La. gas drilling tax incentive highlighted in new Pew Center study

A new study by the Pew Center on the States says Louisiana is among a number of states that have created tax traps for themselves by offering incentives for economic development that are open-ended or lacking sufficient controls. According to the study, called “Avoiding Blank Checks: Creating Fiscally Sound State Tax Incentives,” Louisiana’s exemption for horizontal natural gas drilling, created in 1994, cost the state just $285,000 in forgone revenues in fiscal year 2007. But at the end of fiscal year 2010, the price tag of the exemption had grown to $239 million, the study says. To avoid creating such tax traps, the study suggests that states do their homework before implementing them, including: gathering reliable economic impact projections, making lawmakers aware of any uncertainties surrounding the potential cost, linking cost estimates to policy making, and making the process transparent. Setting caps on how much the state will provide in tax exemptions through incentive programs each year can also be helpful, says the study. While the study notes Louisiana did not set a cap on the Motion Picture Investor Tax Credit it approved in 2009, it says the state did do well by making a reliable estimate on its cost—$100 million over four years. Such estimates “allow policy makers to make better decisions regarding the design, size, and scope of incentives,” the study concludes. The full study is available here.