Much has been said over the years about Louisiana state government doing too much for local governments and not giving local authorities the necessary tools to raise their own revenues. Little progress has been made on that effort, but it hasn’t slowed the levy of local sales taxes.
Louisiana has the second highest local sales tax rate in the country at 5 percent. Alabama is first at 5.15 percent. However, the state sales tax of 4.45 percent ranks Louisiana in 38th place. Only seven other states have lower state sales taxes because five states have none.
The question, then, is how can local governments raise more revenues if their sales tax rates are already too high?
A possible solution became available when Gov. John Bel Edwards gave local governments a voice in how the state grants tax breaks under its Industrial Tax Exemption Program. Louisiana is one of 43 states that offer such tax breaks to manufacturers.
The state Board of Commerce and Industry gave final approval in June to new rules for the 80-year-old manufacturing tax break. The board, until these latest changes in the program, granted 10-year exemptions from 100 percent of local property taxes without local governments having a voice.
The new rules say local governments can approve or reject ITEP tax breaks within a 30-to-60 day window. However, they will get 20 percent of their property taxes as soon as new industries begin operating because only 80 percent of those property taxes will be exempt for 10 years.
Calcasieu Parish is one of the major beneficiaries of the ITEP program because of the heavy petrochemical, LNG and other industries that have located here. The Calcasieu Parish Police Jury, Parish School Board and Sheriff Tony Mancuso are working together to come up with a united decision about how to approve or reject all or part of the remaining 80 percent tax exemptions.
The Advocate in April said parishes like Ascension and St. James that have large industries quickly got organized and also created easy-tofollow procedures. The newspaper said other localities without much experience had a tougher time.
The approach in East Baton Rouge Parish, for example, has been different. Civic and church groups in that area formed an organization called Together Baton Rouge and then Together Louisiana.
Together Louisiana said ITEP over a 10-year period cost municipal and parish authorities more than $16 billion in property taxes that would have otherwise funded schools, law enforcement and other government services.
Gov. Edwards had to issue a second executive order giving local governments a voice in property tax exemptions because of the confusion created after his first order. It took considerable time to come up with the revised rules that were approved in June.
Stephen Waguespack, president of the Louisiana Association of Business and Industry, earlier this year called ITEP “one of the state’s most effective economic development tools for decades.”
“Right now, it’s in a state of chaos, and the lack of certainty has made it very unclear about what the role is for locals and what it means for companies who want to invest here,” Waguespack said.
Don Pierson, secretary of the Louisiana Department of Economic Development (DED), said the revised rules went into effect immediately. Applications submitted after the end of June have to follow the new rules, which supporters believe remove the uncertainty Waguespack is talking about.
Companies with 345 projects worth about $41.9 billion that are working their way through the ITEP program could decide whether to stick with the old rules or follow the new guidelines, Pierson said.
What local governments have to remember is that ITEP is a valuable tool in getting companies to invest in Louisiana and create construction and permanent jobs. DED has been extremely successful in getting them to come here. Major manufacturers and industries need some financial security when they invest in a state.
The 80 percent exemption will help restore most of that financial security that companies need, but the loss of too much of the exemption could become a problem.
Local governments need to consider what has happened in Calcasieu and other parishes that have benefited tremendously from the exemptions. The companies after the exemption period have become major property taxpayers in these parishes.
The 20 percent local governments are guaranteed will give them new tax revenues that can be used to supplement existing services or provide new ones. Once legislators begin to see the end results, the state should stop funding construction of local projects that should be financed with local revenues.
Some state support for local governments isn’t going to change. However, the state can give up some of its local funding if the new tax exemption rules work as well as expected.
PROPERTY TAX BREAK — Local governments now have a voice in giving out property tax breaks to prospective industries.