Economic Barriers and Arbitrary Ceilings: Together Baton Rouge’s Criteria for Judging ITEP Applications

This past Thursday, Together Baton Rouge (TBR) provided a set of criteria to the East Baton Rouge School Board that it proposes should be used to determine levels of approval for property tax abatements under the Industrial Tax Exemption Program (ITEP). While BRAC is pleased that TBR listed “to create clear expectations and predictability for business and community members” as one of its reasons for supporting the establishment of such criteria, we strongly disagree with the actual criteria TBR has proposed, two of which come to the forefront and deserve immediate response.

Over the last 10 years, BRAC and the Capital Region’s parish presidents have worked hard to break down the geographic barriers that nurture both disparities and animosities in economic development activities. Over that decade, we have held fast to the belief that an expansion in any parish in the Capital Region is an opportunity for all citizens of the Capital Region, who currently do and should continue to have access to any of the region’s 400,000 jobs for which they are trained. But the employment barrier proposed by TBR is anathema to that opportunity.

TBR seeks an employment barrier, such that ITEP approvals be awarded in East Baton Rouge Parish based on the proportion of the applicant’s workforce residing in the parish. This proposed employment barrier hurts companies, parishes, and people and ignores an important fact: workforce pools are inherently regional. Parish boundaries are irrelevant to labor force movement and access; people choose to live where they live for a variety of reasons, and where they work is only one of them.

TBR’s employment barrier harms companies because it limits their labor pool. Workforce is already the number one concern for companies considering locating or expanding in Baton Rouge, and according to the Center for Economic Studies, 64 percent of goods-producing employees working at companies in EBR do not reside in EBR parish. This statistic isn’t limited to the manufacturing industry; over half of all people who work in EBR parish do not reside within the parish’s boundaries.

The barrier will also harm EBR parish and its citizens. It could encourage neighboring parishes to implement their own employment barriers, pitting one parish against another and creating an environment of economic hostility, leading to slower overall job growth. By blocking employment of neighboring parishes’ residents, all parishes will ultimately suffer because they will lose people, and people will ultimately suffer because they will lose access to economic opportunity. On the whole, TBR’s employment barrier is bad economic policy, and simply antithetical to the collaborative practices we should encourage from our local leaders.

Second, TBR proposes a short-sighted $200,000 per-job abatement ceiling. It’s important to remember that the ultimate aim of economic development is to create a positive return on investment to the parish, regardless of the amount of abatement per job. TBR’s per-job abatement ceiling would preclude EBR from truly competing for potential projects with capital expenditures that are much higher than their related job numbers, based only on an arbitrary ceiling that has no correlation to positive return on investment.

As an example, consider a potential project for EBR that would exceed TBR’s proposed per-job abatement ceiling, but nonetheless provide a positive return in tax revenue to the parish: 100 jobs, $6 million in payroll, and $1 billion in capital expenditures. This project would yield just over $40 million in sales tax revenues to the parish in one year, and just under $120 million in property tax revenues to the parish over 20 years. Granting a full ITEP abatement to such a project would still mean a 184 percent return on investment over 20 years, an objectively impressive rate of return. In the end, what matters is whether there is a net benefit to the parish, and that must be evaluated based on all pieces of a project, not an arbitrary threshold.

In both these damaging restrictions, TBR demonstrates their disregard for both the purpose of economic development and the consequences of their proposals. The business of economic development is a complex one that does not operate in geographic silos. There are always other parishes, regions, and states competing against EBR, a critical fact that TBR’s employment barrier and abatement ceiling seem to ignore.

BRAC supports development of a rubric for guiding ITEP evaluations because predictability is necessary, and delineation of consistent criteria will help create that predictability. We applaud the EBR Mayor-President for driving progress toward this goal by calling for an EBR ITEP Review Committee, and are gratified that the leaders of our local taxing authorities have demonstrated a willingness to participate. This approach is the right one: unified, coordinated, and, hopefully, the catalyst that brings our parish leaders together to collaborate transparently for the net benefit of EBR’s citizens.

Liz Smith

As BRAC’s senior vice president of economic competitiveness, Liz leads the organization’s public policy advocacy, strategy, research, and reform activities aimed at advancing the quality of life and economic competitiveness of the Baton Rouge Region.

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