It should come as a surprise to exactly no one that few states dole out more financial incentives in the name of economic development than Louisiana. After all, why shouldn’t a state government that’s No. 2 in taking moolah from the feds also be among the league leaders in giving it away?
Louisiana doth taketh from Washington, D.C., then giveth away to Corporate America.
Consider it the Jerry Seinfeld bizarro world version of Huey Long’s Share the Wealth program.
Such is life, I guess, when you’re the worst-ranked state in America. That’s right, U.S. News & World Report, says even Mississippi has us in the rearview mirror. #Sad #Embarrassing
Gov. John Bel Edwards, otherwise known as Donald Trump’s most chummy Democrat, declares the report to be nothing more than #FakeNews.
Usually when economic development wonks get to hurling corporate welfare like doubloons at Endymion, the argument from naysayers like Together Baton Rouge is whether the tax incentives lead to actual job creation and other economic benefits.
Yet, given the state of Louisiana’s fiscal affairs one might think a free-spending politician or two might wonder about the impact all these giveaways have on the budget’s bottom line.
As it turns out, the answer isn’t fabulous. Researchers from North Carolina State, using data from the W.E. Upjohn Institute for Employment Research, did a deep dive of all the incentives offered by 32 states, including Louisiana, from 1990 to 2015—which pretty much covers 90% of incentives nationally. What they found is that many of the credits, abatements and tax exemptions led to worse overall fiscal conditions for the state.
In other words, the amount of potential tax revenue exempted to secure a new economic development project or expansion wasn’t always offset by other taxes resulting from the ripple effect of the deal.
Can you say Louisiana film tax credit program?
That’s not to say the creation of new jobs—and some new tax revenue—doesn’t happen, but those touting the benefits of incentives often fail to calculate how these new workers and other economic benefits result in greater demand for state and local government services. And those services, like new roads and schools, have a nasty habit of requiring money to become a reality.
The soon-to-be published study on how various incentives influence state finances, looked at three measures: state debt, dependence on the federal government as a revenue source and the ratio to total expenditures to revenues.
In the case of Louisiana, our debt is worrisome, nearly 43% of state revenue comes from federal aid, says the Tax Foundation, and among the states studied we’re fourth when it comes to relying on financial incentives, behind only New Mexico, Iowa and New York.
In terms of weakened fiscal health Louisiana was third among states with the highest average ratio of expenses to revenues, bettering only Alabama and Kentucky.
“It’s not that incentives are bad or that we shouldn’t use incentives,” Bruce McDonald, an N.C. State associate professor and leader of the research team, told Governing. “But if a state or local government is going to provide an incentive, there needs to be some clarity on what the realistic expectations are for what they might get back.”
Makes sense, but elected officials in this state tend not to be known for their detail sweating, opting, instead, for the instant gratification that is vote-getting ribbon cuttings and appreciative, campaign-contributing CEOs. Should today’s party produce tomorrow’s fiscal hangover, well that bottle of Pinot Reality simply gets kicked down the Rue de Laissez-faire.
I get the public not caring, with many believing fervently that state government is little more than a cauldron of waste and excess—as well as the payroll for the poor. But the governor and lawmakers—regardless of their rhetoric when the cameras are rolling—love few things more than spending taxpayer dollars.
Seriously, the nanosecond the largesse from supposedly “temporary” sales taxes and the state’s $300-plus million bounty from Trump’s federal tax plan yanked us from the brink of another proverbial fiscal cliff, the governor and state legislators—all political parties welcome—couldn’t wait to start spending fast enough.
The spending spree wish list is particularly long—and pricey—this year as the governor and lawmakers are desperate to fulfill what they believe to be their primary responsibility: amping up to 11 this fall’s re-election odds by bribing voters with enough pork and pay raises to keep at least 50%-of-us-plus-one fat and happy come election day.
Getting back to the study, the researchers found the smallest negative financial effect came from property tax waivers. Which makes sense in Louisiana since state government doesn’t really rely on property taxes, propping itself up instead with various income and sales taxes.
Which brings us to the heart of the ongoing ITEP debate. Though the state feels little negative impact, property taxes—along with sales taxes—are critical revenue generators for local government agencies. Without question, the industrial property tax exemption is an important economic development tool and must remain, but it’s also fair to demand a reasonable and easily measurable local government ROI.
The study concludes by stating what ought to be obvious: Incentives almost always generate some benefit from the resulting economic activity, but those handing them out would be wise to actually monitor what’s going on to determine if those benefits actually surpass the resulting costs. It also calls for governments to required the benefitting companies to meet specific benchmarks.
Louisiana actually does this—allegedly—but does it really? Here in the real world it often amends deals when companies fall short of its promises, like IBM in Baton Rouge and CenturyLink in Monroe. Heck, the latest new deal cut between the Edwards administration and CenturyLink basically declares the benchmarks to be meaningless.
Then again—as the bottom of the barrel state when it comes to such things as education, poverty, health, infrastructure and quality of life—does Louisiana really have much choice but to pay whatever is necessary for companies to come—or remain—here?