Sales taxes valuable but volatile
Taxing authority: No formal study done to weigh benefits, limitations of exemption
With a table set by Gov. John Bel Edwards to make room for all involved concerning industrial tax exemptions, the Calcasieu Parish Taxing Authority is comprised of no elected officials and the area’s most prominent business advocacy group, the Southwest Louisiana Economic Development Alliance.
Comprised 80 percent by small- and medium-sized businesses and 20 percent by large businesses, alliance president and CEO George Swift said, “We’re doing it to improve the area’s economy and create jobs. That’s our business to facilitate.”
Working with the limited information released from the taxing authority, proponents of Driftwood LNG’s $2 billion property exemption argue that it will be well worth it, especially when factoring in the hundreds of millions of dollars in anticipated sales tax benefits during the construction period.
All members of the taxing authority admit no formal study or cost analysis was done to weigh the benefits or limitations of the exemption. Instead, Wilfred Bourne, chief financial officer of the Calcasieu Parish School Board, said the group used “empirical evidence with the Sasol project” to make much of its determinations.
The group estimates that during Driftwood LNG’s five-year construction period, Calcasieu will see sales tax gains of $780 million. That amount takes in the thousands of temporary construction workers coming to the area and the use tax collected when the industry ships in large pieces of equipment.
With the alliance as its liaison, the taxing authority decided to approve Driftwood’s 100 percent exemption, partly because of the increase in sales tax revenue, satellite job creation and construction positions needing to be filled.
“While we’re giving up property tax for an exemption for the industry to show up here, it’s somewhat offset by all the other stuff that goes on,” Bourne said.
By its nature, sales tax is a valuable, but volatile, source of revenue. Its collection is tied entirely to the presence of active business and commerce, good or bad. Sales tax collections can vary greatly from year to year, depending on activity in the local market. Collections for 2018-2019 are down compared with the previous fiscal year, which enjoyed the benefit of Sasol’s construction period.
Ultimately, Bourne said he can only estimate the amount of sales tax collections “based on historical evidence.”
“Now, I’m not saying that we’re not going to have another event that’s going to boost it a little bit,” he said. “I can’t tell you; I don’t know. That’s one thing about sales tax.”
The economic boost in sales taxes brought on during the construction period is no doubt attractive from a businesses standpoint. However, it is not the crux upon which the industrial tax exemption program’s constitutional guidelines rest.
Rather, it is the abatement of property taxes that are constitutionally tied to the ITEP, and property taxes are the only tax in which every public entity receives a direct portion.
Sales tax gains, compared with property tax abatements, are not a one-to-one trade for all public bodies. Decisions made purely from a business perspective may not serve the entire public’s interest as only the CPSB, Police Jury, the cities of Lake Charles, Sulphur, DeQuincy and Westlake, the towns of Iowa and Vinton and the parish law enforcement district gain revenue from both sales and property tax coffers.
However, every public entity, including the aforementioned, receives an exclusive millage for property tax revenue, including libraries, sewage, waterworks, fire departments, gravity drainage, mosquito control, health systems, tax assessor, criminal justice, airport and numerous other public service agencies. With property tax not being collected, many of these public entities lose a significant source of their own funding and do not have the benefit of sales tax revenue as a back up.
The ITEP is also not constitutionally tied to the creation of temporary construction jobs and their inevitable effects on local satellite businesses. Rather, the governor’s executive order specified that in applying for an exemption, potential industries must be able to create long-term, high-paying, manufacturing jobs that have a positive ripple effect across local economies.
Richard “R.B.” Smith, alliance vice president of workforce development, said the jobs that will be tied directly to the Driftwood project are “long-term jobs, permanent employees.”
“That’s the first numbers we work with,” he said. “We want to try and attract those high-pay, high-technical, high-demand jobs into the work.”
Consistency is key in the application of ITEPs. Like property tax, which is collected annually regardless of changing circumstance, the salary of a permanent engineer or operator often remains in the parish and can be counted on to multiply many times over as it is spent in the local market. Regardless of fringe or secondary benefits, these two stable and predictable factors are the bedrock upon which ITEP applications were constitutionally created.
For the entities that do receive sales tax distributions, Calcasieu saw recordbreaking sales tax revenue in the 2017-2018 fiscal year. It has provided funding for a variety of new projects across the parish.
Bryan Beam, Calcasieu Parish administrator, said the Police Jury was able to widen Prien Lake Road, complete the Ham Reid Road extension, replace bridges across the parish and add litter pickup crews in unincorporated areas.
Holly Holland, CPSB spokeswoman, said increased sales tax revenue allowed the district to allocate $50 million in sales tax funds for capital improvements, grant the largest salary supplement ever and purchase new school buses.
Kim Myers, CPSO spokeswoman, said with its windfall of funds the Sheriff’s Office issued three supplemental pay increases for its employees; built a new marine operation center at the Port of Lake Charles for better response to maritime emergencies; and purchased six new high-water vehicles for more efficient response in weather-related disasters.