Quality Jobs program shows poor return on investment even after excluding Pelicans

The Louisiana Legislative Auditor’s most recent analysis that painted a lackluster picture of the state’s Quality Jobs incentive program specifically excluded the New Orleans Pelicans from the study because, the auditors said, the extremely large salaries being reported by the team would have likely skewed the results.

“They were such an anomaly from the rest of the businesses that we were evaluating that we decided to exclude them,” Performance Audit Manager Gina Brown said at Thursday’s meeting of the Louisiana Tax Institute, a commission of lawmakers, academics and other professionals that advises the legislature on tax policy.

Brown and colleague Ed Seyler, an economist for the Legislative Auditor, were the primary authors of a 2020 performance audit that found the state’s Quality Jobs program, which gives private corporations cash rebates for creating new jobs, has had a negative return on investment (ROI), averaging 5 cents for every dollar the state spends on the program. 

Also, most of the newly-created jobs that companies claimed under the program would have been created regardless of the incentive, Seyler said. 

The program, created to attract businesses, requires companies to create jobs that pay at least $18 per hour to qualify for a rebate. 

Tax Institute board member Joel Robideaux, an accountant and former state representative from Lafayette, asked the auditors if the Pelicans’ participation in the program might have skewed the analysis.

“I just don’t want the commission to have met and not discussed the Pelicans situation, so when y’all were doing this analysis … did y’all come across that during the audit or have y’all looked at it since it came to light yesterday?” he asked.

On Wednesday, the Illuminator reported that for over a decade the Pelicans have been receiving millions in Quality Jobs rebates every year by counting the team’s roster positions as newly created jobs with average salaries of $608 per hour. Because rebates are calculated as a percentage of the company’s total payroll for the newly created jobs, the basketball players’ lucrative salaries have allowed the team to collect $3.65 million annually, one of the highest rebates of all companies in the program.

According to the Quality Jobs records obtained by the Illuminator, most of the other companies report typical average salaries ranging from about $15 to $30 per hour, making the Pelicans an outlier among a list of businesses that don’t have multiple millionaires on staff.

However, the Pelicans’ pronounced figures in the Quality Jobs program had no effect on the somber audit findings. The state auditors excluded the team entirely from the analysis for the exact reason Robideaux mentioned. 

“We excluded them for that exact reason,” Seyler said. “NBA players making extremely large salaries were really not comparable to the meat and potatoes of the program, which is going to be the chemical industries, manufacturers, or other export-driven businesses.”

Louisiana Economic Development Assistant Secretary Mandi Mitchell said she has seen a very wide range of estimates on the program’s return-on-investment: “I’ve seen it as low as one penny at the worst end and as high as $2.17 for every state tax dollar incentivized for the program.”

Years ago, she said, the agency contracted an independent firm that found a return-on-investment between 76 cents and $1.01 for every dollar the state spent on the Quality Jobs program. Mitchell also said the program has an estimated annual impact of $78 million to $105 million in tax revenue.

The state auditors looked at other possible impacts the program has on the state. Having a positive fiscal return-on-investment is not necessary for the state to benefit, so the audit calculated the program’s cost-benefit ratio on household income, Seyler said. 

Even in this category, however, the Quality Jobs program generated an average of 74 cents in household income for every dollar it cost the state, the audit found.

The auditors gave several recommendations to the Tax Institute on ways to reform the program, including requiring Louisiana Economic Development to report actual numbers of jobs created rather than estimates. They also recommended reinstating the requirement that Louisiana Economic Development perform a cost-benefit analysis on each applicant prior to approval. The legislature removed that requirement in 2002, leading to a 626% increase in Quality Jobs project approvals, according to the analysis. 

The auditors recommended modifying the program’s eligibility to allow more companies from rural areas to participate after their analysis found 17 parishes in Louisiana have never had a company participate in the program. All but two of those parishes have unemployment rates above the state average, and all but one have average wages below the state average, the auditors said.

Among other things, the auditors recommended requiring or further incentivizing companies to direct their spending to Louisiana-based businesses. Their analysis found that only about 33.5% of the program’s investment spending is going to in-state businesses. 

This story was updated to include quotes from Louisiana Economic Development.