Louisiana’s Notorious Industrial Tax Exemption Program Reformed
Exercising discretionary authority his predecessors always had, Louisiana Gov. John Bel Edwards last Friday issued an executive order reforming the most notorious property tax abatement program in the United States.
The Industrial Tax Exemption Program (ITEP) is the only property tax abatement program in the U.S. in which a state body completely controls all the awards even though local governments—especially schools—suffer the resulting budget harms. “This is an excellent and long-overdue executive order, but it's only a start. The real test will come in the rule-making process that follows, and in how the governor elects to use his discretion,” said Jan Moller, Executive Direct of Louisiana Budget Project.
Picture by Andi Campbell-Jones, via Flickr
Indeed, Gov. Edward’s reforms are not absolute—they are more about process and signaling of priorities—so how they will effectively play out is not yet clear. But they will encourage local civic activism by giving school boards and other local government bodies a say in tax-break applications. And they will almost certainly curb tax breaks for projects that don’t create jobs—a huge historical flaw of the Program.
“If we’re not creating or retaining jobs, then there is no rationale for this program,” Gov. Edwards said. “I think the state of Louisiana will be much better served by this approach.”
The executive order requires local bodies of government, including school boards, to pass resolutions in support of proposed projects. That will enable taxpayers to organize pressure on those local bodies. The order also makes it clear that Edwards will use his discretionary authority to disqualify projects that don’t create or retain jobs and that he will favor new projects over maintenance or improvements to existing facilities.
However, Edwards’ economic development secretary made it clear the order may not change much. The New Orleans Advocate quoted Don Pierson: “This is simply a way to get to accountability in this process. You haven’t changed my ability to compete. The parish can still stand up and say, ‘We’re giving a 10-year tax exemption at a 100 percent.’ ” The same Washington Times article that quoted Edwards on jobs also reported he said: “We are going to be competitive [with other states], and we are going to remain very generous.”
Enacted in 1974, ITEP has been the subject of scathing studies and investigative journalism for at least 30 years. Among the most damning findings: most subsidized projects don’t create any new jobs. Here’s what I wrote in The Great American Jobs Scam in 2005:
The stretch of the Mississippi River between Baton Rouge and New Orleans is one of the nation’s largest concentrations of oil refineries, chemical plants and paper mills. The region suffers from extremely high rates of toxic emissions, hence its nickname: “cancer alley.”
When these factories are rebuilt, expanded or upgraded, the projects routinely get 10-year property tax exemptions. The decision whether to grant these exemptions is not controlled locally by a county board the way most states do it. Instead, property tax breaks in Louisiana are initiated by the Board of Commerce and Industry, dominated by gubernatorial appointees and including the governor himself.
Picture by Nathan Rupert, via Flickr
The Louisiana Coalition for Tax Justice compiled all of the state’s property tax exemption records for the 1980s and published a devastating set of findings. The exemptions had cost local governments $2.5 billion. The harm to schools, the most costly local service, was the greatest. The state ranked last in high school graduation rates, while $941 million of the tax exemptions could have gone to improve the schools. Just nine big, profitable companies got more than half of the tax benefits: Louisiana Power & Light (Entergy), Gulf States Utilities, Cajun Electric Power, Shell Oil, Exxon, Texaco (Star Enterprise), International Paper, Dow Chemical and Mobil Oil (Exxon and Mobil later merged).
Incredibly, almost three fourths of the projects that got exempted created no new permanent jobs (some created temporary construction jobs). Most of the tax breaks went to the big toxic-emitting industries. Exxon, for example, got 282 exemptions over the 10 years – 251 of which created no new permanent jobs! The deals cost taxpayers a total $93.3 million, including $42 million lost for the schools. The subsidies also failed as overall job creators: the oil, chemical and paper industries actually lost almost 8,000 jobs.
In a new study issued just before Edwards’ executive order, Together Louisiana, the state’s Industrial Areas Foundation affiliate, issued a study with eerily reminiscent findings:
It found that local governments had lost $16.7 billion in revenue over the past decade to ITEP, but those governments have no say in the process. It itemized, by parish, exactly how much revenue was lost to schools, hospitals, police/corrections, roads and bridges, parks and libraries, and parish governments/levees. And the cost per new job? An astronomical $535,000.
(At that price tag, of course, Louisiana taxpayers were always big losers because the average workers at those factories will never pay $535,000 more in property taxes than public services they’ll consume.)
As the Together Louisiana study shows, taxpayers are becoming far more aware of how much corporate tax breaks affect schools and other public services. And when GASB Statement No. 77 data starts flowing next year, that movement will only grow in every state.