With governing authorities in Orleans and East Baton Rouge parishes essentially hanging up “closed for business” signs, Republican challengers to Gov. John Bel Edwards have a ready-made campaign issue.
Confiscatory property tax rates on businesses have often stunted economic growth in Louisiana. To compensate for the state’s highest-in-the-nation homestead exemption, over the years parishes and New Orleans (because the $75,000 exemption doesn’t apply to other municipalities’ ad valorem taxes) have looked to businesses to make up the difference, dealing private enterprise a body blow. The business community pays around 70 percent of all property taxes in the state.
Although the more than 86,000 local governments nationwide make broad comparisons difficult, a study using 2015 data on effective property tax rates (assessed rate adjusted by exemptions) for the largest city in each state reinforces the competitive disadvantage faced by New Orleans, which has Louisiana’s highest city and parish rates. It had the 40th highest for homesteads, the 29th highest for apartments, the 25th highest for commercial property, and the 10th highest for industrial use.
As part of his spreading-the-wealth agenda, Gov. Huey Long instituted the homestead exemption that prompted heavier property taxation on business. In less than a decade as the Great Depression dragged on, his successors saw what it did to business prospects and launched the Industrial Tax Exemption Program, which allowed the state to let firms forgo local property taxes up to 10 years on new — until recent decades almost all industrial — capital spending and renovations.
Although unwieldy in execution and unfair because the state erases tax revenues owed to local governments without their approval, at least ITEP reduces Louisiana’s business share of local taxes to only 16th highest among the states. Keep in mind that reducing business taxes helps to offset other anti-competitive factors in Louisiana, such as state rankings at or near the bottom on educational quality, urban public safety, the legal liability climate, and occupational licensing burdens.
But when Democrat Edwards took office, he tightened restrictions on ITEP. A pair of executive orders has narrowed the program’s eligible expenses and weakened its impact while giving local governments a veto power over projects.
This has opened up the process to demagoguery at the local level, emboldening puerile thinking that mistakenly views wealth creation as a zero-sum game of redistribution. It also invokes a Soviet-style economic analysis unwilling to acknowledge the mobility of capital, blind to the reality that if ITEP cannot compensate for other considerable disincentives to invest, businesses will just move their investments to other states.
Baton Rouge’s Metro Council, the New Orleans City Council, and the Orleans Parish School Board have been treating businesses as piñatas of cash that can be broken up and raided for local government. These local governing bodies have established ITEP guidelines that disqualify a project unless it promises a minimum number of jobs and/or adheres to certain pay levels, instead of considering how the project benefits the economy as a whole. This week, the East Baton Rouge Parish School Board will debate adopting similar standards.
Edwards advanced this retreat to the 1930s. GOP gubernatorial candidates, if they're unwilling to support lowering the homestead exemption in exchange for lower local property tax rates and scrapping ITEP, should pledge to replace Edwards’ rules with provisions that are friendlier to business.
Otherwise, capital investment that flourished to record levels before Edwards got involved will taper dramatically.
Jeff Sadow is an associate professor of political science at Louisiana State University-Shreveport. He is author of a blog about Louisiana politics at www.between-lines.com and writes about Louisiana legislation at www.laleglog.com. Follow him on Twitter, @jsadowadvocate or email firstname.lastname@example.org. His views do not necessarily express those of his employer.