Local leaders are using new authority under 2016 reforms to Louisiana’s Industrial Tax Exemption Program to balance business and community interests.
Reforms increased annual industry property tax revenue by more than $280 million between 2016 and 2021.
Annual revenues of $113 million for schools, $55 million for law enforcement, and $115 million for other parish services have been generated by the reforms.
Louisiana’s Industrial Tax Exemption Program (ITEP) was long recognized as one of the most generous industrial subsidy programs of any state in the country. Before the program was reformed, applications for tax exemptions were made by a state board—with no input from the local jurisdictions whose tax revenues would be directly affected.
In 2016, Louisiana Gov. John Bel Edwards issued two executive orders to reform ITEP, based on the recognition that the program was costing local governments substantial revenue without helping the state to attract industry. The reforms reduced the total value of the possible tax exemption, introduced a job creation provision and—critically—required that applications be approved by the local government bodies whose tax revenues were affected.
IEEFA analyzed the impact of the 2016 reforms and found:
This report analyzes the impact of reforms made to Louisiana’s Industrial Tax Exemption Program (ITEP) in 2016.
Louisiana’s ITEP has been extraordinarily generous to industry compared to other states.
From its inception in 1936 until 2016, ITEP was one of the largest state industrial subsidy programs in the nation, offering a 100% property tax exemption for as long as 10 years on capital investments by industrial manufacturers. It has been called a “perverse incentive, the nation’s most notorious property tax abatement system,” and a “$2 billion welfare plan that raises taxes and kills jobs.” In practice, ITEP resulted in a significant loss of public revenue in a manner that was not targeted either to attract new investment or create jobs:
ITEP was excessively generous, in part because decisions on applications were made by a state-appointed board with the authority to grant tax breaks that resulted in lower revenues for local governments. For the most part, no evidentiary threshold was required for approval. The Board of Commerce and Industry frequently granted applications in globo, meaning that it would vote for or against (in practice, only for) all ITEP applications under consideration at a given meeting. In 2015, the board granted more than 600 ITEP exemptions during four meetings, without considering a single application individually.
The consequences of the bifurcation between decision-making authority over tax exemptions and local budgetary and political responsibility have been significant. In 2016, according to IEEFA analysis (see Appendix B):
Louisiana’s ITEP has been extraordinarily generous to industry compared to other states. In Texas—Louisiana’s main competitor for attracting oil and petrochemical-based manufacturing— the tax exemption program is locally controlled, includes job creation and capital expenditure thresholds for eligibility, and does not allow maintenance capital to be eligible for exemption. Louisiana Economic Development concluded in a July 2016 report that, as a result of this structure, Texas counties “remain competitive with Louisiana but forego less in local revenue.”
Louisiana Economic Development acknowledged that the ITEP program was costlier than industrial property tax exemption programs in other states before being reformed: “Louisiana’s competitor states have often been able to forego less in local revenue while remaining just as competitive.”
The 2016 ITEP reforms were a response to policy proposals developed by Together Louisiana, a statewide network of community organizations and non-profits. The changes included a reduction of the maximum exemption from 100% to 80%; creation of a weak jobs requirement; discouraged exemptions for routine capital expenditures; and most significantly, established a requirement that local entities with taxing authority approve any new exemptions.
This report assesses the impact and effectiveness of these reforms by analyzing property tax and ITEP data pre- and post-reform. It asks: To what extent have the reforms changed the percentage and amount of industrial property exempted under ITEP? To what extent have they changed property tax collections? What aspects of the reforms seem to have made the biggest difference? Have the reforms dampened potential economic investment?
The methodology for answering these questions is to identify a sample group of approximately 200 of the largest industrial manufacturers (aggregated by parish) statewide. Then, we compare a pre-reform, 2016 baseline assessment of taxable and exempt property with the figures from a post-reform, 2021 assessment.