After 40 some-odd years on autopilot, members of an obscure board that routinely rubber-stamps the nation’s most generous corporate subsidies found Robert Adley’s grabbing the wheel something of a shock.
Big manufacturers fill out the request for an industrial tax exemption, make an investment and, if the form is filled out correctly, then yeah, sure, approve it. And that’s what was about to happen again at the May meeting when the state Board of Commerce and Industry prepared its usual en masse OK of all 305 requests for exemptions that amounted to $208 million in property taxes lost to local governments.
Adley, who is Gov. John Bel Edwards’ designee, asked the 24-member panel to hold up.
He noticed that a lot of the requests just said “machinery” — not even what kind of equipment. And he noticed one German-based company with a longtime presence in Ascension Parish had 15 applications; each less than $5 million. That’s the level at which the companies get approved without much scrutiny. Together, the 15 applications amounted to a $9,675,673 write-off in local property taxes. No new jobs were created in the $59.1 million total investments that qualified the company for the tax break.
While the state constitution of 1974 gives the board power to administer the exemptions, the governor must sign each request before they go into effect.
“I want to take a look at that program to see what we can do to better align the program with job creation,” Edwards said Friday.
The 305 applications delayed from the May meeting and another couple hundred new ones are on the board’s agenda for its meeting on Friday.
The origins story for the 1970s-era tax break is a little murky.
Apparently, today’s industrial tax exemption evolved from a sop Huey Long tossed in to appease opponents of his efforts to establish a state income tax and to eliminate a poll tax blocking voter participation for many poor white people and most African-Americans. Both moves were extremely unpopular in conservative Louisiana. (Long proposed a homestead exemption to win over individual voters.)
Jim Patterson, the tax expert at the Louisiana Association of Business and Industry, said today’s industrial tax exemption is a key economic development tool. The state’s competitors — Alabama and Mississippi — also extend exemptions to investments like research and development.
The industrial tax exemption is actually two, five-year exemptions. But the renewal for the second five years is perfunctory. The tax break also gives corporations the ability to grab another exemption by doing an expansion or buying some new equipment.
Lots of states have similar industrial tax exemptions, but The Tax Foundation, a conservative-leaning think tank, calls Louisiana’s incentives “unusually generous.” If the existing 100 percent tax exemption was cut back 30 percent, Louisiana still would lead the nation with its largesse, said state Sen. Rick Ward, a Port Allen Republican. Ward is sponsoring legislation that would require the big manufacturers to choose between the industrial tax exemption and an inventory tax refund but not take both. (Small businesses can’t easily qualify for the industrial exemption.)
But generosity is not the biggest issue.
Louisiana administers the tax break from the state level without giving local governments any say-so. Basically, the state tells parishes to provide increased police, roads, firefighting and other local services to handle the influx caused by the manufacturers’ investment — but without a way to pay for it.
“That cities and school districts and library boards do not have the ability to make that decision for themselves about their own revenue is a very bizarre and poor public policy,” said Broderick Bagert, of Together Louisiana, a coalition of clergy and social groups.
East Baton Rouge Parish schools, for instance, lost about $27 million in taxes that were not collected because of corporate exemptions, Bagert said. Jefferson Parish didn’t get $7.1 million for its levees.
Local governments are expected to miss out on about $7 billion in property taxes during the next five years.
Because local governments are barred from collecting the revenues they need to run their shops, state government sends them money. Now, about half of the state’s general funds go to subsidize services offered by local governments, Adley said. Even if the “locals” could collect as little as 20 percent of the exempted property taxes, that would free up $600 million or so that the state could use to pay other expenses.
“People are always asking why we, as a state, subsidize local government so much,” Adley said. “The reason is we, as a state, won’t let local governments collect the revenues they need.”
Mark Ballard is editor of The Advocate Capitol news bureau. His email address is mballard@ theadvocate.com, and he is on Twitter, @MarkBallardCNB. For more coverage of government and politics, follow our Politics Blog at http://blogs.theadvocate.com/ politicsblog/.