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Reducing business taxes

Accelerating the elimination of the tax on business investment (MM&E)

—Louisiana’s state sales and use tax is 4% and is levied on property, including business capital investment.

—Louisiana is one of only three states in the country that taxes manufacturing machinery and equipment, and the only southern state that fully taxes this property (Mississippi and Alabama have reduced sales tax rates).

—With one of the highest average sales tax rates in the country (more than 8%), Louisiana businesses, particularly manufacturers, are at a competitive disadvantage when it comes to the upfront cost of purchasing machinery and equipment.

—The tax on Manufacturing Machinery and Equipment will be completely eliminated by July 1, 2009 (FY 2010).

Accelerated MM&E tax elimination

Accelerating the elimination of the tax on capitol investment (debt)

—Louisiana is one of the only states in the country to tax business debt. Taxing debt is an enormous disincentive to investment, expansion, and job creation, particularly for small and start-up businesses borrowing money for buildings, machinery, equipment, technology and training.

—Louisiana businesses pay some of the highest franchise taxes in the country. Our businesses are at a competitive disadvantage with more than $40 billion of debt investments taxed in Louisiana.

—This tax particularly hurts small, family-owned, and closely held businesses trying to expand and compete with businesses in other states, which do not have this tax burden.

—The tax on business debt will be completely eliminated by July 1, 2010 (FY 2011).

Tax elimination on business debt

Eliminate the burdensome tax on business utilities

—Louisiana’s sales tax on business utilities and natural gas penalizes all businesses in the state and does particular harm to large users of electricity and/or natural gas. This tax is not paid in either Texas or Alabama.

—It is important that we create a climate that not only attracts new business but rewards and supports established businesses already in the state.

—The “permanent penny” tax on business utilities will be eliminated.

Elimination of the Business Utility Tax

Tuition Tax deduction

—Providing individual income tax deductions for tuition associated with attendance at elementary and secondary schools and qualified educational expenses incurred by parents of homeschooled children recognizes the need for all students to have equal access to a high-quality education. (Capped at $5,000 per student.)

—These deductions allow for some educational expenses to be subtracted from taxable income prior to the calculation of tax liability, and they will make other educational options more affordable and enable parents to provide their children with a quality education at a school that meets their needs.

—A 50% tuition deduction will be provided eligible taxpayers, effective July 1, 2009.

Louisiana New Markets Tax Credit reauthorization

—Background: The New Markets Tax Credit (NMTC) program is a federal program funded through the Department of the Treasury. The program is designed to incentivize investment in low-to-moderate income areas. The NMTC program offers an investment incentive in the revitalization of Louisiana communities.

Special federal NMTCs were allocated for the Gulf Opportunity Zone (GO Zone) by Congress. The State NMTC targets investment into low-income and Special GO Zone (heavily damaged) census tracts. The program provides incentives to invest in areas in desperate need of revitalization helping to reestablish basic services and rebuild businesses.

—The 2007 Legislature made the state’s New Markets Tax Credits usable to investors, who quickly subscribed the entire $50 million in credits authorized. The market’s response shows investor interest in Louisiana’s low-income communities, particularly those still recovering from the 2005 storms. The program raised $200 million in investor funds directly, which are being deployed today.

—Since the program is at its limit, New Markets investors will now go to other states, such as Mississippi, which has authorized $105 million in credits facilitating over $400 million in New Markets investments.

—In order to continue Louisiana’s leadership in New Markets investments and carry on the same momentum generated so far, Louisiana’s New Markets Tax Credit will be reauthorized and get an investment of $50 million over three years in targeted key areas.

Investment priorities of the governor’s second special session

—The state of Louisiana has a $1.088 billion surplus from the 2006-2007 fiscal year.

—Of this total, $73 million is constitutionally required to be allocated to the Budget Stabilization Fund, commonly known as the state’s “Rainy Day” fund.

—This leaves $1.015 billion that Louisiana can use for one-time expenditures, as outlined in the state constitution.

—The governor has prioritized five categories for investment:

1. Transportation and infrastructure: $515 million

2. Hurricane protection and coastal restoration: $300 million

3. Deferred maintenance for higher education: $80 million

4. Unfunded accrued liability (UAL): $70 million

5. Pennington Biomedical Research Center: $50 million

Transportation and infrastructure: $515 million

—Poor highways contribute to a negative image of Louisiana and lead to increased vehicle repairs, more freight damage and a general decline in highway safety.

—$249 million will improve roads, bridges, and ports in all 64 parishes (based on objective criteria by DOTD)

—All projects in the Port Priority Program will be fully funded.

—Dozens of state and parish bridges will be repaired to prevent closure.

—The Transportation Mobility Fund (TMF) will receive dollars to continue moving plans forward for public-private partnerships.

—Louisiana will spend $42.4 million to fund all projects in the Port Priority Program, including:

—Port of Iberia: $677,000

—Terrebonne Port Commission: $6 million

—Greater Lafourche Port Commission: $6 million

—Port of South Louisiana: $6 million

—Caddo/Bossier Port Commission: $1.7 million

—Lake Charles Harbor and Terminal District: $9 million

—Port of New Orleans: $3 million

—In addition, the state will fund the first phase of an expansion at the Port of New Orleans. With $25 million, New Orleans will begin to develop a twenty-acre complex at the Napoleon Container Terminal, expanding terminal capacity by 45% and enabling the port to secure the long-term commitment of one of the world’s largest container carriers.

—The state will also support the Port of Terrebonne’s improvement and expansion plans that will provide the capacity to operate a shipyard facility, which will bring 1,000 new skilled jobs at an average annual salary of $54,000. The state’s investment is projected to be returned in full within just six years.

—Highway congestion is one of the most readily identified infrastructure problems in Louisiana and the country. When congestion is not addressed, business is impeded and the quality of life of Louisianans declines.

—$209 million will fund new roads and expansions of interstates and major state highways and bridges across the state.

Among other projects:

—The Interstate 12 corridor will be expanded to six lanes from Baton Rouge to Denham Springs as well as the Slidell area between U.S. 11 and I-59.

—La. 28 will be four-laned to complete the east-west corridor in central Louisiana.

—The I-49 South corridor along U.S. 90 in Lafayette will be expanded from four to six lanes from Pinhook to Broussard.

—Another segment of I-49 north near Shreveport will be completed from La. 173 to La. 169.

—In addition, $57 million will be allocated to the Cyber Innovation Center at Barksdale Air Force Base to improve access via Interstate 220 and make the site more attractive to Cyber Command—a project that will retain several thousand jobs, and attract several thousand more, and position northwest Louisiana as a center for high-tech and professional jobs.

Hurricane Protection and Coastal Restoration: $300 million (This is the largest financial commitment to hurricane protection and coastal restoration in the state's history.)

—With this allocation, Louisiana will fund projects in southeast and southwest Louisiana, making a critical contribution toward the state’s match to federal dollars.

—Projects include: contributing to the non-federal match for the 100-year level of protection for the Greater New Orleans Hurricane Protection System, Morganza to the Gulf, Larose to Golden Meadow, Southwest Louisiana Integrated Protection Plan, Vermilion Parish Hurricane Protection, Cameron-Creole Levee, Barrier Island Restoration/Shoreline Protection, Freshwater Diversions, Beneficial Use of Dredge Material/Marsh Creation and improving science and technologies in the state to advance coastal efforts.

—The hurricane and flood protection systems will be improved, and coastal lands and wetlands will be restored, including barrier islands, freshwater diversions and marsh creation.

—The Governor’s Office on Coastal Affairs (GOCA) continues to work closely with Congress to reduce and provide flexibility in the payment of Louisiana’s share of greater protection and restoration efforts in the state.

—The integration of hurricane protection and coastal restoration in GOCA will result in cost savings, construction efficiencies, and better performance of projects.

Unfunded accrued liability (UAL): $70 million

—These funds are directed to the ever-growing $9.6 billion cost of retirement benefits for teachers and state workers.

—Louisiana will save $4.28 in interest for every dollar of this payment.

Deferred maintenance for higher education: $80 million

—An independent state facility condition assessment identified $1.8 billion in deferred maintenance needs of higher education in Louisiana. The Division of Administration’s Office of Facility Planning and Control is committed to working with the Board of Regents to prioritize these projects.

—The deficiencies identified are mainly health, safety, building code and life safety code deficiencies in higher education facilities. There are many electrical hazards, safety hazards, tripping hazards that go to the safety of the occupants. We must work to ensure our state higher education facilities meet safety requirements.

—$80 Million will mitigate critical infrastructure needs in post-secondary education institutions across the state, preserving much-needed college and university facilities.

Pennington Biomedical Research Center: $50 million

—The Pennington Biomedical Research Center has earned a stellar reputation as a world-renowned research institution with a mission focused on the science of nutrition and the prevention of diabetes, obesity, heart disease and cancer. Since the facility’s founding, it has provided a superior financial return to the state by securing $3-4 for every dollar the state invests.

With this $50 million capital investment, Pennington will:

—Complete a new clinical research building and renovate existing facilities

—Create a new imaging center

—Purchase high-tech research instrumentation and equipment

—Recruit star faculty members.

—Specifically, Pennington projects this $50m investment will yield over 1,100 new direct and indirect jobs; result in new earnings of over $40 million annually; and have an economic impact of over $110 million each year—not to mention securing hundreds of millions in new federal research grants and acting as a catalyst for new private-sector development.

Additional initiatives included in the second special session call:

Dedicate transportation-related taxes and fees to transportation projects

—Accelerate the current phase-in for revenues from vehicle license fees for trucks and trailers. This will increase transportation revenues in FY09 by an additional $11 million and fully dedicate these fees altogether by FY10, a year ahead of schedule.

—For the first time, begin the phase-in of the dedication of vehicle sale taxes to transportation projects. This will provide an immediate infusion of an additional $30 million in transportation in FY09 and over $250 million per year within five years.

—With our increasing transportation project backlog, the current level of funding cannot solely by relied upon to solve our needs.

Federal City Project: Algiers Development District

—The Algiers Development District was created as a special taxing district comprised of all territory within the fifteenth ward of Orleans Parish by Act No. 242 of the 1992 Regular Session of the Louisiana Legislature.

—The original legislation required certain actions be taken with 10 years of the creation date of the district. It is unclear that these actions were taken so the district may have lapsed. This will require corrective legislation.

—The project is estimated to retain 1,963 jobs and an additional Phase 1 could possibly create new jobs of up to 1,400. Total direct jobs could reach over 6,000.

Protect federal tax credits from state taxes

—About 1.9 million Louisiana residents will qualify for federal rebate checks under an economic stimulus package that was signed into law by President Bush last month. The Treasury Department estimates that state residents can expect checks totaling about $1.6 billion, with some being mailed as early as May.

—Under the program, individuals are eligible for up to $600, and couples can get as much as $1,200. People with at least $3,000 in earned income, or those with at least $3,000 from any combination of Social Security, Railroad Retirement funds, and Social Security disability or veterans' benefits, would get $300 per individual or $600 per couple.

—These funds are intended to stimulate consumer spending and investment, and Louisiana will do its share to maximize the value of the rebate by not treating the checks as taxable income.

Protecting the Insure Louisiana Incentive Program

—The Insure Louisiana Incentive Program attracts new insurers to Louisiana to provide adequate and affordable insurance to property owners of this state, to encourage additional insurers to participate in the voluntary property insurance market in order to substantially increase the availability of insurance, to substantially increase competitive pressure on insurance rates, and to substantially reduce the volume of business written by Louisiana Citizens Property Insurance Corporation (Citizens).

—The program will grant matching funds through cooperative endeavor agreements to qualified property insurance companies.

Newspaper publisher and radio state sales tax exclusion

—Last year’s changes to state tax law (Act 339 of the 2007 Regular Session) included certain machinery and equipment used primarily to produce news publications within the state sales and use tax exclusion for manufacturing machinery and equipment (MM&E).

—Due to a drafting error, the Department of Revenue is currently unable to ensure that news publishers would be entitled to exclusion from the tax.

—Making necessary technical corrections in the special session would not yield an additional cost to the MM&E provisions since the fiscal note already accounts for the tax exclusion for machinery and equipment used to produce news publications.