From the Editor: Tax breaks aren't for jobs anymore

Elsewhere in this edition, you’ll read that St. Mary’s unemployment rate has been moving upward and is now over 5%.
Happily for us, the administration of Gov. Jeff Landry has stepped in to make tax exemptions easier to get for new and expanding industry. Maybe the looser rules will put more people to work here.
But that was explicitly not the purpose of the rule changes.
Billions of dollars have been at stake over the long history of ITEP, and an application for a property tax break for a modest business expansion in St. Mary caused a notable fracas not long ago.
ITEP goes back to Huey Long days. In recent iterations, the owners of a new or expanding manufacturing facility could apply for an exemption from local property taxes for 10 years. The decision was up to the state Board of Commerce and Industry, not the local governments that would be affected.
One thing that often gets overlooked is that the property tax break applies only to the new or expanded portion of the business. So the tax break doesn’t take away revenue that a local government is already receiving.
But if you’re on a local council or board that has to write a budget every year, this argument is less compelling.
In any case, the program took some critical fire. Some saw it as less ITEP and more ATM for captains of industry. And the commerce board wasn’t known for being a stickler about application standards, especially for job creation.
Some said the program was being misused to help pay for routine equipment purchases or, even worse, automation equipment that would actually reduce the amount of labor required to manufacture whatever the applicants were manufacturing.
When John Bel Edwards became governor in 2016, he issued executive orders adding specific job creation rules to ITEP. The tax exemptions were limited to 80% for five years with an option for five years. And any local government affected by a proposed tax abatement got the power to say yea or nay.
Then came Landry.
Not long after taking office, the governor took the ITEP veto away from individual local governments. The decision will now be up to a parish board composed of representatives of the local governments — except when the governor overrules them.
Landry is also doing away with the job target rules.
“We have removed the job requirement because this program is about capital investment. It is not about job creating,” Landry said as he announced the changes at a Louisiana Association of Business and Industry luncheon.
The folks at LABI ate it up. But you have to ask what public interest worthy of a tax break could be served by capital investment if jobs don’t come with it.
The only possible answer is expansion of the tax base.
Eventually.
St. Mary saw the sparring that can result from a local government’s obstinacy or some higher-level trampling of local prerogatives. You can choose your point of view.
After the 2016 changes, some people feared that the need to go before the parish government, and the School Board, and the Sheriff’s Office, and maybe a municipal council for the tax break might put off some potential employers.
Then-Parish President David Hanagriff’s remedy was to ask the local governments for the power to grant an ITEP exemption on his own authority provided the proposed project has a positive economic impact, as determined by an analysis from the economic development director.
In October 2021, the company doing business as Metal Shark sought state approval for a small expansion in St. Mary. The expansion was to create two jobs with a payroll of about $73,000.
The economic impact analysis resulted in what was described as a slightly negative result. So Hanagriff went to the affected local governments individually to ask for approval of the tax break.
And he got it — except for the School Board.
There, members were concerned about the small size of the expansion and the possibility that they were subsidizing jobs for people from outside St. Mary.
In December 2021, the School Board voted against offering the tax break. Metal Shark could still get the break from the other governments, but the School Board would hang on to the $43,000 it would otherwise have lost because of the tax incentive.
Only it didn’t.
A 30-day deadline that nobody seemed to know about had already expired when the School Board voted. So the tax break took effect amid claims and counterclaims about who fumbled.
That’s a lot of hoorah over $4,300 a year for 10 years.
In 2021, an analysis in an honors thesis by LSU student Cole Smiraldo, directed by an accounting professor, looked at 8,882 ITEP-approved projects 1997-2021. Smiraldo found that the number of temporary jobs created in ITEP projects, mostly construction jobs, outnumbered the permanent jobs by more than four to one.
“These ratio analyses indicate that creating new permanent jobs does not represent a significant outcome of the ITEP program,” Smiraldo wrote.
Still, the projects did create more than 112,000 permanent jobs and more than 520,000 temporary construction jobs.
Another study, this one by the Institute for Energy Economics and Financial Analysis, found that few projects were actually derailed by rejection of an ITEP application.
The changes in ITEP requirements beginning in 2016 returned more than $270 million in tax revenue to local governments, the institute said, without major impacts on job creation.
But those ITEP rules are gone now. And while there will be a local board, it’s not going to make much difference if the governor decides to decide.
Bill Decker is managing editor of the Morgan City Review.