Facing a new set of rules, ITEP stumbles forward
The Business Report
Dec. 12, 2017, was a historic day for Louisiana’s lucrative Industrial Tax Exemption Program. For the first time, the state Board of Commerce and Industry approved ITEP exemptions for projects launched after June 26, 2016, the day Gov. John Bel Edwards gave local governments the right to choose whether their local property taxes would be sacrificed in the name of economic development.
“We live in a new industrial tax exemption world in Louisiana,” says C&I Board President Steve Windham.
The board approved the applications without controversy. But it took a year and a half to get to this point, which helps explain why company executives aren’t sure if they can still rely on the program to give their projects a financial boost.
“I don’t think [the uncertainty] is holding up projects,” Windham says. “I do think that they are nervous.”
Greg Bowser, president of the Louisiana Chemical Association, offers a less tactful assessment.
“It’s a terrible process,” Bowser says. “It has almost made the program useless.”
ITEP offers local property tax exemptions to manufacturers that make capital investments. Companies say property tax abatements are one of the factors considered when deciding where, or if, they will build.
“This is a critically important program,” says Louisiana Economic Development Secretary Don Pierson.
In the past, companies that made qualifying investments could avoid paying property taxes on that investment for 10 years. Now, new projects are eligible for a 100% exemption for the first five years of the project’s life and a possible three-year extension capped at 80%.
The biggest change is that local taxing bodies—the sheriff’s office, school board, parish and, where applicable, municipal government—have a say in the process. They can limit a company’s exemption or reject its application outright before it gets to the C&I Board and, ultimately, the governor.
“When you look at what you have to go through, it’s unbelievable,” Bowser says. “You’ve got to get approval from all the local governing authorities. They’re not sure what the process is. Half of them have never even heard of a 10-year tax exemption.”
Bowser wonders what will happen if different entities approve different amounts. He says companies considering projects in Louisiana are assuming they won’t receive any ITEP benefits, since they don’t know what to expect.
Michael Hayes, who manages government and industry affairs for Sasol’s North American operations, says a project that’s paid for on a company’s balance sheet can tolerate uncertainty longer than one being financed by lenders.
“What the governor’s trying to do is admirable,” he says.
But companies have never been required to show the return on investment for tax abatements, Hayes adds. He says industry leaders plan to commission a third-party study examining the ROI.
Pierson, the state economic development chief, says companies should be willing to be accountable and clearly state what parishes are getting in exchange for the tax break. But he realizes many industry officials aren’t accustomed to interacting with local government.
LED has created templates for the contracts and resolutions needed to show compliance with the new guidelines.
“Parishes have always been in competition for investments,” Pierson says. “The solutions for communities [under the new system] are likely to not be ‘one size fits all,’ but rather what matches the comfort zone of a community.”
DIFFERENT PROCESSES FOR DIFFERENT PLACES
“Everyone is in this learning curve,” says Russell Richardson, senior vice president of business development with the Baton Rouge Area Chamber. “There could be projects out there that companies are waiting to disclose once they know more about the predictability of the program.”
Parishes that have addressed this issue tend to fall into one of two extremes, says Broderick Bagert, spokesman for Together Louisiana, which has been critical of the program. Some, like West Feliciana, are essentially offering a blank check, saying they will approve every qualifying project at the maximum allowed. Others, like Ascension, are reviewing each project on a case-by-case basis, which doesn’t give companies much predictability.
East Baton Rouge officials have discussed creating a matrix that would spell out for companies exactly what they can expect to get. Bagert suggests setting specific criteria, such as a minimum of five jobs created by the project or a maximum exemption of $200,000 per new job.
Of the nine ITEP projects granted approval by local entities and the state I&C board, four were shepherded by Ascension Economic Development Corp. CEO Kate MacArthur. She says local officials discussed creating a matrix but couldn’t agree on the criteria, so the pending projects were approved separately by each taxing body.
“Ideally, the process should take about eight weeks,” she says. “This one took almost four months.”
MacArthur hopes to speed up the process in the future. Each project will need a concrete nondisclosure agreement, and local officials hopefully will trust AEDC to analyze the project and describe it accurately, she says.
“That’s not the ideal process,” MacArthur says. “But I don’t know what the ideal process looks like.” She says she’s heard “rumors” that companies are delaying planned expansions, but no one has told her they’re not moving forward with a project because of the ITEP uncertainty.
Calcasieu Parish has formed an ITEP review committee. Its first project, a Phillips 66 refinery expansion, was approved for the full exemption by the C&I board in December.
The committee is led by either the president or vice president of the Southwest Louisiana Economic Development Alliance and includes representatives of the police jury, school board and sheriff, along with the relevant municipality if a project is within its borders. The representatives, all sworn to secrecy, meet with company officials and review LED’s project description before agreeing to a recommendation that member bodies would be expected to approve.
“That takes the politics out of it,” says alliance vice president R.B. Smith. “The feedback I’ve gotten so far [from industry] is, ‘Wow, we never thought this was going to work as well as it did.’”
Calcasieu Parish Administrator Bryan Beam says the goal is to promote job creation and retention while avoiding granting exemptions for minor work or routine maintenance. He realizes the state’s new requirements create a “wild card” that could make companies nervous, but notes that local input is the norm in other states with similar programs.
“I think if we’re consistent and fair in how we apply the criteria,” Beam says, “that will calm any anxieties that the industries here may have.”