BR.metrocouncil.121417  081.jpg

Edward Cage, with Together Baton Rouge, speaks in favor of transparency concerning the Council’s designee to the Mayor’s Industrial Tax Exemption Program Review committee during the Metro Council meeting Wednesday.

Advocate Staff Photo by PATRICK DENNIS

When a national plastics maker announced plans to grow its operations in Pineville, local economic development leaders and politicians were thrilled. The $15 million expansion of Plastipak would generate 10 new full-time jobs, paying salaries of about $40,000 a year. 

But there was a little twist: The Rapides Parish government was being asked to forgo about $1.8 million in tax revenue over the next 10 years. 

In the past, parish officials had never been required to give deals like this much thought. For the past 80 years, such giveaways were granted — more or less automatically — by the state, to any manufacturer that met the guidelines of Louisiana's industrial tax exemption program. Pretty much any Louisiana manufacturer making a capital investment of any size qualified. Over the decades, the break cost local governments tens of billions of dollars in tax revenue. 

Now, for the first time ever, local police jury members and school board members, along with the sheriff, would get to decide whether Plastipak would get the tax break that would come out of their budgets. Gov. John Bel Edwards changed the rules last year, with potentially dramatic effects, and Plastipak found itself among the first round of companies testing the waters of a revamped program.

After a rollicking debate about whether they'd lose the business, whether they should give up the tax money, and whether they should even be making such decisions, both of the elected boards in Rapides Parish approved the exemptions. But just barely. The sheriff also signed off. Local officials also briefly considered and then rejected a measure that would have approved, on a blanket basis, all tax exemptions that came before them.

"The boards in both cases were coming to grips with the fact that they have this new responsibility," said Jim Clinton, the president of the Central Louisiana Economic Development Alliance, an organization tasked with attracting businesses to the region. "But we have no staff history of how to go about this, no policy history of how to go about this, and yet there's a timetable that needs to be adhered to and a company waiting that shouldn't be penalized because we're all learning how to do this on the fly." 

Before Edwards' 2016 executive order, the state's behemoth industrial tax exemption was such a reliable giveaway that Louisiana Economic Development described it as basically a part of the state's tax code rather than an incentive program. It's also by far the costliest giveaway in Louisiana, which has been plagued by red ink in part because of the proliferation of such tax breaks.

While the industrial tax exemption cuts local property taxes rather than state taxes, it affects government finances at both levels, because the state winds up paying for many services that would ordinarily be handled by local governments were they not so revenue-starved. 

The shake-up in the industrial tax break is something watchdog groups say was sorely needed, but many economic development and industry groups worry it will stifle investment and growth. 

So far, only a handful of parishes have gotten an opportunity to exercise their new authority, a task they've taken on with varying levels of enthusiasm. Some groups say the shift in power has only created competition for business among parishes, while others say they're happy to have some say in whether they give away property taxes that could otherwise pay for police protection, schools, roads, libraries and parks.

Almost every tax-exemption application that has gone before a local governing authority — about a dozen projects to date — has been approved so far, leading some critics to ask whether this key reform to the multibillion dollar property tax giveaway has really changed anything. Only Calumet Specialty products, a hydrocarbon and fuel products manufacturer in Shreveport, was unsuccessful in getting its application approved by the local government, in part because the company was unable to illustrate job creation. But firm officials indicated they plan to bring their application back for consideration after retooling it.

For years, the industrial tax exemption worked like this: Any manufacturer, from a small brewery making craft beer to a billion-dollar oil refinery, could apply to the state for a property tax exemption on the value of any new capital investment. The new project wouldn't be subject to property tax for 10 years. Identical breaks could also be applied to routine improvements and upgrades. 

There was no minimum investment required to receive the giveaway, nor was there any requirement that the new investment would create even a single job — or, for that matter, preserve the ones that already existed. In many cases, the improvements resulted in efficiencies that allowed manufacturers to cut jobs over time.

But perhaps the strongest critique of the program was that locals got no say in whether they wanted to forgo the taxes owed to them. 

That changed with last year's executive order. Under Edwards' revamp, local taxing bodies — parish councils or police juries, plus sheriffs and school boards — have to submit cooperative endeavor agreements indicating they approve the exemption before the state board can actually award it. The tax exemptions can also be scaled back, depending on what the local government wants to give up. For instance, the locals can give up 100 percent of property taxes or a smaller percentage of their choosing.

And different taxing entities can opt to award varying levels of exemptions. For example, a sheriff refuses to give the tax break and collect 100 percent of taxes owed to his office, while a school board can take 50 percent and a parish council can award a full exemption. Industry leaders say this is another complicating factor for the companies.

In what so far has proved to be the most significant change, Edwards cut the life of the tax exemption to eight years instead of 10; he also ordered the exemption to be capped at 80 percent for the last three years. Routine upgrades are no longer allowed to be included, and job creation or retention has to be considered.

+4 
IndustrialTax062416-1.jpg

Advocate Photo by MARK BALLARD – Gov. John Bel Edwards told the state Board of Commerce and Industry on Friday that from here on he expects applications for exempting manufacturers from local property taxes to be tied to job creation and retention.

At a minimum, those changes will trim the cost of the program by a quarter.

"I sought to make the program as beneficial as possible to everyone in Louisiana," Edwards said. "That includes the people who work at manufacturing sites in Louisiana, the people who own manufacturing operations in Louisiana and the people in our communities who benefit from a fair and reasonable tax on the value of that manufacturing property." 

Parishes have responded in a variety of ways. Some said they were apprehensive about their new responsibilities, adding that the result is that parishes are now competing against each other for projects.

Kevin Couhig, president of West Feliciana Parish, said his plan is to make it easy for businesses by offering a promise that any firm that meets the minimum requirements for the tax exemption will be pre-approved for the maximum benefit. 

"My belief is that the greatest incentive you have is not worth much if there's uncertainty about whether a prospect will get them," Couhig said. "What we've chosen to say is that if a prospective manufacturing business wants to relocate or expand in West Feliciana, we'll preapprove you."

That's tough to compete with, said East Baton Rouge Parish Councilman Matt Watson. 

+4 
BR.metrocouncil.110917 HS 016.JPG

Metro councilman Matt Watson, District 11, speaks on Item 64 concerning a resolution of support and approval for an Industrial Tax Exemption for Tin Roof Brewing Company during a meeting of the metro council, Wednesday, November 8, 2017, at City Hall in Baton Rouge, La.

"The fact that we're competing with every other surrounding parish here does put us in a situation where we have to be a little more generous," Watson said. "We may be motivated by the negotiations of an adjacent parish. The main deal here is that West Baton Rouge has the same access to things to resources as we do. Exxon Mobil's lubricants factory is on the other side of the river, so who is to say they won't just decide to build more things on the West Baton Rouge side?"

In East Baton Rouge Parish, local officials aren't in complete agreement about which exemptions should be approved. So the local governments plan to create a rubric that spells out minimum investment and job requirements; that way, business owners can reasonably expect to be approved if their project meets those targets. However, the local groups have yet to create that matrix and have been split about which local officials will help craft the guidelines. They have already had to approve one tax exemption — for Tin Roof Brewery — before establishing guidelines.

Rapides Parish leaders have also decided to establish a rubric to guide their future decisions. 

But in Ascension Parish, council chairman Bill Dawson said he eschews that idea because he believes it limits flexibility and he doesn't want to have his hands tied. As of now, the Ascension Parish Council and the school board have opted to take each project on a case-by-case basis. 

Dawson also said he's not entirely convinced that it's a good thing that local boards wield this new power. 

"We have this authority we didn't have before, and it puts us in competition with our neighboring parishes," he said. "We're not excited about that. We think the region and Louisiana should be trying to attract projects." 

Greg Bowser, president of the Louisiana Chemical Association, is also not a fan of the changes, which he said will stifle industrial growth in Louisiana. 

"It's made it more complicated to get a contract," Bowser said. "There's no certainty anymore."

Well, frankly, that's the point, said Together Louisiana leader Broderick Bagert, whose organization has been trying to draw attention across the state to the shortcomings of the tax exemption. 

+4 
itepebr77.052417.jpg

A projected slide showing negative numbers in red, indicating a loss of over 2,000 jobs at the top seven companies with the highest exemptions of ad valorem taxes in East Baton Rouge Parish, is in background as Broderick Bagert, lead organizer of Together Baton Rouge, speaks during a discussion of the costs of industrial tax exemptions for East Baton Rouge Parish, at TBR's monthly luncheon, Tuesday, May 23, 2017.

Bagert and other members of his group have spent the last few months meeting with local elected officials, highlighting the historic waste of the tax exemption program and urging local leaders to exercise their new discretion when deciding on the next one. 

Bagert said he'd like to see local governing groups establish minimum criteria, like East Baton Rouge and Rapides parishes have done. Absent some standards, he's concerned the program will continue on much as it did before, without any real consideration given to kind of return on investment it is providing. 

"These wasteful subsidies could go back to where they belong: To our schools, to our sheriffs, in our pockets and all the places where our communities really need investments," he said. "It's potential is really big, if and only if local government takes their responsibility as taxpayers as seriously as they ought to." 

Follow Rebekah Allen on Twitter, @rebekahallen.