A state board is set to vote Friday on a tax exemption that could eventually top $2 billion, representing potentially the largest single tax exemption awarded in Louisiana.
Under the state’s Industrial Tax Exemption Program, known as ITEP, Driftwood LNG LLC, a subsidiary of the natural gas company Tellurian Inc., is seeking a tax break for its $15.9 billion liquefied natural gas export facility planned for Calcasieu Parish. The exemption is worth an estimated $283.7 million in the first year alone, according to a Louisiana Economic Development estimate.
[Update, Dec. 14, 2018 at 10:32 a.m.: Driftwood project lands massive exemption for LNG facility from Louisiana board]
Calcasieu Parish Assessor Wendy Aguillard estimates the property tax exemption will be worth more than $2 billion over 10 years, assuming the exemption is renewed after five years.
The Louisiana Board of Commerce and Industry will vote on the first five-year tax exemption Friday. Also on the agenda are several controversial ITEP applications from ExxonMobil for Baton Rouge-area projects.
Driftwood’s request was already approved by local taxing authorities in Calcasieu Parish, after little discussion or debate, the Lake Charles American Press reported. If approved, the exemption will be up for renewal after five years. Gov. John Bel Edwards must sign off on exemptions through the program.
The $283.7 million first-year exemption would be the largest on record, according to LED figures, with the next-largest being an exemption for Cameron LNG, at $207 million in the first year. That project is a nearby LNG export facility currently under development by Sempra Energy.
Tellurian’s facility is expected to create 300 permanent jobs and 6,400 construction jobs, according to LED Secretary Don Pierson. The $15.9 billion project is set to be among the largest, and possibly the largest, capital investment in the state’s history. The firm said it will make a final investment decision in the first half of 2019.
Together Louisiana, the advocacy group that has scrutinized the tax exemption program, estimates the exemption will be worth $2.4 billion over 10 years, after taking depreciation into account. The company's application to LED listed a $2.09 billion amount using a different, eight-year calculation. But LED confirmed the company qualifies for an exception to the rules that will allow it to get renewed for another five years at 100 percent.
“An exemption request in Calcasieu Parish appears to represent what would be the single largest public subsidy by local government in American history,” Together Louisiana wrote in an email to supporters.
The project “already committed to the Calcasieu location and which is not looking at any alternative locations,” the group wrote.
Tellurian spokeswoman Joi Lecznar said the company experiences “fierce competition” in the LNG market, and said businesses in the field “must be low cost.”
“This abatement is crucial to the development of our $15 billion Driftwood project and to the development of our other assets across Louisiana, including upstream natural gas production in the Haynesville, and proposed pipelines, representing a total of nearly $30 billion investment,” Lecznar said.
Louisiana’s Industrial Tax Exemption Program, a controversial tax break for manufacturers, has gone through multiple changes in recent years, starting with an executive order by Edwards in 2016 reining in the program. Under the newest set of rules instituted earlier this year, companies can get an 80 percent exemption for 10 years. Under the 2017 rules, companies could get a 100 percent exemption for five years, and an 80 percent exemption for three additional years. Local officials now have a say in the program, which exempts local property taxes.
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An exception in the rules allows projects to receive a 100 percent exemption for 10 years — what the program formerly offered before Edwards’ reform — if the advance notification was filed between June 24, 2016, and Oct. 21, 2016. The Driftwood application qualifies for that exception, LED spokesman Ron Thibodeaux said. It will have to seek local approval for the renewal as well.
Pierson, in a lengthy emailed statement, described ITEP as a necessary tool for recruiting and retaining industry in Louisiana. Tellurian also has expressed intentions to develop a natural gas pipeline to deliver supplies from Louisiana and Texas to the Driftwood facility near Lake Charles, he said. Those plans “differentiate” the firm from other LNG projects, which source gas from outside suppliers.
Southwest Louisiana, particularly in Calcasieu and Cameron parishes, has been the site of an industrial boom in recent years. Several developers have floated plans for massive LNG export facilities to be built there in an effort to meet peak global natural gas demand in the mid-2020s.
Pierson said the project will also create sales tax revenue during a multi-year construction phase.
“If approved by the Board of Commerce and Industry and if Driftwood makes a final investment decision to locate in Calcasieu Parish, the exact abatement that will be ultimately recognized by the company will depend on a number of factors, including the specific and exact millage rates in Calcasieu Parish, the value of the asset as determined by the Calcasieu Parish Assessor, depreciation of the asset that is calculated by the assessor, and whether the ITEP contract is renewed by local governing bodies and the Board of Commerce and Industry,” Pierson said.
A state board gave final approval Wednesday to changes in the handling of a controversial 80-year-old tax break for manufacturers.