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Louisiana's Industrial Tax Exemption Program

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Louisiana's Industrial Tax Exemption Program

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Louisiana's Industrial Tax Exemptions Program constitutes the single largest source of state subsidies for corporations in the nation. Under this program, a state board exempts manufacturing corporations from the tax revenue of local taxing authorities, without the approval of those entities.

This analysis dissects how the program differs from tax exemption programs in other states, breaks down how much the program is costing local governments and offers recommendations for reforming the program.

Louisiana's Industrial Tax Exemptions Program constitutes the single largest source of state subsidies for corporations in the nation. Under this program, a state board exempts manufacturing corporations from the tax revenue of local taxing authorities, without the approval of those entities.

This analysis dissects how the program differs from tax exemption programs in other states, breaks down how much the program is costing local governments and offers recommendations for reforming the program.

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Louisiana's Industrial Tax Exemption Program

  1. 1. Costly and Unusual: an analysis of Louisiana’s Industrial Tax Exemption Program June 2016 togetherlouisiana@gmail.com
  2. 2. in·cen·tive /inˈsen(t)iv/ • a thing that motivates or encourages one to do something; • a concession to stimulate greater output or investment. gift /gift/ • a thing given willingly to someone without the expectation of anything in return; a present.
  3. 3. Rank State Corporate Subsidies 1 2 3 Michigan $14,199,793,452 4 Washington $13,378,264,962 5 New Jersey $8,900,756,858 6 Indiana $8,142,816,408 7 Kentucky $7,725,418,949 8 Texas $6,653,709,245 9 Oregon $6,653,054,666 10 Missouri $5,505,983,189 11 Pennsylvania $5,011,816,496 12 Illinois $4,875,121,771 13 Ohio $4,637,654,611 14 North Carolina $4,494,206,385 15 Connecticut $4,246,915,669 16 New Mexico $4,067,819,794 17 Tennessee $3,804,492,345 18 Mississippi $3,804,387,807 19 Florida $3,450,556,194 20 Alabama $3,413,018,766 21 Nevada $3,174,859,740 22 Iowa $2,908,329,068 23 California $2,670,247,463 24 South Carolina $2,533,880,431 25 Minnesota $2,421,601,745 26 Wisconsin $1,832,327,312 27 Oklahoma $1,667,965,854 28 Georgia $1,522,717,351 29 Massachusetts $1,121,502,357 30 Maryland $1,020,557,805 31 Utah $1,000,738,632 32 Kansas $793,317,346 33 Colorado $773,824,248 34 Arkansas $682,215,269 35 Maine $681,443,625 36 Alaska $676,803,280 37 Virginia $565,547,785 38 Rhode Island $462,565,091 39 Nebraska $443,936,362 40 Arizona $435,037,197 41 West Virginia $426,777,726 42 Vermont $336,895,134 43 Delaware $324,280,692 44 Idaho $310,702,207 45 South Dakota $123,437,018 46 North Dakota $110,524,376 47 Montana $48,810,402 48 New Hampshire $8,382,095 49 Wyoming $1,226,569 50 Hawaii $515,430 Rank State Corporate Subsidies Subsidy Tracker, “Good Jobs First,” (2015): http://subsidytracker.goodjobsfirst.org/top-states 19.7 million 4.6 million Population Overall Corporate Subsidies by State Louisiana $16,659,935,692 New York $23,974,689,789 Industrial Tax Exemptions are #1 source of public subsidies for corporations in Louisiana.
  4. 4. $1,950 $1,895 $1,750 $1,676 $1,433 $1,275$1,234$1,214$1,181 $1,118 $996 $936$917$908 $704 $581$538$524$512 $452$444$438$430$400$392$378$347$340$318$273$247$236$231$228$190$173$171$166$151$149$145$144 $69$68$65$48 $6 $2 $0 $0 $500 $1,000 $1,500 $2,000 $2,500 $3,000 $3,500 $4,000 LA NM WA KY OR MI MS IN NY CT NV NJ IA AK MO AL TN VT SC ME NC MN RI OK OH PA IL DE UT WI KS TX NE WV AR ID FL MD MA GA ND SD CO CA VA AZ MT NH WY HI Corporate subsidies per capita by State US average: $633 per capita #1) Louisiana: $3,583 per capita Highest per capita corporate subsidies in the nation. Nearly twice the rate of the next highest state (New Mexico) 5 TIMES the than national average.
  5. 5. Cost to local governments of current exemptions: $16.7 billion (over 10 years) Public subsidy per permanent job created: $535,343 # of permanent jobs attributed to exemptions by companies receiving subsidies (over 10 years): 31,150 Source: Louisiana Economic Development, “Assessors Reports: Industrial Tax Exemption” (June 10th, 2016). Industrial Tax Exemption Program
  6. 6. Louisiana’s Industrial Tax Exemption Manufacturing entities are eligible for exemption of 100% of local property taxes on value of new investment. Exemptions last for 10 years, in two 5-year increments. Exemptions are granted for new or expanded manufacturing facilities and for routine replacement of machinery and equipment.
  7. 7. LOCAL property tax revenue is being exempted (i.e. funding for local school districts, parishes, cities, sheriffs, libraries, parks, etc.) But a STATE board (Board of Commerce & Industry) grants the subsidies, without the approval of the local governments losing the exempted tax revenue. Louisiana’s Industrial Tax Exemption Only tax exemption program in the nation in which a state body gives away the tax revenue of local bodies, without their approval.
  8. 8. Tax Foundation assessment: Location Matters (2015). “Louisiana offers the lowest overall tax burden in the country to new operations, due less to its overall tax structure than to unusually generous incentives programs. New capital- and labor-intensive manufacturing firms experience effective tax rates at or under 0.1 percent due to some of the most generous property tax incentives and withholding tax incentives in the nation.”
  9. 9. 4 things make Louisiana’s Industrial Tax Exemption extremely unusual … #1) There is no process of evaluation of return on investment and assessment of whether subsidized investments would have happened even without the subsidies. The program is structured as an entitlement, not an incentive. #2) The local governmental bodies whose property tax revenue is being offered as a subsidy have no say in whether their own money is granted as subsidies. #3) All local jurisdictions (including school districts) are subject to the exemption. (Programs in most states forbid the exemption of school district taxes.) #4) It is (as the Tax Foundation put it) “unusually generous” – a 100% exemption for 10 years. Property tax exemptions for manufacturing projects are not uncommon in other states.
  10. 10. Programs in other states are very different … Alabama Requires local approval by each governmental jurisdiction abating its own property taxes. School district taxes cannot be abated. Arkansas Payment in Lieu of Taxes (PILOT) program. Maximum abatement is 65% of would-be property taxes. Requires local approval by government jurisdictions whose revenue would be foregone. Florida Each county seeking to implement an abatement program must hold a referendum of voters to approve its creation. All abatements require local approval of each jurisdiction offering subsidies. Detailed reporting and selection criteria guide “return on investment” evaluation. Georgia Direct property tax abatements are unconstitutional. Complex “Bond-Lease Program” as workaround. All aspects require approval of local entities offering the abatement. Mississippi Fee in lieu of property taxes, with maximum abatement at 66% of would-be property tax levy. School taxes cannot be abated. Requires approval of local governing authorities whose revenue would be foregone. Texas Abatements require approval of each local governmental jurisdiction abating its tax revenue. School district taxes may not be abated. SEE APPENDIX A FOR DETAILED PROGRAM DESCRIPTIONS FOR EACH STATE. Louisiana’s program is unique in the nation for having one governmental entity (a state board) exempting tax revenue belonging to other entities, without their approval.
  11. 11. How much is the Industrial Tax Exemption costing local parishes? Cost of active property tax exemptions (10-year total) Jefferson $192 million Orleans $133 million St. Charles $1.3 billion East Baton Rouge $664 million Ascension $1.3 billion Iberville $737 million Calcasieu $2.97 billion $5.3 billionCameron PARISH Source: Louisiana Economic Development, “Assessors Reports: Industrial Tax Exemption” (June 10th, 2016) & Louisiana Tax Commission, “Annual Report” (2015). SEE APPENDIX B FOR BREAKDOWN OF FOREGONE REVENUE FOR EVERY PARISH.
  12. 12. How much is ITEP costing parishes, school districts & local services with dedicated millages? Lost revenue PER YEAR (total) Sheriff / Police / Corrections Parks & Libraries Parish Gov’t, Levees, Other School Districts Fire Dep’ts Roads & Bridges Health & hospitals Jefferson $4.2 million $2.5 million $3.5 million $440,000 $1.1 million $438,000$19.2 million $7.1 million Orleans $3.7 million $900,000 $700,000 $155,000 $1 million $0$13.3 million $6.9 million St. Charles $61.3 million $23.3 million $1.6 million $7.6 million $8.2 million $6.9 million$129 million $20 million E.BatonRouge $26.7 million $8.9 million $5.4 million $79,000 $14.6 million $1.8 million$66.4 million $8.7 million Ascension $74.1 million $18.6 million $4.6 million $0 $8.2 million $4.8 million$131 million $20.5 million Iberville $41 million $15.7 million $467,000 $0 $5 million $0$73.7 million $11.6 million Calcasieu $80 million $58.1 million $13.7 million $10.9 million $29.7 million $12.8 million$297 million $90.8 million $136 million $104 million $18.5 million $25.1 million $39 million $95 million$532 million $115 millionCameron PARISH Source: Louisiana Economic Development, “Assessors Reports: Industrial Tax Exemption” (June 10th, 2016) & Louisiana Tax Commission, “Annual Report” (2015). SEE APPENDIX B FOR BREAKDOWN OF FOREGONE REVENUE FOR EVERY PARISH AND LOCAL JURISDICTION.
  13. 13. In these 34 parishes, lost school district revenue exempted under ITEP would be enough to implement universal pre-K: Allen Allen Ascension Assumption Beauregard Bienville Caddo Calcasieu Caldwell Cameron DeSoto East Baton Rouge East Carroll East Feliciana Iberville Jackson La Salle Lafourche Lincoln Morehouse Natchitoches Plaquemines Pointe Coupee Rapides Red River Sabine St Bernard St Charles St James St John the Baptist St Mary Washington Webster West Baton Rouge West Feliciana Cost to implement universal Pre-K in Louisiana: $185 million per year Cost of Industrial Tax Exemptions to local school districts: $587 million per year
  14. 14. The Louisiana Constitution gives the Governor the authority to reform the Industrial Tax Exemption LA Constitution, Article 7.21 (F) Notwithstanding any contrary provision of this Section, the State Board of Commerce and Industry or its successor, with the approval of the governor, may enter into contracts for the exemption from ad valorem taxes of a new manufacturing establishment or an addition to an existing manufacturing establishment, on such terms and conditions as the board, with the approval of the governor, deems in the best interest of the state. (“The power to approve or disapprove is the power to reform.”)
  15. 15. Recommended Reforms #1) For an exemption to be approved, each local governmental entity whose tax revenue is in question must approve the exemption. #2) Exemptions should be granted based on return-on-investment analysis, selecting only proposed investments that would not take place without the proposed subsidy (make the program an “incentive”, not a “gift”). #3) The amount and duration of exemptions should be brought into alignment with those offered by other states (e.g. maximum abatement 65% of property taxes owed). #4) School District taxes should not be subject to the exemption.

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