Created in 1936 and reaffirmed in the constitution of 1973, Louisiana’s Industrial Tax Exemption Program (ITEP) has been our state’s premiere economic development tool.
The process for approval was relatively simple. Manufacturers made application to Louisiana Economic Development and one stop approval was the sole purview of the State Board of Commerce and Industry. If awarded, the manufacturer received a five-year local property tax exemption on the investment with a five-year renewal for a total of 10 years.
It is important to remember that local governments don’t really give anything up under ITEP. Companies continue to pay sales, income, and other taxes. But if no incentive is offered, it is more likely that the investment and project go to another location outside of Louisiana. Our most significant competitor is Texas but the industrial investment economy of today is truly global.
In 2016, Governor Edwards, through Executive Order, made changes to ITEP in the name of giving local governments more of a roll in the process. On its face, it certainly sounds like a worthy goal.
What resulted is a level of uncertainty for industrial investors as local governments scrambled to determine just what their rules would be and just how they would deal with this new responsibility.
Uncertainty is the death knell for investment and Texas has and will take full advantage.
The governor has stated, on many occasions, that Louisiana’s ITEP is remains among the most competitive incentive programs in the United States and some project announcements have continued.
Here’s the rub. Louisiana must be more aggressive than our competitors. We have a more complicated tax system. We have a corporate income tax that Texas doesn’t have. We have an improving but still underperforming public education system. We have failed to invest in our critical infrastructure. Due to budget deficits (that’s a whole separate column), we have revived the sales tax on industrial utilities. We have a convoluted and nonsensical inventory tax.
Because of all these issues that we have failed to address the real causes behind, a “competitive” incentive program will, in the long term, make Louisiana uncompetitive.
In addition, I had an interesting conversation recently with a member of Together Louisiana recently. The individual stated emphatically that the ITEP should only be awarded if a significant number of new jobs are being created.
We should be careful about saying that facility upgrades without new jobs are not eligible for exemption. Equipment upgrades are often critical to keeping facilities and products up to date and competitive to keep existing jobs. If we don’t incentivize equipment upgrades, facilities and individual units lose the ability to compete and end up being shut down as the same units in other states or countries get the updates.
Shouldn’t retaining existing jobs be just as important as attracting new ones? Thinking that “these industrial plants are not going anywhere” is, respectfully, naïve.
Tim Johnson is president of the TJC Group and host of the Louisiana Business and Industry Show on TV and radio.