Recent regulatory changes to Louisiana’s Industrial Tax Exemption Program (ITEP) have created unpredictability for manufacturers and headaches for local elected officials. Louisiana Economic Department (LED) responded in summer of 2018 with revised rules, reinvigorating the state’s competitiveness for manufacturing projects. With those changes in effect, the opportunity for newly regained stability to yield positive impact looms large.
The Baton Rouge Area Chamber (BRAC) has spent a lot of time analyzing ITEP. Antibusiness groups call it a giveaway, but our analyses show it drives economic growth in the region and state. Because manufacturing is a high cost, wage and multiplier industry — each job creates almost 10 additional jobs — it infuses more money into the economy than other industries. While the reforms in 2016 drove a state of flux, the final set of rules bring the program back to a state of stability and predictability.
About 80 years ago, aiming at expanding its manufacturing base, Louisiana enshrined ITEP in its constitution. ITEP pauses property taxes for manufacturers that set up shop or expand in the state. In the past, the program required approval from the governor and a state board.
ITEP originally allowed for a 10-year, 100-percent property tax abatement on new construction and equipment. Then, the only approval necessary was on the state level. For 80 years, ITEP applications were generally approved at the highest level.
The program drives Louisiana’s success in manufacturing: Its manufacturing GDP grew 143 percent from 1997 to 2017. Nationally, manufacturing GDP grew by 61 percent over that same period. During all but one year of that period, Louisiana had “the lowest total tax burden in the country to new operations,” according to a KPMG study — largely due to ITEP.
ITEP policy changed when a 2016 executive order limited the program. The program’s term was shortened to eight years: five at up to 100 percent, and three at up to 80 percent. While that change was substantial, the most notable and confusing change was a new role for local elected bodies, setting the level and length of abatements for projects.
The governor’s changes cut potential ITEP abatements (or yield) by at least 25 percent. Nearly 40 other states have programs like ITEP, some of which offer 100-percent abatements for 10 years. The latest Tax Abatement Report from the Texas Comptroller shows that most of Texas’ abatements are for 100 percent.
While local officials were happy to have a chance to choose whether taxes would be abated, this set of rules gave no guidance as to what should merit ITEP, which led to confusion and paralysis. Several parishes responded to the new rules with “blanket resolutions,” declaring that all projects in their parishes will receive full ITEP benefits, while others developed an informal case-by-case process.
Local elected officials, economic development organizations and manufacturers voiced concerns about the new rules. Fortunately, the governor and LED were open to the feedback and responded with logical, constructive changes that have paved the way back to predictability.
In June 2018, the Louisiana Board of Commerce & Industry (C&I) approved the final set of ITEP rules. Giving more predictability to companies and removing burden from local elected officials, the final rules are:
• ITEP abatements are set at 80 percent for up to 10 years.
• C&I will consider projects before local elected officials, aided by an LED analysis.
• Local bodies have a structured 60-day window to vote to approve or disapprove.
• Local inaction is considered approval.
The full competitive impact of the decreased yield isn’t yet fully understood, but the changes restore predictability and relieve many procedural concerns. Local bodies will receive supporting materials from LED to guide decision making. Under these stable and predictable rules, BRAC is confident that economic development organizations will successfully shepherd projects through the reformed processes.
For more information about ITEP, visit www.opportunitylouisiana. com/business-incentives/industrialtax- exemption. For more information about BRAC, visit www.brac.org or call (225) 381-7125.