How One Governor (May Have) Won on Corporate Handouts
A lesson in tax break politics from Louisiana.
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In 2016, Louisiana Democratic Gov. John Bel Edwards won election, despite his state overwhelmingly going to former President Donald Trump at the federal level, thanks in part to Edwards’ comically scandal-plagued opponent. Edwards won again in 2020, becoming the first Democratic governor to serve two full terms in Louisiana since the 1970s.
However, the consensus — which could always change between now and Election Day! — is that this is the end of the line, and a Republican will replace the term-limited Edwards come 2025.
But I’m not here for the partisan politicking part of that election: I’m here for the policy. And what’s interesting to me about the race for the Louisiana governor’s mansion is that one of Edwards’ chief accomplishments — a significant scaling back of a notorious Louisiana corporate subsidy program — may survive the switch to his successor, regardless of party.
The success of his reforms shows that there’s significant political power in adopting and bragging about changes to corporate subsidy schemes that enable more money to flow back into local communities.
Edwards, after being pushed hard by local advocates and community members, made several key changes via executive order to what’s known as ITEP, the Industrial Tax Exemption Program, which was siphoning billions of dollars off of Louisiana’s local tax rolls. Those dollars mostly benefitted the oil and gas industries, as well as major manufacturers. He lowered the percentage of property tax breaks that could be collected from 100 percent to 80 percent, attached some bare-bones job-creation requirements, and prevented the use of subsidies to expand existing plants.
He also, crucially, instituted a new process by which local government bodies, including school boards and sheriff’s offices, get a say on which projects receive public funding, on the grounds that they’re most affected when property tax revenue gets turned over to pay for corporate handouts. This was a big break from the previous system, which had allowed an unelected, unaccountable industry board to rubber stamp applications.
And the reforms worked: A study released last fall by the Institute for Energy Economics and Financial Analysis showed that hundreds of millions of dollars in revenue are flowing back to local communities thanks to industrial property coming back on the tax rolls, and with no, I repeat no, negative effect on economic growth or business investment in Louisiana. (You can read my full breakdown of the study’s findings here.)
The chief effect is coming from the ability of local government bodies to asses and reject corporate subsidy applications, as opposed to the old board that approved nearly all of them. And I’m not kidding when I say nearly all: 99.95 percent of applications were approved between 1998 and 2016 under the previous system, even though the vast bulk of those projects were already completed before their “incentives” were confirmed.
Now though, local government bodies regularly reject applications, and the deterrent effect of having to come apply before those bodies has driven applications way down. Corporate leaders simply don’t want to come make very public requests for taxpayer money before local government officials; they know it’s a bad look.
Since Edwards’ reforms were enacted, then, those same corporate leaders have been trying to get them off the books. And since Louisiana is a very red state in the popular political parlance, they’ve focused those efforts on the GOP. So the question coming into the 2024 gubernatorial election was whether the GOP’s potential candidates would back what Edwards did and pledge to keep the reforms in place — or not.
Well, here’s a recent headline from the New Orleans Advocate that begins to answer the question: “Controversial ITEP changes made by John Bel Edwards likely to remain with next governor.” At a candidate forum, all seven candidates running for the Republican nomination said they would keep Edwards’ reforms in place.
Now, some caveats: This discussion occurred at a forum put on by the Louisiana Sheriffs’ Association, and sheriffs generally like Edwards’ reforms because the changes give their offices more money, so the candidates could have just been telling the audience members what they wanted to hear. Even more importantly, the question of whether giving local school boards the ability to reject local subsidies wasn’t broached, and is a very key part of the reform package.
Still, this is encouraging stuff. And it fits more broadly with the trend of policymakers not wanting to get on the pro-corporate side of subsidies when discussing them in public. Pols can can read the same analyses and polling showing the putrid level of support those handouts receive that I can.
Indeed, that’s why you see so much corporate subsidy dealmaking pushed out of the public eye across the country: Once the public gets involved in the process, the chances someone pays a political price or that the project gets scuttled due to local popular displeasure are higher.
Louisiana’s reforms should be a model for the nation when it comes to including the public in the subsidy process and giving those most affected by those handouts the final say on whether they happen. That’s why it’s so important they stick. Efforts by some members of the state legislature to enshrine Edwards’ changes into law or the state constitution, thus rendering the next governor’s opinion less relevant, fell short over the last few years.
But with enough public pressure, they can be preserved whomever occupies the governor’s mansion next, and the early signs are promising. I’ll continue to keep an eye on this one.
ANNIVERSARY: I totally whiffed on the anniversary a few weeks ago, but it’s now been slightly more than four years since I launched this newsletter! I just want to say thanks to everyone who subscribes. I learn a ton putting out this newsletter, and I hope that’s true for all of you as well. Let me know in the comments or via email if there’s anything you want to see more or less of as I head into year five.
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— Pat Garofalo