the forces conspired against his amendment because they wanted to see the ITEP regain its full-exempt status after Edwards left the governor’s seat in 2024.
Ivey made similar comments in a text message Wednesday.
“I recognize the need for reform and have worked with local governments on a solution that works for them and for [Louisiana] Economic development,” Ivey said. “The reality is that deep-pocketed corporate vested interests are unlikely to allow any change under this governor. Why would they when they can “reform” the program next term with a new Republican governor and permanently tip the scales and add even more [money] above ?”
According to Greg LeRoy, economic development consultant and author of “The Great American Jobs Scam,” many policymakers reluctantly tolerate tax incentives because they sincerely believe tax breaks are necessary to create jobs. LeRoy spoke at a Together Louisiana conference held Tuesday to unveil the IEEFA report and gave a follow-up interview to The Illuminator.
LeRoy explained that it’s often tempting to think of tax breaks from a simple economic theory that a state will attract jobs by offering that one thing that’s valuable specifically to business.
In a 2016 report, Louisiana Economic Development expressed concern that the ITEP reforms would hurt the state’s business climate, writing: Climate Ranking and Perception of the State’s Business Climate in its together.
LeRoy said the “business climate” argument should be dropped. Business lobby groups have spent decades equating tax breaks with terms such as “business friendly climate”, but this is an oversimplification that ignores many other important factors needed to create a truly attractive place for business investment, he said.
A lot of people say, ‘Well, if I move to Louisiana or if I move to New Orleans or Baton Rouge, I have to put my kids in private schools because public schools are so disinvested,'” said LeRoy. “Well, it’s a tax… It’s not a winning calculation for economic development.”
Le Roy said there is a half-century-long body of academic evidence that shows education and infrastructure are proven winners for economic development. Data shows that when people move, they most often move to metropolitan areas that have higher tax rates because those are the places with the best schools and the best quality of life, he said. declared.
“What’s happened here for the past six years is like this giant natural experiment,” LeRoy said. “Now we have all this new evidence from Louisiana.”
According to the IEEFA study, in almost every case where an ITEP application was partially or completely rejected, the project was still complete, showing that the tax exemption “was not a major factor in location of industrial projects”.
“It’s a balancing act,” LeRoy said. “When you strangle your public sector, you poison your business climate.”
Coincidentally, Louisiana’s legislative auditor released a report on Wednesday that found the ITEP cost local governments $1.5 billion in property tax revenue last year, even with the reforms in place. Parishes with the highest amounts of ITEP exemptions per capita had higher property tax collections overall.
“People need to know what’s at stake,” Hansen said. “That’s what’s at stake – all that money.”
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