Gov. John Bel Edwards’ first-term executive order effectively tied the state’s beleaguered Industrial Tax Exemption Program to job creation and approval from local government, but it also opened the floodgates on a variety of procedural questions.
Case in point—a recent move by Bollinger Shipyards to transfer a portion of its $8 million property tax exemption from St. Mary Parish to Orleans Parish had everyone, including the Louisiana Board of Commerce & Industry, scratching their heads.
While Edwards’ order gives local governing bodies a seat at the table when tax exemption decisions are made, they’ll not have the opportunity to reject or approve the Bollinger transfer, despite the transfer request occurring some four years after the original advance notification. That’s because companies do not have to receive local approval if they submitted their notice prior to June 24, 2016, the date of the order. Bollinger submitted its notice in 2015.
This has created some confusion for the Orleans Parish tax assessor and even the Board of Commerce & Industry, particularly because the company didn’t apply for the transfer until July 31, 2019, after transfer of the assets to Orleans Parish.
LED estimates that between 100 and 200 projects remain “in play” under pre-executive order rules, and therefore don’t require local approval. Secretary Don Pierson says one of LED’s goals in 2020 will be to catalog those projects to get a more reliable number. “Slowly that number is diminishing, but we want to get a better sense of what that number is,” Pierson adds. “If they were anticipated projects that are not going to happen, we’d like to know that. And if they’re going to manifest, then we would like to know that, too.”
Jerry Jones, in his second term as chairman of the BCI, says the Bollinger transfer request is indicative of the issues faced by the board at every meeting. He leans heavily on LED’s advice when ITEP questions arise, although recent turnovers in the department have made that more difficult.
“Many of them have retired in the last four or five years,” Jones says. “And this stuff is not intuitive at all. To the contrary, it has more trip wires than anything. LED has done a remarkable job, but they just don’t have the wide breadth of experience (as they did in the past).”
Nonetheless, Pierson says transfer cases such as Bollinger’s are exceptions to the rule. “My sense of this is that it’s an expensive endeavor to transfer property to another location, so therefore it’s a rare endeavor,” Pierson adds. Thus far in 2019, there have been 18 partial contract transfers among 746 total ITEP contract requests presented to the Board of Commerce and Industry, or about 2.4 percent of all ITEP requests. The majority of these were transfers between Dow Chemical and its subsidiaries or co-located companies at its sites in Iberville, St. Charles and West Baton Rouge parishes.
Clearing the air
These questions of policy seem to underscore industry’s primary argument—that the unpredictability of ITEP makes it difficult for Louisiana to attract investment.
Speaking at a Nov. 21 conference in Baton Rouge organized by the South Central Chapter of the Construction Financial Management Association, ExxonMobil’s Charles Dabadie blamed this lack of predictability for dissuading some owners from investing. Dabadie, Americas regional manufacturing manager, says owners need more cost certainty when making big financial decisions. “Just tell me the rules, tell me the formula. It doesn’t really matter, but it has to be predictable.”
Charles Kelley of Cornerstone Chemical in Waggaman blames inconsistencies in the local approval process for creating the confusion. He also spoke at the conference, “Now every parish in Louisiana can come up with their own methods because they don’t know how to administer this,” Kelley says. “It has brought a lot of uncertainty. For years, we’ve had a very predictable and stable process that was competitive with nearby states. Today, it is definitely less competitive. We’re losing out on some opportunities here.”
Regardless, LED’s Pierson says that ITEP fundamentals aren’t likely to change—new projects seeking exemptions will need to show job creation and receive local approval—but he agrees that the program could use more clarity. One problem is that many parishes have adopted their own standards for clearing projects, such as creating screening committees, requiring additional information from applicants, etc. That makes it difficult for an owner to navigate the approval process.
While Pierson says a more uniform and consistent process would be ideal, in the meantime he plans to have LED catalog the various rules to make them easier to navigate. “It would be helpful to know that if you’re in Ascension Parish these are the rules, and if you’re in West Baton Rouge these are the rules,” he adds.
Another hurdle is that some local officials are woefully unaware of an investment’s long-term economic potential. Pierson says a platform for educating local officials is needed, particularly in the aftermath of recent local elections. “We need to have those conversations so that they will see an investment’s value in the creation of construction jobs, increased sales tax revenue, a growing permanent workforce, etc.
“We’ve got to make sure that we’re clearly communicating these values to elected officials.”
LED uses the REMI (Regional Economic Models Inc.) platform to produce “Community Impact Assessments” in a single-page format for regional economic development agencies to share with local government bodies. The dynamic REMI model assists policy- and decision-makers in several areas, including energy, environment and economic development. In the process, it incorporates four major approaches: input-output, general equilibrium, econometric and economic geography modeling.
“We can give a best estimate back to the economic development professionals that they can share with the political leaders in their region, parish, city or school board,” Pierson says. “This creates the environment for an informed decision.”
The REMI model is derived from specific data provided by the company in its ITEP advance notification, e.g., jobs created, investment, payroll, etc. “Some people may think that if they vote against one of these programs, it will free up money in the budget,” Pierson adds. “That’s a fallacy. Your very best hope is that you win this project and it will create money in your budget. You could find over time that if you consistently say ‘no,’ market forces will move these projects to other parishes or states.
“We’re either growing or we’re losing out to other locations,” Pierson says. “You get one bite at this apple, and if you let enough time go by you’re going to find yourself in a challenging position.”