Will ITEP debate hurt Baton Rouge economy?

Unpredictable. Inconsistent. Anti-business. These words, or some variation of them, have dominated discussion among the business community lately, describing the current Baton Rouge environment surro…

Unpredictable. Inconsistent. Anti-business.

These words, or some variation of them, have dominated discussion among the business community lately, describing the current Baton Rouge environment surrounding ongoing controversy over the Industrial Tax Exemption Program.

For two years now, industry leaders have pleaded with state and local officials to bring stability back to ITEP—which Gov. John Bel Edwards upended in 2016—while dropping subtle hints of consequences to come if uncertainty persists. They applauded the state when new rules were established in 2018. 

Yet the controversy dragged on as ITEP critics, led by Together Baton Rouge, urged local governments to implement their own higher standards for granting the lucrative property tax breaks. The Metro Council and East Baton Rouge Parish School Board obliged. 

Then in January, the controversy came to a head.

The school board for the first time rejected two ITEP requests from ExxonMobil, which the state previously approved. Exxon responded by withdrawing its requests altogether before they went to the Metro Council and by calling into question its future growth in the city-parish. 

Though some ITEP critics see such announcements as a mere scare tactic, the Exxon move is alarming the local business community—and prompting industrial organizations to issue statements of their own defending Exxon and ITEP.

But the scope of impact reaches beyond industry. Exxon’s announcement triggered widespread concern even in business sectors that don’t directly benefit from ITEP. Banking, technology and real estate professionals are speaking out, praising ITEP and manufacturing as a boon to the business community Baton Rouge can’t afford to lose.

“We get concerned in the real estate market when these companies say we may pull back or look at another state to do business,” says Louisiana Realtors association CEO Norman Morris. “What occurs then is the trickle-down effect.”

Without jobs manufacturing provides, fewer people buy homes in Baton Rouge, for instance, which has a ripple effect on realtors, appraisers, mortgage companies and other businesses involved in the home-buying process.

Major corporations like Exxon or Dow drive small business development and a skilled workforce. Turn Key Solutions, a local IT company, relies on industry clients and has hired tech professionals who came to the area because family members work in manufacturing.

The sad thing, says Turn Key CFO and partner John Overton, is that the extra layers of restrictions on ITEP hurt the small businesses more than the big ones.

“They have the manpower to jump through those hoops. Or when they get the cold shoulder, they can move,” Overton says. “But small businesses that depend on their growth—where do we go? This is our home.”

Likewise, local banks also count on industrial giants like Exxon because the jobs and business they provide create more opportunities for loans and deposits. And ITEP is the “economic development engine” that drives it all, says Gulf Coast Bank & Trust Co. Market President Gary Littlefield.

“Without the program or with a diluted program, major employers have less incentive to build or invest in multimillion or billion dollar plants and feeder industries are affected negatively as a result,” he says. “Fewer people are employed, less homes and cars are sold, less furniture and other goods are purchased and overall tax revenues plummet.”

The recent ITEP issue is just another strike against the business climate in Baton Rouge and Louisiana in general, causing professionals, like Branon Pesnell, to leave the state for better opportunities elsewhere. Pesnell, formerly with Beau Box Commercial Real Estate in Baton Rouge, moved to Texas in 2018 to become senior vice president at Transwestern.

Louisiana was already a difficult place to do business, with its complex tax code and litigious environment, among other things, Pesnell says. The scaled-back ITEP creates yet another obstacle. Companies operating in an increasingly competitive global economy are looking for the smallest incentive in choosing sites to invest to maximize their dollar.

“Look at companies and people like me, moving to more forward-leaning areas that have companies I want to do business with,” Pesnell says. “You’re not going to get that kind of activity in Louisiana. It doesn’t have the business environment to support it.”