“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.
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.
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.
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.
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?”
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 eight-figure star salaries such as the estimated $20 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.
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.
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.
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?”
‘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.
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***, with a billion dollars in one-time money propping things up.”
But business groups urge patience, saying the ongoing industrial investments show the state’s policies are working.
“We’ve got about $100 billion in projects announced, and $40 billion underway 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 raising 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.”
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.
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 consider it only in the context of lowering overall tax rates.
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.”
Follow Gordon Russell on Twitter, @gordonrussell1.