Formosa Plant (copy)

Formosa Petrochemical Corp

Several multibillion-dollar manufacturing projects that are just getting underway in Louisiana are benefiting from tax benefits locked in three years ago when the companies filed paperwork just ahead of a reform scaling back the state's Industrial Tax Exemption Program.

In St. James Parish alone, at least three major petrochemical companies have said in the past year they are moving forward with a collective $13 billion in projects, the largest being Formosa's $9.4 billion chemical complex. All three — Formosa, Wanhua Chemical and South Louisiana Methanol — are expected to receive 100 percent property tax abatements for 10 years because they are grandfathered under old rules governing the tax break program, though the projects are just getting started or planned for the future.

Gov. John Bel Edwards issued an executive order in 2016 scaling back the program, Louisiana's largest corporate incentive, in a first round of changes that gave companies a 100 percent tax break for 5 years that trailed down to an 80 percent exemption for a final 3 years. After more changes, it now offers 80 percent property tax exemptions on new or improved plants for 10 years. The revisions also require local approval and ties the exemptions to job creation or retention.

By being grandfathered, a handful of planned projects, like Formosa's $9.4 billion plant, won't have to seek local approval of the tax breaks that was automatic under the old rules but required under the revisions. They also are benefiting from the more lucrative 100 percent exemptions offered before the reforms.

Formosa, along with Entergy and Venture Global, were among 26 companies that filed paperwork just one day before Edwards scaled back the program in June 2016 by issuing an executive order at a Board of Commerce and Industry meeting. The filings, though an unusually large number, are not unprecedented. Louisiana Economic Development noted that a year earlier, 27 notifications were filed for the program on the last day of the state's fiscal year. LED Secretary Don Pierson said he could only speculate why that spike happened, but pointed out the fee schedule for incentive programs was set to increase the following fiscal year from a range of $200 to $5,000 to a range of $500 to $15,000.

The average day generally sees between zero and a handful of such applications, a review of publicly available data shows.

Edwards’ reform was forward-looking, applying to projects that had not yet filed their “advance notification.” The notification is a preliminary document that is usually the first step toward receiving the property tax break for manufacturers and often filed months or even years in advance. Projects that had already filed that document were grandfathered into the old rules.

Others, like Driftwood's $15 billion megaproject, are getting a 100 percent property tax exemption but had to get local approval because of a three-month window allowing the full exemption. Edwards' administration agreed to let companies that filed between June and October get 10-year exemptions so they would not have the new rules retroactively applied to them, something that would have been "unfair" to them, said Edwards spokeswoman Christina Stephens.

"On the issue of the projects getting grandfathered in under the old rules, this was a necessary part of the process," Stephens said. "We were making changes to 80-year-old rules and trying to do so in a fair way. Manufacturing is an incredibly vital part of Louisiana’s economy and the governor has worked very hard to balance the needs and wants of industry throughout this process, even as he sought to make much-needed changes to the ITEP to give the local governments a say."

Stephens added no one in the Governor's Office gave companies advance notice that the executive order was coming, a move that would have "defeated the purpose" of the changes. Still, talk of changes wasn't a secret, she said.

“Everyone involved in economic development in Louisiana was aware that the governor was going to dramatically change the industrial property tax exemption program,” said Jim Harris, economic development consultant for the Formosa project. “After his election, he made comments to that affect to a number of groups in several meetings. No one was quite certain what the governor would change in his executive order, but all realized he had the constitutional authority."

If Formosa's project had been tied to the first round of reforms, Harris estimated, the company's tax break would have shrunk by $300 million from $1.5 billion to $1.2 billion.

By the time Formosa announced it would build its sprawling complex of chemical plants along the Mississippi River in St. James Parish last spring, it had already been nearly two years since Edwards' original executive order. By filing the advance notification a day before that executive order, Formosa avoided the new rules added to the program and cemented its 100 percent, 10-year benefit.

Harris confirmed the company filed its advance notification a day before the executive order was issued, and he added that “there was heavy competition between Louisiana and Texas for this project.”

“It would not be surprising that companies had awareness of pending changes to ITEP because the media were publishing significant coverage about potential plans for changing ITEP rules,” Louisiana Economic Development spokesman Gary Perilloux said.

Pierson said when looking at a $9 billion plant like Formosa, it's important to note that not all the investment will happen at once, as the construction takes years and several phases. The actual amount of property on the tax rolls in year one will be far lower than the total amount.

He also said the plants will generate millions in tax revenue, payroll and construction jobs, an argument that business groups have made in recent years in an effort to defend the tax break. The tax break program has become controversial as the advocacy group Together Baton Rouge, as well as teachers unions and others, rail against it, mainly in Baton Rouge.

Barry Williamson, president of South Louisiana Methanol, said his company filed its advance notification two months before the reform simply because it was the "natural progression of things," not because it anticipated the changes. South Louisiana Methanol has not made a final investment decision but said last month it planned to rekindle the project, originally announced in 2013.

James Newport, general manager of Wanhua Chemical US Operations LLC, confirmed the date of the company’s advance notification qualifies it for a 100 percent tax break for 10 years, as it filed it a year before the executive order. He said that project is in the permitting phase, with construction slated to begin this year.

“Any company coming to St. James Parish should be willing to pay something to the local governing authorities,” said St. James Assessor Glenn Waguespack. “Seven percent, I’d be totally happy with. But I’m not happy with zero.”

Waguespack said he thinks if the industrial companies locating huge plants in St. James Parish had to pay 100 percent property taxes, the plants probably would not get built. But the parish doesn’t have a lot of commercial businesses to provide a solid tax base, he said. Although several manufacturers operate chemical plants in the area, they are exempted from many property taxes because of the program. If they paid just 7 percent, the amount some "megaprojects" are eligible to pay under the program's new rules, it could make a significant difference to the community.

“They would have paid about $15.8 million under the new rules in the first year,” Waguespack said of the chemical plants planned for the area, referring to the 7 percent amount. “Instead of that, we’re going to get zero.”

Perilloux said Louisiana Economic Development also is not aware of any efforts to notify companies that the change was coming.

When the Louisiana Board of Commerce and Industry held its scheduled meeting in June 2016, Edwards made an appearance that wasn't on the agenda. The board, which long held sole authority over the tax breaks, had in previous months discussed tweaking the program.

Louisiana Economic Development and the board “were aware of the potential impact” the reform could have on the advance notification filing, Perilloux said, which is why the governor’s appearance at the meeting was aligned with the signing of the executive order.

Other companies that filed their paperwork just before the reforms include Entergy Louisiana for an $875 million power plant in Calcasieu Parish, which began construction a year and a half later in January 2018. A spokesman did not return messages seeking comment. Entergy New Orleans filed its advance a few days before the reform for a $216 million project at its Michoud site. That company also did not return requests for information. It is not clear whether the two projects are benefiting from the old rules for ITEP, but the timing of their advance notifications would qualify them for 100 percent, 10-year exemptions.

Venture Global, which has plans for two massive liquefied natural gas export facilities in Louisiana, will benefit from the the program's old rules if it moves forward with either project. For its proposed $8.5 billion plant in Plaquemines Parish, the firm filed its paperwork for the tax break a day before the reform; the company has not yet made a final investment decision. It filed paperwork a year earlier for a $4.25 billion facility in Calcasieu Parish, for which the company also has not yet made a decision. A Venture Global spokeswoman did not return messages seeking comment.

The Board of Commerce and Industry phased in the reforms to the program, allowing companies to receive 100 percent abatements if they filed after the executive order until Oct. 21. But those companies did have to go to local officials to win approval for their projects.

That’s how Driftwood LNG won approval for what could end up being the largest tax break ever awarded in Louisiana. The company filed its preliminary paperwork during that roughly four-month period for its $15 billion LNG export facility. It then won approval from local officials, though one of those officials later complained about the process and asked for reconsideration.

Despite objections from community organizers, the state Board of Commerce and Industry in December granted Driftwood a tax break through the program that could end up being worth more than $2 billion.


Follow Sam Karlin on Twitter, @samkarlin.