The New Orleans City Council on Thursday approved new rules for businesses seeking local property tax breaks through a controversial state program, becoming the latest local government in Louisiana to create rules for the subsidies.
Under the rules passed unanimously by the council, for city businesses to receive a tax break under the state's Industrial Tax Exemption Program, they must pay their employees at least $18 an hour.
They also must be located in neighborhoods that are struggling economically, and they must not have begun construction on their buildings before requesting the tax break.
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Council members said the rules will ensure that businesses receiving the benefit, which can cut their property taxes on new buildings, factories or other investments by 80% for up to 10 years, are giving the city something in return.
"I stand with those who are tired of New Orleans not getting its fair share," Councilwoman Helena Moreno said. "At least with these (rules), we can start getting a piece back."
New Orleans is at least the fifth taxing entity in the state to exercise its right to restrict the tax breaks since Gov. John Bel Edwards in 2016 signed an order giving parishes more say in the awards.
The benefits are granted by the state but mostly impact tax revenues that go to local entities, and new state guidelines for issuing them were finalized this summer.
Before the new rules were passed, the state Board of Commerce and Industry alone made the call on whether a business received the benefit. That board approved most applications from businesses.
The result was a loss of $13.7 billion in local tax revenues across the state for the 10 years ending in 2016, according to the state Tax Commission. Orleans Parish forfeited $112 million over that period.
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At the same time, Louisiana lost more than 36,000 manufacturing jobs from 2001 to 2016, according to federal data. Data from the advocacy group Together Louisiana, a critic of the program, show that New Orleans has lost 76 jobs since 1998 even as program participants promised the city more than 4,500 new positions over that period.
Although the changes have drawn support from Together Louisiana and others, they have been lambasted by the Louisiana Association of Business and Industry, which says they will dissuade corporations from investing in the state.
Meanwhile, the Louisiana Mid-Continent Oil and Gas Association — which can count longtime ITEP recipients among its membership and has tried to position itself as a resource for local governments crafting new ITEP rules — has said that parishes should consider all the benefits of new development when they restrict the tax breaks.
The City Council's rules seek big returns for a city that forfeits $10.6 million annually in taxes that would otherwise be levied on 39 companies. City Hall expects to take in $401 million in taxes overall next year, with $146 million of that coming from property taxes.
The ordinance approved Thursday requires firms that apply for the ITEP benefits to set up shop in a "distressed" area, meaning one where median per capita income is below the state average, or one defined by the state as being in need of development.
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In addition to the wage requirements, in 2019, businesses seeking the exemptions must demonstrate good-faith efforts to funnel at least 45 percent of their work hours to New Orleans workers, with 25 percent of those local hours going to disadvantaged local workers. Starting in 2020, the numbers rise to 50 percent local and 30 percent disadvantaged local.
Disadvantaged workers are defined as those who earn less than half of the area's median income, have been arrested or fall into several other specific categories.
The firms also must not have started construction of their buildings prior to requesting the tax break from the city — a requirement that mirrors an ITEP restriction passed this year by the Orleans Parish School Board, another agency that levies taxes.
Businesses that don't meet the criteria would be rejected. If they later fail to adhere to the rules, the council could terminate their exemptions.
Councilwoman Cyndi Nguyen, who chairs the council's Economic Development Committee, said the new rules are "not a strategy to eliminate opportunity."
But if the city is willingly giving up its right to collect taxes, "there needs to be a return for residents," she said.