As the Louisiana Legislature churns through a special session debating state fiscal reform, flying underneath the radar is desperately needed reform dealing with property taxation.
Gov. John Bel Edwards hopes the Legislature will raise taxes permanently to sustain inflated government. While lawmakers seem unwilling to hand him that success, his strategy of reform designed to drive taxes higher has started working in parishes across the state.
Months after entering office, Edwards issued an executive order addressing exemptions to property taxes under the Industrial Tax Exemption Program. The order stipulated that the governor would potentially limit the exemptions to 80 percent of requests and grant them for two fewer years. Additionally, applications for exemptions were required to contain information about the economic development benefits from the exemption. The governor also mandated that local governments affected by the waiver have veto power over requests.
Until recently, no local government objected to a request. Then, last month Caddo Parish Sheriff Steve Prator denied a firm’s petition to forgo taxes on a new piece of equipment. In his eyes, despite the relatively small amount of the request, the justification didn’t demonstrate an adequate economic boost to offset the revenue loss to his agency.
Prator may be right. But the real problem is the high property tax burden Louisiana businesses bear. The state boasts both relatively low effective rates and per capita payments, due to the nation’s highest homestead exemption and other residential exclusions. But in Louisiana, government imposes levies on other kinds of property that few states tax, such as inventory. The result is that businesses end up paying close to 90 percent of all property taxes.
Worse, existing policy makes citizens at one level of government pay for decisions made at another. Until Edwards slapped the local approval requirement on ITEP, state-level decisions deprived local citizens of revenue for their governments without the consent of their elected officials. However, the inventory tax credit operates in reverse: state taxpayers pick up the tab for inventory taxes imposed by local governments.
The current system sows confusion and plays favorites for businesses, discouraging broader economic activity. The high unadjusted rates also don’t help. Every 10 percent increase in business property taxes decreases from one to two percent the number of new plants opening in a state, and higher property taxes negatively affect the establishment of small businesses.
Ironically, inefficient mechanisms like ITEP and the inventory tax credit help to compensate for the large business tax bills. Thus, Prator’s decision has made businesses statewide jittery as they see relatively high property taxes going higher still, which they must pass on to consumers and depresses their sales.
Edwards’ changes mean that businesses must now must navigate deal-making and cronyism at the local level. A better idea for reform would involve an entire overhaul of property tax policy. That should begin by broadening the base through a substantial lowering of both the homestead exemption and rates plus scrapping ITEP and the inventory tax.
This way, local officials gain greater control over local property tax assessments and their constituents achieve greater accountability. Edwards’ ITEP cure is worse than the disease. Only comprehensive reform that puts growing the economy over satisfying government hunger for revenues can fix a broken property tax system.
Jeff Sadow is an associate professor of political science at Louisiana State University-Shreveport, where he teaches Louisiana government. He is author of a blog about Louisiana politics at www.between-lines.com, where links to information in this column may be found. When the Louisiana Legislature is in session, he writes about legislation in it at www.laleglog.com. Follow him on Twitter, @jsadowadvocate or email email@example.com. His views do not necessarily express those of his employer.