Louisiana's new deal with CenturyLink offers the company $17.5 million in tax dollars and strips away penalties if it doesn't meet payroll targets in a continuing, decade-old effort to keep one of Louisiana’s two Fortune 500 headquarters in-state through 2025.
The agreement, struck by Gov. John Bel Edwards' administration well in advance of a 2020 expiration of an agreement the company was operating under, represents the third time in the past decade the state has offered tax incentives to the company in exchange for keeping its headquarters in Monroe. Announcing the deal Tuesday, Edwards lauded the company’s “uniquely Louisiana story” and said the new agreement will continue driving the state’s tech economy.
The Edwards administration’s deal with the telecommunications giant features a shift in how the state treats the company. Previously, CenturyLink was subject to penalties if it failed to meet payroll targets. That has changed.
Matthew Block, the Edwards administration’s general counsel, said the deal offers a sliding scale of tax benefits based on the company’s payroll, with no penalties for underperformance.
The new deal comes after CenturyLink missed its most recent payroll targets with the state, though it technically still met its obligations with the state because CenturyLink was credited for exceeding payroll targets in previous years.
“Instead of penalties for failure to meet certain payroll benchmarks, in the current agreement we wanted to reverse the structure of it so instead of penalties … it was purely incentive-based,” Block said.
The tax incentives are capped at $2.5 million a year and earned if payroll targets are met. The company could get a total $17.5 million if it hits all the targets through 2025. If it falls below $57.5 million in in-state payroll, the agreement is terminated. The company currently has roughly $200 million in in-state payroll, Block said.
CenturyLink’s previous state deal was struck in 2011 by former Gov. Bobby Jindal, and was set to expire in 2020. That agreement also offered up millions in tax incentives to the company in exchange for keeping its headquarters in Monroe and growing its payroll.
Last year, CenturyLink filed payroll figures for 2017 that were $8.3 million below the target laid out by that deal. The contract allowed CenturyLink to use previous credits from overperformance toward its payroll, meaning the company was still in compliance and was not subject to penalties, something the company pointed out this week.
Louisiana's economic development department said Thursday that CenturyLink to date has met its overall payroll performance targets outlined in prior corporate retention agreements in 2009 and 2011. Following the most recent project year for which it had complete data in 2017, CenturyLink has exceeded overall payroll requirements by $3.95 million, the department said, and has produced more than $298 million in new annual payroll associated with new jobs created under its agreement.
So far, CenturyLink has earned $23.98 million in incentives from the state, LED said.
It is not clear if CenturyLink would have met its payroll promises for 2018 if the Edwards administration had not made a new deal, superseding the old one. CenturyLink said it did not have those figures readily available.
With the Jindal-era deal set to expire next year, the Edwards administration wanted to ink a new one to insure the firm’s headquarters would stay put, Block said.
He also acknowledged the company’s headcount has decreased some in recent years, but said it was “very important to the state and for the governor to have CenturyLink maintain their headquarters in Monroe.” He also said CenturyLink never threatened to leave, and dealt with the state “in good faith” to get the new agreement done.
In 2011, when Jindal announced the 800-job expansion of the headquarters, the state offered up a rosy projection of the company’s job growth: The deal would boost the firm’s local employment to 2,970 employees by 2016.
Frank Tutalo, a CenturyLink spokesman, said Tuesday the firm has “over 2,000” employees across several locations in Louisiana, and he stressed the 2,970 figure was never part of a contract with the state.
He also noted CenturyLink was in compliance with the previous agreement.
“We have a lot of high-paying jobs at headquarters,” Tutalo said. “It’s certainly not CenturyLink’s intent to stock the payroll with people making $10 an hour.”
The new agreement also funds education grants at Louisiana Tech University, University of Louisiana at Monroe and Grambling State University, as well as boosts technology curriculum funding at Louisiana Tech to sustain a pipeline of potential workers.
CenturyLink wouldn’t comment on whether it was considering moving its headquarters elsewhere.
But some have speculated in recent years that the firm would move to somewhere like Colorado, where CenturyLink has made multiple acquisitions.
After acquiring Denver-based rival Qwest in 2011, worries that CenturyLink would move its headquarters to Colorado ramped up before the Jindal administration made its deal with the firm.
Again in 2017, CenturyLink acquired another Colorado firm — Level 3 Communications — in a $34 billion deal that again raised the possibility of a headquarters move, particularly when Level 3 CEO Jeff Storey became CenturyLink’s current CEO.
CenturyLink posted revenue of $23.4 billion in 2018, and had a net loss of $1.7 billion for the year. The publicly-traded firm had a market capitalization of $13 billion Wednesday.
The state has long had a close relationship with CenturyLink, which is based in north Louisiana despite having more global employees — 45,000 — than there are residents in all of Monroe. Last year, Lt. Gov. Billy Nungesser even offered to have CenturyLink sponsor Poverty Point, a deal that would have renamed the historic site Poverty Point, "the World Heritage Site in Louisiana Sponsored by CenturyLink."
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The Jindal administration made its first deal with the company in 2009 after Monroe-based CenturyTel acquired Kansas-based Embarq. The merger created CenturyLink, Louisiana’s third Fortune 500 company at the time, along with Entergy and the Shaw Group. At the time, Jindal’s administration worked to make sure the company’s headquarters would stay put.
Since then, the Shaw Group was sold to an out-of-state company, and CenturyLink has steadily grown to become Louisiana’s largest public company, rising to number 166 on the Fortune 500 list.
“So many companies are here because they have to be here,” said Peter Ricchiuti, professor at the Tulane University business school. “They either need oil and gas in the Gulf or maybe some access to the river. CenturyLink is one of those companies that physically doesn't need to be here.”
The combination of some of CenturyLink’s original investors still being involved in the firm, along with tax breaks offered by the state, appear to be good enough reasons for the corporate giant to stay in Monroe, Ricchiuti said.
Some members of CenturyLink’s board have roots in Louisiana, including Glen Post III, who led the firm as CEO since 1991 before stepping down last year.
The firm is a major employer in the region. Monroe Mayor Jamie Mayo called the deal “huge” for northeast Louisiana.
CenturyLink's presence also plays an important role in IBM’s Monroe location, which employs more than 100 as part of another Jindal-era economic development deal. The IBM center is almost entirely dedicated to servicing CenturyLink, an IBM executive said recently.
Louisiana has a long history of offering tax dollars to companies in exchange for relocating or retaining corporate headquarters. For instance, Pool Corp. reached a deal with the Kathleen Blanco administration in 2004 after threatening to leave for Florida over an income tax dispute.
Similarly, Globalstar in 2010 relocated its headquarters from California to Covington in exchange for $8.1 million.
But not all corporate headquarter deals have worked out for Louisiana.
After Smoothie King mulled a move to Texas in 2012, the Jindal administration offered up at least $2.4 million in tax incentives. Six years later, the company left anyway.
A few years earlier, the state had enticed Albermarle to move its corporate headquarters to Baton Rouge from Richmond, Virginia, for $7 million in tax breaks. In 2015, Louisiana was on the losing end of the corporate incentive game, as Albemarle left for Charlotte, North Carolina.
Mayo, the mayor of Monroe, said it’s not inevitable that CenturyLink will leave northeast Louisiana. And he said it’s not only the tax incentives that keep it there.
“We like to think the quality of life here in Monroe is such that it provides the amenities and the low cost of labor compared to some of the larger areas in the country and globally,” Mayo said. “And globally — because CenturyLink is a global tech company.”