From infrastructure investment to the rise of interest rates, industry insiders say four key issues will critically affect the state’s industrial sector this year.
As 10/12 Industry Report details in a feature in the current quarterly issue, one of those issues is an executive order Gov. John Bel Edwards signed last year giving governing bodies a seat at the table when tax exemption decisions are made. It forces companies seeking exemptions to demonstrate job creation or retention.
The insiders—Boh Bros. Construction President Robert Boh; Milton J. Womack Inc. Chairman Steve Carville; DSLD Homes Senior Partner Sean Sullivan; and Turner Industries Vice President Stevie Toups and economist Loren Scott—fear Edwards’ order placing restrictions on the state’s Industrial Tax Exemption Program jeopardized billions of dollars in future state industrial projects.
ITEP is a state incentive program that abates local property taxes for manufacturers for up to 10 years on new investment and annual capitalized additions. The insiders said Edwards’ move failed to recognize the additional jobs businesses create that support the industrial community, and essentially places future projects in jeopardy by creating uncertainty about the program.
The insiders were part of a panel that convened last fall during the annual South Louisiana Construction Economic Forum taking place in Baton Rouge. They discussed ITEP, the inability of some industry projects to surpass the front-end engineering-design state, infrastructure investment and rising interest rates—all areas the insiders say are critical issues for Louisiana industry this year.
Scott questioned the logic behind tampering with ITEP. “It has zero impact on the state budget, so why do we go there?” he asked. “It’s just a mystery.”
And while this morning’s robust jobs report indicates a likely increase in interest rates, the insiders fear that such a hike could dampen growth by increasing the cost of doing business.
Low interest rates of the last eight years have played a significant role in helping the U.S. economy rebound from the recession, they said.
“I’m afraid that once things heat up a little, the Federal Reserve’s ability to manage things might not be as good as they think,” Boh says. “If that happens, you could get a spiking of rates over a short period of time, which would be disruptive. My personal opinion is that if rates move up in an orderly way over the next year or two, it’s not going to kill that much of our work because it won’t affect the economics of the projects as much. However, if things move up from 2.5 or 3% to 6% over an 18-month period, that would have an [adverse] effect.”
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