By GORDON RUSSELL | Staff Writer | email@example.com
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"Duck Dynasty” is the most popular show in the history of A&E. Wal-Mart is the world’s largest retailer. Valero is America’s biggest independent refiner, earning $6 billion in profits last year.
But despite all that success, they’re all receiving generous subsidies from the taxpayers of Louisiana, through programs that funnel more than a billion dollars every year to coveted industries.
About this special report
- "Giving Away Louisiana" is an eight-part series that examines the tax incentives the state gives to boost a historically sluggish economy. It's not always clear the money is well spent, and the giveaways are growing at a much faster rate than the economy, leading to deep cuts in other state services. Click here to recap all parts of the series.
Every time the Robertson clan films another episode of “Duck Dynasty,” Louisiana is on the hook for nearly $330,000, at last count.
During the past three years, state taxpayers agreed to fork over nearly $700,000 to Wal-Mart to build new stores in two affluent suburbs.
And when Valero announced an expansion of its Norco operations, creating 43 new jobs, Louisiana promised to cover $10 million of the cost, or nearly a quarter of a million dollars per job.
Louisiana’s giveaways to businesses, aimed at boosting economic development in what historically has been one of America’s poorest states, have been growing at a much faster rate than the state’s economy.
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During Kathleen Blanco’s four years as governor, the value of some of Louisiana’s largest tax breaks doubled. Since Bobby Jindal took the reins in 2008, the cost has more than doubled again, an analysis by The Advocate found.
When Blanco took office, the state gave away a little over $200 million in taxpayer money through the six major programs the newspaper examined. That number is now almost $1.1 billion annually, and it’s been growing by an average of 17 percent a year over the past decade.
Perhaps not coincidentally, the governor and the Legislature have found it increasingly difficult to balance Louisiana’s books. In five of the past six years, they’ve had to tap “one-time revenue” such as property sales, tax amnesties and other gimmicks to pull it off — a practice deplored by independent government watchdogs as well as many legislators on both sides of the aisle.
In his first year in office, the only year he did not have to resort to such tactics, Jindal himself deplored such bookkeeping, comparing it to “using your credit card to pay your mortgage.”
Since then, the governor and the Legislature also have raided various accounts set aside for specific purposes. And they’ve had to make painful cuts, particularly in areas like higher education, itself a key economic development tool.
Over the past six years, the cost of the six major programs examined by The Advocate ballooned by $650 million; meanwhile, state funding for colleges and universities was cut by almost the same amount, a decrease of 53 percent. The difference has been made up largely by tuition hikes paid by students.
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When the Legislature convenes next year, an even bigger shortfall of as much as $1.4 billion is expected. Many legislators, including Republicans overseeing key financial committees, speak of a “structural deficit” of at least $600 million that they trace in large part to the growing giveaways. Because the programs are built into the law, they don’t have to compete for funding with other state services: The state just pays the tab, whatever it is.
Indeed, Louisiana’s incentive programs are viewed with increasing bipartisan skepticism.
Liberals have long complained that the giveaways divert money from programs that help the poor and middle class, directing it instead into corporate coffers. Conservatives are uncomfortable with the state picking winners rather than letting private enterprise sort things out in the marketplace. An alternative would be to simply let taxpayers keep more of their money. And many members of both parties think the cuts, especially to higher education, have gone too far.
[aesop_image imgwidth="40%" img="http://blogs.theadvocate.com/specialreports/files/2014/11/JINDALPRESSCLUB.010914-083_22628983_web.jpg" offset="-200px" align="left" lightbox="on" caption="Advocate staff photo by RICHARD ALAN HANNON -- Gov. Bobby Jindal was once very critical of using 'one-time money' to balance the state budget, but he has relied on it in almost every budget since he took office." captionposition="left"][/aesop_image]
Still, the programs have proven difficult to corral, in part because Jindal — who holds considerable sway over the Legislature — has pledged not to raise taxes in any form. According to the rules of the pledge, promulgated by the powerful group Americans for Tax Reform, any legislative action that increases revenue to the state constitutes a tax increase, even if the action simply gets rid of a costly giveaway. Jindal responded to requests for an interview for this story by issuing a written statement saying his administration’s policies have led to economic and population growth, and that the state should not seek to increase revenues.
Jindal’s fealty to the anti-tax pledge may have helped keep his presidential ambitions alive, but it hasn’t necessarily made the business world see Louisiana as a tax paradise. Though some surveys put the Pelican State’s actual tax burden among the five lowest in the country, the nonpartisan Tax Foundation recently ranked Louisiana No. 35 among the states with the best tax climates for business.
It’s not hard to see why.
“States are punished for overly complex, burdensome and economically harmful tax codes but are rewarded for transparent and neutral tax codes that do not distort business decisions,” the group said in a news release.
With more than 450 tax breaks enshrined in state law, some of them massive, Louisiana undeniably fails that test.
“Why does the government get to choose who’s successful and who isn’t?” asks Republican state Sen. Jack Donahue of Mandeville, chairman of the Senate Finance Committee and an increasingly outspoken critic of Louisiana tax policy. “What is that about?”
[aesop_parallax height="600px" img="http://blogs.theadvocate.com/specialreports/files/2014/11/MovieSet2.adv083_webrez.jpg" parallaxbg="off" caption="Advocate staff photo by HEATHER MCCLELLAND -- Louisiana’s tax incentives for film production have made the state the busiest locale for feature filmmaking in North America. But the cost to taxpayers is steep: $251 million last year. This year has seen a flurry of major films made in Louisiana, including Pitch Perfect 2, part of which filmed at Highland Road Park in Baton Rouge." captionposition="top-left" lightbox="on" floater="off" floaterposition="left" floaterdirection="up"]
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Although Louisiana’s roster of state-sanctioned tax breaks is among the lengthiest of any state, most are narrowly drawn and have little or no fiscal impact. Another batch have a big impact, but are available to all and cause little controversy, such as the sales tax exemption on groceries.
But some breaks targeted at specific industries, or broadly at corporate investment, eat up a sizable and growing chunk of state money. The Advocate examined six major programs. Among the newspaper’s findings:
- Louisiana’s film incentive program cost state taxpayers $251 million last year and returned less than 25 percent of that to state coffers in the form of taxes. Considered the most generous of its kind in the nation, the film incentive has made the state America’s busiest locale for making feature films. It’s no wonder: State taxpayers cover 30 percent of the cost of movies filmed here, including seven- and eight-figure star salaries, such as the $9-plus million paid to Tom Cruise for 2013’s “Oblivion.”
- Refunds of a property tax that businesses pay on their inventory have more than doubled in the past seven years, reaching $427 million last year and widening the hole in the state budget. The tax, little known to most Louisianians, is assessed at the local level and paid by businesses to parish governments. The state then cuts refund checks for the entirety of the tax paid, under a law passed in 1992. The pass-through in effect means taxpayers around Louisiana are subsidizing parishes with heavy industry, which generates most of the tax. For example, roughly 6 percent of the revenue from the inventory tax program goes to St. James Parish, which has just 0.5 percent of Louisiana’s population.
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- Louisiana’s solar power tax credit, which was billed as having negligible cost to taxpayers when it was created six years ago, ballooned to $61 million in 2013. That’s because it’s hard to pass up: It covers 50 percent of the cost of solar installations, which, when combined with a similar federal program, gives homeowners a robust return on their investment. It’s the most generous incentive of its kind in the nation.
- A tax exemption for fracking wells — experimental technology at the time the tax break was passed 20 years ago — is now widely used and last year cost the state $240 million. That amount could rocket far higher as the oil-rich Tuscaloosa Marine Shale is exploited. There’s little evidence the tax break stimulates drilling.
- Louisiana’s Enterprise Zone program has done little to spur investment and job creation in poor areas, its original intent. Instead, the bulk of the taxpayer money the program doles out — an average of about $70 million annually in recent years — has gone outside of the designated zones, much of it for dubious uses, such as to subsidize retailers offering low-paying jobs. And even though the state officials who oversee the program have long criticized it, reform has been elusive.
- The state gives out hundreds of millions of dollars in incentives to lure “megaprojects” to Louisiana, including the Enterprise Zone program and two other programs that rebate a portion of companies’ sales taxes and their payroll. A discretionary fund has been used to sweeten the pot further for coveted projects. Most projects also get a 10-year local property tax abatement, granted by the state, that dwarfs the other giveaways in size, though it doesn’t affect state coffers directly. In some cases, the projects don’t live up to their billing, and in others, the incentives are so generous that taxpayers come out behind. It’s also often unclear whether the breaks were key to sealing the deal.
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Louisiana’s big incentive programs generally fall into two categories — those that bring business to Louisiana that was otherwise unlikely to come here, and those that help firms or industries that were likely to come here with or without the help.
In general, those in the first category are extremely generous. For instance, the film program covers roughly a third of all spending on any production that occurs in Louisiana. No one would argue that it hasn’t built an industry. The number of films shot here has increased more than sevenfold since the program’s first full year.
The state’s solar power credit is proportionally even richer than its movie giveaway. Louisiana covers half the cost of solar-panel installations for residents and businesses, a gift that piggybacks on a 30 percent federal rebate. So residents who pursue solar power must cover only 20 percent of the cost, making a home improvement that might otherwise not make financial sense seem quite tempting.
In the other column are the giveaways that have little demonstrable influence on the businesses that get them.
[aesop_image imgwidth="70%" img="http://blogs.theadvocate.com/specialreports/files/2014/11/HAYNESVILLE_SHALE_4381790.jpg" offset="-400px" align="right" lightbox="on" caption=" In this July 8, 2008 photo, Tom Autry, drilling superintendent, is seen in the doghouse of the Trinidad 104 gas rig well known as the Brenner Estates 6H-1, in Keithville, La. When drillers began to frack the Haynesville Shale in northwest Louisiana, a tax exemption that had cost the state less than $1 million increased to roughly $240 million in two years, an increase of 24,000 percent. (Associated Press file photo)" captionposition="right"][/aesop_image]
A good example: the exemption dating to 1994 that gives the energy industry a rebate on severance taxes from oil and gas wells that are drilled horizontally. Though it did little to stimulate drilling at the time — its intended purpose — the giveaway stayed in place when gas companies started fracking northwest Louisiana’s Haynesville Shale a decade and a half later, costing the state more than $200 million each year.
When the price of gas fell, drilling tapered off again, suggesting that the price of oil and gas, and not the tax break, is what drives drilling.
A similar argument could be made about incentive packages crafted to lure large projects, like the plan by South African giant Sasol to build a massive gas-to-liquids facility in southwest Louisiana. The state’s economic developers cobbled together a major incentive package to help seal the deal, one that included more than $100 million in cash to the company. But in the scope of a project with costs estimated at up to $22 billion, skeptics wonder if the state’s largesse played much of a role, if any, in Sasol’s decision to locate where it did.
With generous subsidies like that for films, “you’re moving the needle because you’re spending so much,” says Greg Albrecht, chief economist for the Legislative Fiscal Office and a skeptic of incentive programs. “With the other ones, you have to ask yourself, are you really moving the needle?”
[aesop_parallax height="500px" img="http://blogs.theadvocate.com/specialreports/files/2014/11/FEA_HOUSESTOCKPIX_BF_0223_17575547_webedit.jpg" parallaxbg="off" caption="Advocate staff photo by BILL FEIG -- State lawmakers from both political parties have become increasingly critical of the state’s tax giveaways." captionposition="bottom-left" lightbox="on" floater="off" floaterposition="left" floaterdirection="up"]
'Race to the bottom'
Louisiana, of course, is hardly the only state that dangles lucrative goodies in front of coveted corporations and industries. Every state does it in some shape or form, and some states are arguably even more profligate in their giveaways.
States have been using tax breaks to woo companies and create jobs through incentives for nearly a century. But the system didn’t really reach full flower until the 1970s, according to “The Great American Jobs Scam,” a book critical of corporate giveaways that argues states all lose in what amounts to a “race to the bottom.”
But Louisiana, perhaps because its economy has lagged the rest of the country’s for so long, has embraced giveaways more than most other states. A database covering decades that was built by Good Jobs First, a left-leaning watchdog group that tracks corporate subsidies around the country, shows Louisiana giving away more taxpayer money than any other state on a per capita basis, though the group cautions its data are incomplete because of disclosure differences among the states.
A similar analysis by the Commonwealth Foundation, a Pennsylvania think tank that promotes free-market principles, ranked Louisiana No. 6 in per capita subsidies over the past seven years. That analysis used data compiled by the nonpartisan Council for Community and Economic Research.
Whether Louisiana’s incentive schemes have helped drag the state’s economy out of America’s minor leagues is a matter for debate. In some ways, Louisiana should be the envy of its neighbors. Its 6 percent unemployment rate, while middling for the nation, is easily the lowest of any state in the Deep South. In terms of per capita income, Louisiana has surged from 45th in the nation in 2003 to 29th in 2013, leapfrogging many of its neighbors in the process, according to data from the federal Bureau of Economic Analysis.
Moreover, a raft of large new industrial projects are in the works, thanks mostly to low natural gas prices, but also to an enviable transportation network and a lax regulatory climate. Arguably, the state is enjoying a boom.
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Revenues fall short
Yet every year in Baton Rouge, revenues fall short of hoped-for expenditures, and legislators have to scramble to balance the budget. Usually, they do so by making cuts to the major areas where they have discretion — health care and higher education — and the state has often had to resort to additional midyear cuts to make the numbers work.
“It’s one thing to be cutting the budget and looking under the couch cushion for funds you can raid when you’re going through the worst recession in 80 years,” said Jan Moller, director of the left-leaning Louisiana Budget Project, a frequent critic of incentive programs. “It’s another thing to be back on a sound financial footing, with a low unemployment rate and a growing economy, and still be in this world of s--t, with a billion dollars in one-time money propping things up.”
[aesop_image imgwidth="50%" img="http://blogs.theadvocate.com/specialreports/files/2014/11/CITIZENSISSUES_webedit.jpg" offset="-100px" align="left" lightbox="on" caption="Advocate staff photo by TRAVIS SPRADLING -- Jan Moller, director of the left-leaning Louisiana Budget Project, has pointedly questioned many of the state’s incentive programs, saying that every dollar given to the film or oil industry is a dollar that could have gone to health care or higher education." captionposition="left"][/aesop_image]
But business groups urge patience, saying that the ongoing industrial investments show the state’s policies are working.
“We’ve got about $100 billion in projects announced, and $40 billion under way or completed,” said Stephen Waguespack, president of the Louisiana Association of Business and Industry, the state’s largest business lobby. “Those projects are a big part of the reason we’re outperforming the South when it comes to getting through the recession. Why would we go now and try to start raise taxes when we know tax revenues are about to start going up?”
Still, a growing group of legislators has started to push back against some of the state’s giveaways to business, including self-described fiscal conservatives who generally believe government can be made smaller.
“We need to look at all of these exemptions and make sure we’re getting the return on our investment,” said state Rep. Brett Geymann, R-Lake Charles, a leader of the “fiscal hawks.”
“We start every year in a hole because we relied on a gimmick in the previous year,” he said. “It’s going to take courage for the Legislature and the administration to do what’s right and quit relying on this one-time money. But to this point, we haven’t had that courage.”
[aesop_parallax height="500px" img="http://blogs.theadvocate.com/specialreports/files/2014/11/CNB_JINDAL_LC_060_4106860.jpg" parallaxbg="off" caption="ADVOCATE PHOTO BY LIZ CONDO -- Gov. Bobby Jindal has signed a pledge promulgated by the powerful conservative group Americans for Tax Reform, promising not to raise taxes. In Jindal’s view, eliminating a credit program that gives away tax dollars qualifies as a tax increase, making it difficult to pare back some of the state’s programs." captionposition="bottom-left" lightbox="on" floater="off" floaterposition="left" floaterdirection="up"]
[aesop_content color="#000000" background="#ffffff" width="content" height="auto" columns="1" position="none" imgrepeat="no-repeat" floaterposition="left" floaterdirection="up"]A Byzantine tax code
The governor, while loath to simply ditch incentive programs, has acknowledged that the state’s Byzantine tax code is far from ideal.
In late 2012, his administration published a paper that said an optimum tax structure includes “a broad tax base, a single low rate for each tax type, multiple revenue sources and few exemptions.” While the paper argued on the one hand that the state’s overall tax climate is good, it also said that “the perception of Louisiana’s business climate would improve to the extent that the state makes changes that would result in a simpler tax structure” — such as reducing exemptions.
A few months later, as the 2013 fiscal session of the Legislature opened, Jindal proposed an ambitious scheme to get rid of Louisiana’s personal income tax and replace the lost revenue with a combination of higher sales taxes and reductions in various tax breaks.
Jindal’s plan, fatally flawed in numerous ways, was dead on arrival, but the fiscal hawks banded together with members of the Legislative Black Caucus and started to put together a grand bargain that would have scrubbed the budget of one-time money and capped or reduced some tax-incentive programs.
But that plan tanked, too, in part because Jindal wasn’t having any of it. He held a news conference and accused legislators of secretly cooking up a huge tax increase, an attack the governor repeated on Twitter. Surrounding Jindal at the podium were representatives of various industries — from film to solar to dairy — that benefit from state tax incentives.
We hear Louisiana legislators are cooking up a secret plan to raises taxes by at least $1.3 billion over 4 yrs with no public input
— Gov. Bobby Jindal (@BobbyJindal) May 7, 2013
Chastened, the fiscal hawks regrouped and got behind a budget that reduced the use of one-time money but left tax breaks untouched.
The episode was a reminder that, once in place, tax breaks can be extremely difficult to dislodge, in part because they tend to create a whole cottage industry of people whose livelihoods depend on the break remaining in place.
“That’s the danger with any of these tax credit programs,” Moller said. “As soon as you put it in place, a political infrastructure grows up around it to protect it. And it can only grow.”
In the prepared statement he sent to The Advocate, Jindal said he remains “open to tightening (tax) credits” but would only consider it in the context of lowering overall tax rates.
[aesop_content color="#000000" background="#ffffff" width="content" height="auto" columns="1" position="none" imgrepeat="no-repeat" floaterposition="left" floaterdirection="up"]Modest steps rejected
This year, Donahue, the Senate finance chairman, sought to take a much more modest step, proposing a bill that initially would have required the money doled out through Louisiana’s 400-plus tax breaks to be listed in the governor’s budget.
Under pressure from the executive branch, Donahue eventually settled for a law that required only that the state’s Revenue Estimating Conference break out the costs of incentive programs each year.
But even that was too much for Jindal, who vetoed the bill, saying the proposed disclosure could “create uncertainty about the state’s commitment to job creation and economic development” and that the state is already plenty transparent about how it doles out breaks.
Donahue was surprised. “It was really kind of an innocuous bill,” he said. “I thought it was just a start, that the Legislature would recognize some of these programs as problematical and start to take a look at just what benefits are produced.”
This spring, incentives may again be under the microscope as the Legislature convenes. A comprehensive study of the state’s tax system — paid for by the Legislature and led by LSU economist Jim Richardson — is due to arrive in March, with recommendations for reform. And this year, the deficit is projected to be larger than ever: $1.4 billion.
But most observers predict this session will see few big changes, and that it will be up to the next governor — who will be elected next fall — to try to right the ship.
“I would think that state finances are going to be a big discussion in the governor’s race,” said Senate President John Alario, R-Westwego, who doesn’t expect much change to tax programs to occur on Jindal’s watch. “I think there will be a lot of talk about how do we get the state on a sound financial footing.”
[aesop_chapter title="Louisiana's tax code: sublime, ridiculous, important" bgtype="img" full="on" img="http://blogs.theadvocate.com/specialreports/files/2014/11/FEA_HOUSESTOCKPIX_BF_0031_17565699_webedit.jpg"]
By GORDON RUSSELL | Staff Writer | firstname.lastname@example.org
If you’re planning to sell some railroad ties for use in another state, you’re in luck, at least if you live in Louisiana: You won’t have to pay sales tax on the transaction.
And if you’re a commercial fisherman using undyed diesel fuel, take heart. You’re exempt from Louisiana’s inspection fee.
Renting a room at a homeless shelter or a nonprofit retreat? You don’t have to pay sales tax. Same goes for pallets bought by certain manufacturers. And — partly, at least — for printing machinery purchased by newspapers.
And so on, and so forth.
Louisiana’s tax code is a huge Swiss cheese, shot through with exemptions large and small, sublime and ridiculous, important and petty. There are 462 altogether, all of them listed in a compendium called the Tax Exemption Budget assembled every year by the state Department of Revenue. The document runs 400 pages.
[aesop_image imgwidth="80%" img="http://blogs.theadvocate.com/specialreports/files/2014/11/SUPERCHAMBER021.103014_25089406.jpg" offset="-400px" align="right" lightbox="on" caption="Advocate staff photo by BRYAN TUCK -- Stephen Moret, secretary of economic development under Jindal, says Louisiana would benefit from a simpler tax code that had fewer exemptions and a broader tax base with lower overall rates." captionposition="right"][/aesop_image]
To Stephen Moret, who as the secretary of Louisiana Economic Development spends a fair bit of his time fretting over the state’s business climate, the leaky, complicated tax code is a major obstacle to attracting new investment. The tax laws manage to combine Byzantine complexity with generally high rates, meaning that Louisiana from afar looks like a high-tax state even as it provides plenty of loopholes for those in the know to wriggle through.
In short, it’s the worst of both worlds.
“Louisiana has a very peculiar tax structure,” Moret said. “We are one of the lowest-tax states in America in terms of what most businesses and families actually pay in taxes — not the tax rates, but the actual taxes they pay. And yet we appear to be a higher-than-average tax state on the surface because we have every major tax type, and the tax rates that the state levies generally are average to above-average. The reason there’s a disconnect … is that we have more tax exemptions than almost any other state.”
Moret pointed to an April study by the left-leaning Progressive Policy Institute that put Louisiana in the top 10 states in a “tax complexity index” because of its huge number of exemptions. Only Washington state has more breaks on the books, the group said.
“I think having far less exemptions and lower, flatter tax rates generating the same amount of revenue would be a better system and a more stable system than what we have now,” Moret said.
Much of the problem owes to the way the Legislature tends to confront problems, working around them rather than through them, according to Robert Travis Scott, president of the nonpartisan Public Affairs Research Council.
[aesop_image imgwidth="30%" img="http://blogs.theadvocate.com/specialreports/files/2014/11/PARHEALTHREPORT_049_edit.jpg" offset="-5px" align="left" lightbox="off" caption="Robert Travis Scott, president of the nonpartisan Public Affairs Research Council, says that many of Louisiana’s tax loopholes were created in an effort to undo earlier policies that were unfair to specific businesses or industries. The resulting tax code is a poorly designed patchwork, he said." captionposition="left"][/aesop_image]
“In defense of business, quite often it’s a bad tax policy that leads to another bad tax policy,” rather than a business seeking a sweetheart deal, Scott said. “Often, what ends up happening is that some really bad tax policy happened, and then the businesses went and said, ‘This places our company or industry in a noncompetitive situation and it needs to be fixed.’ So then they created another bad tax policy to fix it. And you just have this great dysfunctional system that has built up over time.”
Were it to pare back the list of exemptions, Moret said, Louisiana might fare better on business-climate surveys and also be able to trim its overall tax rates. A year and a half ago, Gov. Bobby Jindal proposed some cuts along those lines, but his plan collapsed under the weight of its main plank: eliminating the individual income tax.
Scott said Jindal’s tax overhaul actually had good ideas in it, but they were overshadowed by the unworkability of its central concept.
“The governor was so fixated on this one unobtainable goal that he bypassed opportunities for real reform. ... And we ended up with one spectacular failure rather than a few minor victories,” Scott said.
It’s important to note that Louisiana’s many and varied exemptions aren’t all created equal — far from it. The big problem isn’t so much the number of exemptions, though that may be worth addressing.
Most of the lost revenue is contained in a relatively small number of the 462 breaks on the books.
In fact, just 12 of them account for roughly two-thirds of the $7.1 billion in revenue that the Department of Revenue estimates is lost to such giveaways each year. And many of them are breaks it would make little sense to get rid of, such as the exemption on sales taxes for items purchased by local government.
[aesop_quote background="#282828" text="#ffffff" width="80%" height="200px" align="center" size="1" quote="“The governor was so fixated on this one unobtainable goal that he bypassed opportunities for real reform. ... And we ended up with one spectacular failure rather than a few minor victories,” Robert Travis Scott said." parallax="off" direction="left"]
[aesop_content color="#000000" background="#ffffff" width="content" height="auto" columns="1" position="none" imgrepeat="no-repeat" floaterposition="left" floaterdirection="up"]Meanwhile, most of the exemptions are as meaningless fiscally as they are exotic — for instance, specific exemptions carved out for charities like the Society of the Little Sisters of the Poor, the St. Bernard Project and Ducks Unlimited. Probably half the breaks could be nullified without any real impact on tax collections.
But while it might be easy to junk some of the narrower and cheaper breaks, deep-sixing exemptions that are saving certain taxpayers lots of money would cause those taxpayers heartache. As a result, those are always “heavily lobbied,” Moret said, and the status quo is often the result.
That’s too bad, Scott said.
“What people don’t see in this is that you could reduce rates for everybody if these exemptions were tamed or brought down or eliminated,” he said. “Then the rates overall could be more broad-based, and could be lower. There would be a lot to be gained from it.”
Three Louisiana university professors — Jim Richardson, of LSU, and Jim Alm and Steve Sheffrin, of Tulane — are leading a study of the state’s tax structure with funding provided by the Legislature. Their report is due in March and will make recommendations about how to improve the system.
“I think at the end of the day we might talk about best practices in what we would call an ideal system,” Richardson said. “But we also appreciate that any tax system is a political document. It has to be acceptable to the people. We as experts can talk all we want about what should or should not be, and I hope we can persuade our leaders to look at this and persuade the people that we really need to have a good tax system. But at the end of the day, the people count.”
[aesop_chapter title="Another side to the story..." subtitle="Tax program causes consulting boom" bgtype="img" full="on" img="http://blogs.theadvocate.com/specialreports/files/2014/11/FEA_HOUSESTOCKPIX_BF_0023_17565685_webedit.jpg"]
By REBEKAH ALLEN | Staff Writer | email@example.com
Although Louisiana’s costly menu of tax-credit programs aims to help certain industries and companies, the businesses getting the breaks aren’t the only ones with an interest in protecting the status quo.
The myriad programs have spawned a cottage industry of consultants, many of whom pay their bills by helping business owners identify tax breaks and navigate the paperwork required to get them. Some are former state bureaucrats who know the system inside and out.
Because they make a living from the tax breaks, the consultants are sometimes the staunchest opponents of any rollbacks.
“In general, any change to the tax code that is viewed as negative for a particular class of taxpayer will be heavily lobbied, will be heavily opposed,” said Stephen Moret, secretary of Louisiana Economic Development. “That could be individual companies, but in particular, there are incentives consultants who get very involved — intensely involved — in that.”
The consultants aren’t the only hidden beneficiaries of tax-credit programs.
The number and complexity of Louisiana’s various tax rebates tend “to embed a whole lot of people in the state into this tax break system,” said Robert Travis Scott, president of the nonprofit Public Affairs Research Council. For instance, the state’s film program is widely popular “not just because the moviemakers like it, but because there are a lot of people out there, especially those with large tax bills, who can take advantage of these credits and get money back. And that has built a sort of silent constituency.”
Such offshoots are not unique to Louisiana. Greg LeRoy, executive director of Good Jobs First, a left-leaning watchdog group that highlights economic development subsidies granted by states, said tax consultants tend to be some of the fiercest opponents of changing incentive programs.
In LeRoy’s opinion, many such programs — particularly Enterprise Zone incentives offered by many states, including Louisiana — are wasteful and ineffective because they offer money to businesses that in most cases would have located in a given area even without an tax break.
While Louisiana’s Enterprise Zone program was created to spur investment in economically depressed areas, eligibility has been relaxed over the years, and now the majority of the breaks it grants go to businesses building in wealthy neighborhoods.
Some states, including Louisiana, also subsidize restaurants and retailers through the program, which economists view as folly.
[aesop_image imgwidth="50%" img="http://blogs.theadvocate.com/specialreports/files/2014/11/WAL-MART_INVESTORS_21963857_webedit.jpg" offset="-75px" align="left" lightbox="on" caption="Associated Press photo -- Wal-mart could receive nearly $300,000 for a new Covington store. A percentage cut of that sum is a sizable amount of money for the lawyer or lobbyist involved." captionposition="left"] [/aesop_image]
But reform has proven elusive, even though Moret’s department and Louisiana’s legislative auditor have both classified the Enterprise Zone program as fundamentally broken.
Resistance has been led by tax consultants; LeRoy said they usually have more at stake than even the businesses receiving the credits.
Wal-Mart is in line to receive upwards of $300,000 for a Neighborhood Market in Covington, not necessarily a big deal for the world’s biggest retailer, but potentially real money for the lawyer or lobbyist handling the paperwork.
“So who is greasing the wheels here? Who is most interested in perpetuating such stacked decks?” LeRoy said. “It’s site-location consultants, who are highly self-interested. The way the system works justifies their existence.”
In many cases, tax consultants are paid a commission — a percentage of the money they wring from the state. LeRoy doesn’t believe that should be allowed; he thinks consultants should be paid by the hour. He also argues they should be treated and regulated like lobbyists.
One of the state’s more active tax consulting outfits, assisting with state programs such as Enterprise Zones, Quality Jobs and industrial tax exemptions, is Advantous Consulting, which is run by Don Allison, a registered lobbyist, and Jimmy Leonard.
[aesop_image imgwidth="80%" img="http://blogs.theadvocate.com/specialreports/files/2014/11/AERIAL715_webedit.jpg" offset="-200px" align="right" lightbox="on" caption="Advocate Staff Photo by HEATHER MCCLELLAND -- Woman's Hospital on Airline Highway in East Baton Rouge Parish opened in August 2012 and was approved for nearly $10 million in tax incentives." captionposition="right"] [/aesop_image]
Leonard was listed as the contact for 128 businesses approved for Enterprise Zone aid from 2008 to 2013, about 10 percent of all of the projects approved by the state during that time. In total, the businesses he represented, which included Bass Pro Shop in Livingston Parish, Cabela’s in Ascension Parish and Woman’s Hospital in East Baton Rouge Parish, were approved for $48 million in Enterprise Zone tax credits.
Allison said his firm merely helps businesses with the onerous paperwork involved with securing tax credits.
“We’re not expediting things or seeking out credits,” he said. “We’re just doing the paperwork.”
Allison wouldn’t say whether his firm is paid on commission.
From 2006 to 2014, records show Advantous Consulting and its principals also donated more than $144,000 to various lawmakers’ campaigns and political action committees, making the company one of the most generous donors in Louisiana politics.
Allison said his firm contributes to campaigns because he has many friends in the Legislature.
“The Legislature is a thankless job of good people trying to do that work,” Allison said. “I’m willing to help some of them.”
Asked what he does when lawmakers propose cuts to tax-credit programs, Allison said he does what any business owner with a stake in the outcome would do. “We certainly monitor legislation like any business would and try to stay on top of that,” he said.
Allison said he hasn’t resisted every effort to rein in tax credits. For instance, he said, he did not fight a bill the Legislature passed last year to stop giving Enterprise Zone tax credits for the creation of part-time jobs and to kick out “big-box” retailers, other than grocers and pharmacies that actually locate in the zones.
He said the business interests he represents had mixed views on the legislation, but he believed the changes would fix many of the program’s shortcomings.
As the tax consulting industry grows, it occasionally has led public employees involved in tax administration across the aisle and into the private sector.
[aesop_quote background="#282828" text="#ffffff" width="80%" height="auto" align="center" size="1" quote="“The Legislature is a thankless job of good people trying to do that work. I’m willing to help some of them,” said Don Allison, a registered lobbyist and partner at Advantous Consulting." parallax="off" direction="left"]
In August, Ryan LLC, one of the nation’s largest tax service firms, hired Jason DeCuir away from the Louisiana Department of Revenue.
Ryan, which has a reputation for being aggressively involved in tax policy, particularly in its home state of Texas, occasionally works with businesses receiving credits through the Quality Jobs and Industrial Tax Exemption programs in Louisiana.
Recently, the company advocated for the passage of a bill that created sales and use tax rebates for procurement processing companies, and now Ryan stays busy with Louisiana businesses taking advantage of the exemption. That rebate is administered by the Department of Revenue, where DeCuir until recently served as executive counsel.
“His knowledge of complex tax, legislative and regulatory issues will be invaluable in the development and execution of effective public affairs strategies for our clients,” Ryan CEO G. Brint Ryan said in a September news release announcing DeCuir’s new job.
DeCuir said in an interview that he’ll be working with businesses seeking the tax exemptions, as well as lobbying the Legislature on policy. He said he will stay away from any matters that he worked on while he was at the Department of Revenue to avoid any appearance of a conflict.
Tax consultants aren’t the only ones making it difficult to tinker with the state’s incentive programs.
State Sen. Jack Donahue, R-Mandeville, noted that Gov. Bobby Jindal vetoed a bill that would have simply required the Revenue Estimating Conference to estimate and approve the annual expenditure of tax incentives; Jindal complained the bill would have had a chilling effect on business.
[aesop_image imgwidth="80%" img="http://blogs.theadvocate.com/specialreports/files/2014/11/CNB_LEG_5-27__TS_208_15377069_webedit.jpg" align="center" lightbox="on" caption="Advocate staff photo by TRAVIS SPRADLING -- State Sen. Jack Donahue, R-Mandeville, said he's OK with consultants making a living off the tax incentive program. But he has been been critical of some of the state's tax giveaways." captionposition="center"] [/aesop_image]
While Donahue disagreed with the governor, it doesn’t bother him to see businesses or tax consultants acting in their own self-interest. “That’s the nature of the beast,” Donahue said. “Lobbyists are always on one side or the other, and I don’t have a problem with them doing their job.”
Allison said tax credits make easy targets for legislators and skeptics, but he disagrees with the criticism.
“It’s really sexy right now in the Capitol to bash tax exemptions,” Allison said. “People think there’s some huge amount of revenue if all of these were repealed and money would be flowing back to the state coffers.”
In fact, he said, the programs accomplish their intended purpose: influencing business owners’ decisions to locate in Louisiana and hire local people.
“The programs we’re talking about require job creation and investment to even get the credit,” Allison said. “These do affect business decisions. Businesses are out there looking at the tax code.”
Editor's note: This story was changed on Dec. 2 to reflect Tom Cruise's correct fee for “Oblivion.”