St. James Parish government would lose $6.8 million, 20 percent of its budget, in one fell swoop.
The School Board would be out $9.3 million and likely would have to fire more than 120 employees, mostly teachers.
The impact on Sheriff Willy Martin Jr. would be the harshest of all: He would lose 39 percent of the $11.4 million budget that pays for his 100-member force.
“When you really study the big picture, this would be very, very serious,” Martin said last week. “It would have a serious effect on the services we provide to this community.”
Martin was talking about the dire situation he and other St. James officials would face if the business inventory tax were phased out. The tax is a local property tax assessed on materials and goods for sale, and St. James and its neighbors in Louisiana’s industrial corridor rely heavily on it to pay for local government operations.
Gov. Bobby Jindal and some business leaders are discussing significantly cutting or eliminating the inventory tax as part of a larger effort to solve a $1.6 billion state budget shortfall.
The budget plan Jindal unveiled Feb. 27 actually keeps the inventory tax in place, but it proposes a huge curtailment of a program through which the state, for the last two decades, has refunded all inventory taxes paid by businesses to local governments.
Instead of killing the refund program — which industry views as a $400 million tax hike — business leaders propose simply getting rid of the tax, a plan Jindal has said he’d support.
The question then is how local governments would make up the shortfall. And that question is most urgent in places like rural St. James Parish, at the center of south Louisiana’s booming industrial sector. St. James and a couple of its neighbors would feel the loss of the revenue hardest.
With 85 percent of the school system’s budget in personnel, School Superintendent Alonzo “Lonnie” Luce said the board would have to cut staff. The board would likely struggle to stay under the state’s maximum student-teacher ratio.
“It just would be a devastating blow to lose that much revenue,” he said.
In St. James, home to oil tank farms, the first phase of Nucor’s steel complex and Motiva’s oil refinery in Convent, which produces 230,000 barrels per day, 39 percent of all parish property tax revenue came from inventory taxes last year. That was the second-highest proportion in the state in 2014, according to state property tax reports. Only St. John Parish got a higher percentage of its revenue from inventory tax, at nearly 43 percent. At the other end of the spectrum is St. Helena Parish, where the inventory tax generates less than 2 percent of the property tax revenue.
In 2014, the inventory tax produced about $22.5 million for all of St. James’ taxing jurisdictions. Were the tax to go away, Parish President Timmy Roussel said, the average property tax rate of 106 mills would have to increase by nearly half to make up the difference.
He said that kind of increase would be a tough sell.
“Nobody’s going to vote on that,” he said.
Along with St. John and St. James, five other parishes, primarily in and around New Orleans and Baton Rouge, also counted on inventory taxes last year for at least 20 percent of their property tax revenue: West Baton Rouge, St. Bernard, Assumption, St. Charles and St. Martin.
In Iberville Parish, home to part of Dow’s 1,500-acre industrial complex and all of Shintech’s facilities, inventory taxes accounted for about 19 percent of all property tax revenue, state tax data show.
Even in Ascension Parish, where inventory taxes account for around 16 percent of property tax revenue, officials are watching the emerging inventory discussions closely.
Diane Allison, business services director for Ascension Parish’s school system — ranked fourth-best in the state — said the loss of inventory taxes would eliminate $11.3 million from the system’s $219 million budget.
“We would have to make some drastic cuts to lose that,” Allison said.
Rebates spiraling upward
The inventory tax has long been seen as anti-competitive by the business community and many state leaders, and Jindal’s proposal to virtually end the state refund program — a workaround that made the local property tax almost irrelevant — has prompted new talk of simply doing away with the tax.
The Legislature created the workaround in the early 1990s. Under the system, the state refunds any local property taxes paid on inventory. The rebate counts against companies’ state tax bill; if the refund is larger than the company’s state tax liability, the state cuts the company a check for the difference.
In the last 10 years, the cost of that rebate program to the state has spiraled from $143.4 million to $427.7 million, a growth rate that far exceeds the growth of the economy.
The roughly 200 percent increase has led to questions that businesses with sharp accountants and tax attorneys are gaming a system in which neither the taxpayer nor the recipient — the parish and the business — has an incentive to keep the tax bill low. Only the state actually ends up paying in the end.
Louisiana Secretary of Revenue Tim Barfield and others view this arrangement as a structural problem.
In a report delivered to the Legislature Tuesday, LSU economist James Richardson and two other authors recommended cutting the inventory tax credit by 25 percent to give companies some “skin in the game” over inventory valuations.
But St. James Parish Assessor Glenn Waguespack bristles at the notion that any kind of wink-and-nod goes on over inventory taxes. He also challenged the notion that companies have an incentive to overstate their inventories, saying they still have to pay their tax bills.
“That’s bulls--t. You think these companies actually lie about the inventory?” Waguespack asked. “Why doesn’t the state audit them if they feel that they’re reporting the wrong number?”
Waguespack said the increase in inventory values in St. James matches the industrial growth in the parish that Jindal regularly touts and, until recently, the rising price of oil being stored in the parish’s expanding battery of tank farms.
“It’s exactly what the Jindal administration wanted, right? Growth of business. If they didn’t realize that along with big business comes big inventory, that ain’t my fault,” he said.
Waguespack also aired a complaint shared by Martin, the sheriff. Both said that while their parish has been a target of the Jindal administration’s economic development push, those efforts have come with expensive local incentives that have eliminated other property tax collections.
For instance, Nucor’s 4,000-acre site is owned by parish government and thus is exempt from taxation for the next 30 years, when Nucor has an option to buy it back.
Nucor makes payments in lieu of taxes to the sheriff, School Board and parish, but Waguespack has long criticized the payments as being far less than what parish governments would have otherwise received even with a standard 10-year industrial exemption.
Waguespack said that deal was cut without his input, but he said it was sold partly to locals on the basis that the parish would still get inventory taxes.
State Economic Development Secretary Stephen Moret said, as far as he can recall, he has never discussed potential inventory taxes on new projects with locals, “primarily because we haven’t felt like we have had an accurate way of forecasting those revenues,” he said.
No easy fix
State Revenue Secretary Barfield said state legislators and other state officials are looking at options for generating new state revenue to offset the loss of local inventory taxes, or at least soften the blow.
Rep. Julie Stokes, R-Kenner, said increasing the cigarette tax and expanding it to electronic and smokeless cigarettes could generate $300 million annually.
Barfield said another option could be a bigger push to collect sales taxes on remote sales, including some Internet transactions. That would allow collection of sales taxes from companies that do not have a physical presence in Louisiana, but have contractual relationships with companies here.
He said he has already been in talks with Grover Norquist’s Americans for Tax Reform to see if the group would consider replacing revenue lost from local inventory taxes with increased collection of remote sales tax “revenue neutral.” Barfield said officials with the group have told him they do.
Jindal — who has presidential aspirations in 2016 — and more than two dozen state legislators have taken no-tax pledges with the powerful Washington, D.C., advocacy group. The governor has consulted with ATR officials before advancing any plans for Louisiana, to ensure the proposals do not violate the pledge.
Barfield said the administration is open to any ideas that make sense.
“We’ve looked at some specific options, but everywhere you turn there’s tough decisions and there’s stakeholders that are going to be pushing back,” Barfield said, “and how you weigh all those, we really look forward to working with the Legislature to see what is the best path forward is for everybody.”
Martin, the St. James sheriff, said that given the state of Louisiana’s finances, he has little confidence the revenue promises will come through.
Roussel, the parish president, said he and other St. James leaders are gearing up for a fight.
“Right now, the parish has given up a whole lot in the past,” he said. “I think we need to be very careful what we give up in the future.”
Follow David J. Mitchell on Twitter @NewsieDave.