The Louisiana industrial renaissance giveth and, for now, apparently taketh away in St. James Parish.
A year and a half after combined sales tax collections in St. James Parish reached a record $33.3 million, they have been on a downward slide as major construction projects, including the first phase of Nucor’s $3.4 billion steel complex, have finished and normal plant upgrades have slowed down, parish officials said.
The School Board, which collects 2.5 cents parishwide, projected a drop in fiscal 2014-15 but saw collections fall $4 million more than had been expected.
School Board sales tax collections hit a record of $25.3 million in fiscal 2013 but have fallen 37 percent through fiscal 2014-15, which ended June 30, a board budget message says.
The sales tax plunge has played a major role in taking a $7.3 million one-year whack out of the board’s $18 million general fund surplus built up over five years of sales tax growth.
“While there continues to be hope of an uptick in industrial activity in the parish along with the inherent revenue increase, the Board’s current General Fund situation is very ominous,” a board budget message says.
It adds that the board faces a $4 million to $5 million “budget problem” in fiscal 2017 if things don’t improve.
St. James Parish President Timmy Roussel said parish government likewise started seeing sales tax collections drop in 2014, falling about $400,000 more than expected so far in 2015. The parish operates on a calendar year for its budget.
Roussel said he is speaking with Parish Council members about holding off on some projects to avoid dipping into parish reserve funds.
To some extent, such fluctuations are to be expected as sales tax collections have been supercharged by large construction projects. Neighboring Ascension is still riding strong sales tax collections due to the $2.1 billion expansion of CF Industries and other multimillion-dollar projects.
Roussel said a lot of activity took place in St. James Parish with plant expansions and upgrades in recent years and, as those have eased off, the parish is “probably back to normal if you go back a few years.”
School and parish leaders said they aren’t sounding alarm bells because they are coming off all-time highs for collections and the picture could brighten soon with more construction projects in the pipeline.
“We go up, and we go down. Hopefully, we go back up with all the potential industry in St. James,” school system Superintendent Alonzo “Lonnie” Luce said. He the school system has scaled back some spending, like not filling some vacant positions, but is far from panic mode where classroom sizes are affected.
Among the prospects is the $800 million first phase of Yuhuang Chemical’s $1.85 million methanol complex in the Vacherie area. Construction is expected to start some time later this year, though environmentalists are challenging the air permit. At peak construction, Yuhuang is estimated to bring 2,100 construction jobs.
Steve Nosacka, a St. James economic development consultant and mayor of Gramercy, said the $1.3 billion South Louisiana Methanol LP complex is still out there and some tank farm construction is still planned in the near future.
“It’s not all doom and gloom. We are excited about 2016 in particular,” Nosacka said.
The first Yuhuang phase will rival Nucor’s $750 million first phase in capital investment. Nucor’s direct reduced iron plant in Convent started production at the end of 2013 but shut down in November due to an equipment failure. The plant restarted in late April.
By the end of the year, parish officials also should have a better idea about what more they can expect from Nucor. Touted early in Gov. Bobby Jindal’s tenure as a major economic development win, Nucor was promised $160 million in state incentives.
Under the agreement with Louisiana Economic Development, Nucor must let LED know by Dec. 31 what the company plans for the remaining $2.65 billion in construction phases.
Under the complicated agreement, Nucor must hit required capital spending amounts by deadlines pegged to the date of the state’s notification, build the complex in a certain order and hit payroll levels to earn all the incentives. Nucor also faces stiff penalties if it says it will build a certain phase and then doesn’t reach some requirements until a few years later.
LED Secretary Steven Grissom and Katherine Miller, Nucor spokeswoman, both said last week the company is continuing to evaluate its next phase.
“That phase could include another direct reduced iron facility, a coke plant, a blast furnace, a pellet plant and/or a steel mill,” Grissom said.
The $1 billion blast furnace and $750 million steel mill represent the largest single capital investments remaining.
John Anton, director of steel analytics for IHS Inc., said U.S. steel makers are battling cheap Chinese steel, which has cut sharply into steel prices.
Steel makers are calling for trade protection from the U.S. government, but Anton said a case can be made for investment in a project like the second $400 million direct reduced iron phase at the Convent complex as Nucor competes with China.
The cost of iron ore is low, and Nucor’s technology relies on cheap natural gas to turn iron ore into high quality direct reduced iron pellets. The pellets are mixed with scrap metal in Nucor’s electric furnaces to make steel.
“I am not positive that Nucor or any other company will move forward, but as long as prices don’t enter a disaster period, where people are really fighting just to survive, there is a strong incentive to move forward with these types of projects,” Anton said.
Follow David J. Mitchell on Twitter @NewsieDave.