ITEP: A Moral Fable
The story of the goose that lays the golden egg is thought of as a lesson on the consequences of greed. But it might be better understood as a lesson on the penalty for short-sightedness. There are several versions of this Aesop’s fable, but the English one by Caxton is perhaps most fitting to Louisiana’s current climate. In it, the farmer who owns the golden goose demands that it lay two golden eggs per day, rather than one. The goose, politely, replies that it cannot. The farmer, in a rage at the response, kills it, thus ending his own opportunity for long-term gain.
With a handful of manufacturing projects likely to come before the parish’s taxing bodies in the next few months, East Baton Rouge finds itself in a similar situation to that of the farmer. This parish is faced with a chance to invest in its own prosperity but can only do so if it’s able to prudently and deliberately focus on the future.
There are some in the community who have advocated for a total end to ITEP, believing that doing so would yield higher tax collections from manufacturing projects, and allow government bodies to increase spending. That narrative conveniently avoids the end of the golden goose fable – by putting an end to ITEP, the parish may lose its competitive edge and any chance at future manufacturing projects. Which, incidentally, means any chance at the revenue that would’ve come in from those future projects. In effect, it may kill the golden goose.
The Industrial Tax Exemption Program has enabled the Capital Region to compete globally for manufacturing projects since the 1930s. The abatement recognizes the inherently high costs of manufacturing – it requires a whole lot of expensive equipment and engineering – and seeks to make the startup of manufacturing projects less costly as a trade-off for the lasting economic benefits that such projects bring. These include direct jobs – people who are employed by the manufacturer – and indirect jobs – people who are employed at other companies because the manufacturer and its employees are spending money.
The ITEP wasn’t perfect, but it has undergone a big reform recently, led by the Governor and the state’s Board of Commerce and Industry. Some of the changes include:
- all projects must create jobs;
- replacement of existing equipment is not eligible;
- local taxing bodies determine whether abatements are allowed or not; and
- the maximum abatement amount is capped at 80%, down from 100%.
The changes amount to increasing the size of the goose’s golden eggs. Here in East Baton Rouge, the changes are untested, and it remains to be seen whether they will yield a cost of doing business that’s competitive enough with the other areas of the state, country, and world that the parish competes with for manufacturing projects. Still, a small but loud set of activists continue the call to end the incentive’s use altogether.
Now is the time to test these rules out on some strong upcoming projects, and to allow the reform that’s taken place to yield different, and perhaps enhanced, results. When East Baton Rouge’s taxing bodies choose to approve valuable projects, and the ITEP incentive secures the projects in the parish, our local leaders’ ability to focus on long-term economic prosperity will be a lesson of its own.
Written by 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.