Editor’s Note: Bloomberg has since corrected this story since it original publication to clarify that Louisiana Economic Development administers 5% of the state’s tax exemptions and those have had relatively limited impact on Louisiana’s fiscal situation.
States and cities have dramatically scaled back taxpayer subsidies to corporations in the past two years, doling out fewer and smaller breaks to lure development projects—but not in Louisiana, where declining oil prices slashed tax revenue and incentives do not guarantee prosperity.
Bloomberg reports the state has provided $7 billion in tax breaks in 14 separate deals in the past three years. The cost of tax breaks and other incentives to corporations have exceeded business-tax revenue in Louisiana by more than $225 million since November.
The state can ill afford such largess, Bloomberg notes. Democrat Gov John Bel Edwards took office in January facing a $950 million deficit in the current budget year and $2 billion in the next two.
Bloomberg also postulates that incentives do not guarantee prosperity, citing German Pellets Louisiana, a manufacturer of wood fuel for commercial and residential use that received a $75 million deal in 2013. It filed for Chapter 11 bankruptcy in February. In a court filing, the company blamed slumping oil prices, warm winters and a bad investment.
Louisiana Economic Development spokesman Gary Perilloux says the department administers 5% of the state’s tax incentives and those have had a “relatively limited impact” on the state’s fiscal situation.
“Incentives are necessary to keep Louisiana competitive with other states and global locations,” Perilloux says, citing tax breaks offered by other states.
Collectively in the United States, state government subsidies of at least $50 million have plummeted about 70% since 2013, according to an analysis by Good Jobs First, a union-funded research and advocacy group that tracks the cost of tax breaks.
The drop-off comes in the face of a tough new accounting rule that will force governments to release more information about the deals and a presidential campaign that has Republicans and Democrats alike criticizing “crony capitalism.”
“It’s a reflection of the political climate of the times, a resistance to public debt and also to economic subsidies,” says Richard Ciccarone, president and chief executive officer of Merritt Research Services LLC, in Chicago. “Subsidies have become more of a negative among politicians, and a lot of people are hot on that issue.”
