Louisiana's Corporate Subsidy Reforms Worked, Pass It On
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Two newsletters in one week, I know! But I wanted to flag an important new study out of Louisiana, because it shows that local residents and activists can reform corporate subsidy programs in ways that are important and effective, even in places where one might think the politics are not in their favor.
Louisiana hands out the most corporate tax breaks in the country on a per-capita basis, and its statehouse is largely bought and run by big corporations. Its most notorious corporate subsidy programs is known as ITEP — for Industrial Tax Exemption Program — and benefits mostly large oil and gas corporations. It doled out nearly $2 billion in property tax breaks annually at its height.
In 2016, Louisiana Democratic Gov. John Bel Edwards made several changes to the program via two executive orders. First, he lowered the maximum allowable property tax exemption from 100 percent to 80 percent, and he added a (not very strong, honestly) requirement that projects be connected to job creation. Second, he eliminated the ability of corporations to receive tax breaks for additions to existing projects.
Finally, and most importantly, Edwards gave local government bodies, such as local county councils or school boards, the ability to reject the portion of a property tax exemption that would affect their own budgets. So corporations had to come before local government officials and the public and make the case that they deserved whatever tax exemption they were applying for.
And wouldn’t you know it, these reforms did the trick. According to a study by the Institute for Energy Economics and Financial Analysis, Louisiana communities have received more than $280 million in annual revenue increases since the changes went into effect, with applications for new corporate tax handouts dropping dramatically.
This is a huge deal! Prior to the reforms, nearly two-thirds of industrial property in Louisiana was tax-exempt. That’s down to half now, which is where all that new revenue comes from.
As the study says, “The increase in overall property tax revenue has translated into a drastic increase in funding for specific parish services statewide: An additional $113 million for schools, $55 million for law enforcement and $115 million for other services (i.e., roads, drainage, levees, parks, and libraries) annually.” In just one example, “in West Baton Rouge Parish, annual funding for schools increased by $10 million, representing 27% of the school board’s entire budget. The increase was enough to hire 200 new teachers.”
The study’s authors attribute this dramatic drop in corporate handouts to one specific part of Edwards’ reforms: The ability of local government bodies, including school boards, to say no when corporations come knocking for subsidies.
“With a local approval process in place, industrial manufacturers appear much less likely to pursue gratuitous exemptions,” the authors wrote. “The total number of ITEP applications fell from an average of 590 annually before the 2016 reforms to an annual average of 65. It appears that the mere requirement to publicly justify tax exemption proposals before local public bodies has led firms to dramatically reduce the number of ITEP exemptions they seek, especially for projects that are not related to investments in new facilities.”
I profiled one of these local debates a few years ago, where the East Baton Rouge school board eventually shut down a tax break for Exxon. As I say all the time, corporations and politicians don’t want to justify these handouts in public. Make them do so, and they suddenly decide the bad press and community anger aren’t worth it.
There’s one more important point to make from the study: The authors found that Louisiana’s business investment actually went up after the ITEP changes — directly contradicting what doomsayers always claim will happen when corporate handouts are curtailed — and that most of the projects that were rejected by local government bodies went ahead anyway, just without tax breaks.
So that’s one more piece of evidence showing that corporate subsidies don’t actually alter corporate behavior: They’re just free money extracted from communities and given to those who don’t need it.
All in all, the study is very good news, and justifies my recommendation that state and local lawmakers give school boards the ability to assess and reject corporate subsidies.
There’s a big issue coming down the pike, though. Edwards is term limited, and there’s concern amongst advocates in Louisiana that the next governor will rescind his executive orders. A few efforts to enshrine those orders in law — via the statehouse or a ballot referendum — fell short.
But for now, the news is good, and more states should pick up on what Louisiana is proving already works.
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— Pat Garofalo