A state board gave final approval Wednesday to changes in the handling of a controversial 80-year-old tax break for manufacturers.
For years under the Industrial Tax Exemption Program, ITEP, state government relieved multinational corporations from having to pay – for up to 10 years – the property taxes that parish and municipal governments use to fund local services. And the state did so without much input from local officials.
Under new ITEP procedures, which were approved after little conversation and a unanimous vote by the Louisiana Board of Commerce & Industry, the state still vets ITEP applications, but local taxing authorities can say “yea” or “nay” to the tax breaks within a 30-to-60-day window. The new rules also allow local governments to start collecting at least some property taxes immediately rather than waiting six years, as they do now, or 11 years, which was what ITEP had imposed for decades.
“The rules go into effect immediately,” said Don Pierson, secretary of the state Department of Economic Development, or LED, in an interview after the vote.
Applications submitted after the end of this week will have no choice but to follow the new procedures.
For those applications already in the pipeline, companies can decide whether to stick with the existing rules or follow the new rules, Pierson said.
LED counts 345 projects worth about $41.9 billion – from a distillery startup in Gonzales to a liquified natural gas facility in Sulphur – that are working their way through the ITEP application process.
Forty-three states have similar incentives, but Louisiana’s ITEP offers businesses the most money.
Pierson said ITEP has long been – and remains – a key incentive to attract companies to invest, thereby create jobs, in this state.
Together Louisiana, a coalition of faith-based groups and community activists, point out that ITEP over a 10-year-period cost municipal and parish authorities more than $16 billion in property taxes that otherwise would have funded schools, law enforcement and other local services.
The Edwards administration wants to alter, again, the lucrative tax break for industrial manufacturers.
Gov. John Bel Edwards in 2016 issued two executive orders altering key parts of what essentially had been a 10-year abatement of local property taxes granted by state government. He demanded local governments have a say and that the manufacturers receiving the tax break show how many jobs were created by the project whose taxes were being forgiven.
When given a voice, some critics urged their local officials to reject all requests for a tax break by manufacturers.
The East Baton Rouge School Board on Thursday punted until an unspecified date on a resolution pushed by educators and activists to reject all…
For instance, in East Baton Rouge Parish, teacher unions and school employee groups argued that long-delayed pay raises could be funded by refusing to let industry off the hook from paying property taxes.
Some jurisdictions formed committees to review the ITEP applications. Others left the decision up to each local taxing authority.
Companies looking for a place to invest hundreds of millions of dollars need greater certainty, said Connie P. Fabré, executive director of Greater Baton Rouge Industry Alliance. She noted that the number of advance notice ITEP applications fell 35 percent when comparing the 21 months before Edwards’ executive order and the 21 months afterward. Correspondingly, the amount of planned investment dropped by 66 percent and the number of proposed new jobs fell 64 percent.
“This will help stabilize the decision-making process,” Fabré said after the new rules were approved.
Pierson said part of the reason for the drop-off in applications is because prior to the executive order industries were getting tax breaks for “capital additions” – maintenance and technological improvements – to existing facilities that are no longer allowed.
But, Pierson said, the new rules do provide predictability that corporations seek when evaluating investments. The rules were drafted with input from industry, local government and community activists.
While sorting out the new system during the past 20 months or so, ITEP gave a 100 percent break on local property taxes for five years, followed by a three-year period, if approved by the Commerce board, during which the company had to pay 20 percent of its tax bill.
Under the rules approved Wednesday, manufacturers accepted into ITEP starting July 1 would receive forgiveness for 80 percent of their local property tax bill for 10 years. That means local governments would start being paid some taxes immediately.
“This is an important milestone for us,” Pierson said. “We’re able to cut through red tape, increase certainty for industry, retain local input, and produce a more immediate revenue stream to local governments that have legitimate concerns about funding roads, schools and law enforcement.”