Smoke rises from an oil refinery in Meraux on June 19, 2020. (Wes Muller/Louisiana Illuminator)
In one of his first acts in office, Gov. John Bel Edwards issued a pair of executive orders that reformed the Industrial Tax Exemption Program (ITEP), a lucrative enticement for big business. The governor curtailed the tax break from 100% to 80% of property taxes owed and, most critically, gave local government some say over approval.
Now there’s a move in the Legislature to make those changes law. It would cement the authority of local taxing bodies — typically the parish council, sheriff and school board — to approve or deny their portion of the exemption.
If lawmakers support the proposal, then voters will consider amending the state’s constitution this fall to make the changes permanent.
Senate Bill 151, sponsored by Sen. Rogers Pope, R-Denham Springs, was advanced without objection Monday by the Senate Committee on Revenue and Fiscal Affairs.
Prior to Edwards’ orders in 2016, Louisiana’s ITEP program was once considered one of the most generous tax incentives in the nation, exempting industrial and manufacturing sites from up to 100% of local ad valorem property taxes for 10 years virtually any time they added a new building or refurbished a piece of machinery.
Businesses would apply for ITEP incentives to the state Board of Commerce and Industry, which rubber stamped 99.95% of the applications it received, according to Together Louisiana, a grassroots group of residents who organized to oppose the program and styled it with the biting description “corporate welfare.”
According to the Louisiana Economic Development (LED) agency, which operates ITEP and the state’s other business incentive programs, ITEP resulted in approximately $10 billion of foregone property tax revenue from 2008 to 2015 that should have gone to local governments.
Other parts of the executive orders required that every ITEP project be tied to job creation. Previously, corporations did not have to create any new jobs in order to receive the tax exemption. And rather than just pitching their projects to the Board of Commerce, businesses now also have to court local officials if they want a property tax break.
By most accounts, the reforms have retained bipartisan support and provided large chunks of tax revenue for schools, infrastructure and public services at the city and parish levels.
Pope, a former school superintendent, said he started working on the constitutional amendment two years ago because it was important to preserve the ITEP reforms for the future, pointing out that the next governor could very quickly undo them all with the stroke of a pen.
The legislation has picked up a lot of steam. The Senate committee received 117 emails and dozens of cards from the public, indicating support for the measure. Not unexpectedly, opposition came from corporate lobby groups, including the Louisiana Association of Business (LABI) and Industry and Louisiana Chemical Association, and major corporations such as Exxon Mobil, among others.
LABI Vice President Jim Patterson, who spoke in opposition to the bill, suggested the reforms have turned businesses away from Louisiana. He cited statistics showing the total number of new ITEP applications the state has received dropped by nearly 600 times what it used to before 2017.
However, senators told Patterson the statistics were taken out of context. Sen. Rick Ward, R-Port Allen, later cautioned the lawmakers and audience not to use statistics and “twist them into something that they’re not” when testifying before a legislative committee.
“You can take a really big number and whittle it down into something small, knowing what the truth of the consolidation of all those numbers were, and it can be rather misleading,” Ward said. “So, typically that is going to be found out. Whether LED was here or not, somebody was going to have that information.”
Patterson said the decline in ITEP applications is a sign businesses viewed the program as “cumbersome and problematic,” adding that the numbers went from 619 in in 2016 before the reforms took effect to 197 in 2017, followed by 150 in 2018.
“Clearly, we’re not bouncing back the way we should be,” he said.
Other senators asked how many of the pre-2017 ITEP applications were for small miscellaneous capital additions under $5 million, an incentive category the executive orders eliminated. Miscellaneous capital additions include such things as equipment maintenance and machinery refurbishment.
Sen. Gary Smith, D-Norco, said small capital projects previously accounted for roughly 80% of all ITEP applications.
Together Louisiana’s Broderick Bagert also explained that LED’s pre-2017 rules required a business to file a new application for every capital addition it was claiming, whereas now they are lumped together on the same form. Under the old rules, he said it was common for a business to have 36 ITEP applications pending in a single year.
Bagert also offered data that show ITEP has, in fact, expanded to more businesses since the reforms took effect. Citing the program’s statistics, he said capital investments increased from $83 billion in the five-year period before the reforms to $113 billion in the five-year period after. More telling, he said, is the number of start-ups, either new businesses or new industrial plants built by existing businesses, increased from 122 to 136.
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