Louisiana is giving away an average of $1.6 billion annually in tax breaks to large manufacturers with little oversight and little return, according to a new study released Monday.
Together Louisiana, a statewide association of clergy and public interest groups that favors higher taxes on big corporations and the wealthy, reports Louisiana has the most generous industrial tax exemption in the country, allowing companies to avoid paying their property taxes to local schools, sheriffs and fire departments for 10 years, in two five-year increments.
Most states have an industrial tax exemption, but Louisiana is the only one that handles the grants without the approval of local governments, which otherwise would be in charge of collecting property taxes.
“It’s not structured as an incentive program, but it’s structured as an entitlement,” said Broderick Bagert, of Together Louisiana.
The study tallied $16.7 billion in lost revenue for local governments over the past decade in exchange for 31,150 permanent jobs that were created by the companies receiving the subsidies, which calculates to $535,343 per job.
Lost local revenue over the past 10 years cut into law enforcement and corrections by $316.6 million, parish governments by $281 million, libraries by $75 million, roads by $60.5 million, and levees by another $27.8 million. The $587 million in tax revenue lost to local school districts is more than three times the $185 million needed to pay for universal pre-kindergarten statewide, according to the report.
Lots of states have similar industrial tax exemptions, but The Tax Foundation, a conservative-leaning think tank, calls Louisiana’s incentives “unusually generous.”
Jim Patterson, the tax expert at the Louisiana Association of Business and Industry, called the exemption “a key economic development tool” that entices corporations to locate large manufacturing facilities in this state. “In order to be competitive for investment and job creation, business has to see that a state has this program,” Patterson said.
Thirty-nine states have similar property tax exemptions for industrial concerns — and they all operate it differently. Louisiana’s chief competitors — Alabama and Mississippi — have the exemption but also extend the break to investments like research and development as well as for corporate headquarters, he noted.
Because of Louisiana’s high “homestead exemption” — homeowners are forgiven property taxes on the first $75,000 of the value of their homes — businesses still pay about 70 percent of the property taxes in this state, Patterson said.
The 1970s-era industrial tax break is administered by the Board of Commerce & Industry, which usually approves the applications without much discussion. But in May the panel held up approval of 305 applications at the request of Gov. John Bel Edwards’ designee. After the board OKs the application, it must be signed by the governor to take effect. The board meets again Friday.
“I have been concerned about the industrial tax exemption for a while. For decades it has been on autopilot,” Edwards said Friday. “It is not even tied to jobs, job creation, job preservation.”
He wants to better align the program with job creation.
Edwards asked his secretary at the state Department of Economic Development, Don Pierson, to start reviewing the industrial tax exemption shortly after taking office.
“It’s an important workhorse for Louisiana and has been for more than four decades,” Pierson said Monday. But the program has no job creation or minimum investment standards and hasn’t been looked at closely in recent years.
He found the Together Louisiana figures a little misleading. For instance, the department found that the 10-year amount of foregone revenue for all active contracts is about $13 billion, rather than the $16.7 billion reported by Together Louisiana.
Also, the property tax exemption amounts are based on a project’s capital expenditures and property values. The value of incentives claimed in Louisiana appear larger than other states because of the higher concentration of high dollar projects in Louisiana. Sasol, for example, is spending $11 billion for a plant near Lake Charles.
That said, the program still needs scrutiny, if for no other reason than the state routinely takes away the source of revenue local governments need to pay for the additional water and sewerage, more students in the schools, more wear on the roads and other increased services necessary when a large manufacturing facility comes to town, he said.
“It has been routinely invoked without a local voice for four decades and that’s of some concern,” Pierson said.
Because local governments are forbidden from collecting the ad valorem taxes needed to pay for those services, state government must send money to parishes and municipalities, said Robert Adley, a top aide to Edwards and his designee on the commerce and industry board. State contributions to local government account for about half of the state’s spending, he added.
Lowering the industrial tax exemption from 100 percent of the ad valorem taxes owed to 80 percent would allow local governments to collect about $600 million, which would free the state from having to pay a similar amount, Adley said.
If the exemption was cut back 30 percent, Louisiana still would have the most generous industrial tax exemption in the country, Adley added.
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