Blessed with strategically-beneficial geography for intermodal transport, a proven, skilled and willing-to-work labor force, coupled with an abundance of natural resources, Louisiana has been an attractive site for large-scale manufacturing and industrial operations to set up shop for years.
But in a rapidly evolving global marketplace, where the competition to attract these quality-job producers (and the direct and indirect economic impact that comes with them) is fierce, the Louisiana Ad Valorem Tax Exemption Program (ITEP) has provided companies additional incentive to establish new capital projects and/or expand existing operations here as opposed to elsewhere.
Enacted in 1974, ITEP allowed the Louisiana Board of Commerce and Industry to then-offer 100 percent property tax exemptions at the local level for a period of ten years to eligible industrial companies setting up new operations or expanding existing operations in Louisiana. Referred to as a “mainstay of our economic development efforts” by LED Secretary of Economic Development Don Pierson, ITEP has played a role in attracting 200 development projects to Louisiana since 2016, resulting in 40,000 new jobs across 52 of the state’s 64 parishes.
“By providing a temporary abatement of property taxes — only on new capital investment by manufacturers — we’re encouraging our existing companies to modernize and expand,” Pierson said. “We’re also encouraging new investors to bring manufacturing operations to Louisiana.
“In both cases, we’re investing in our workforce. By encouraging existing Louisiana employers to modernize, we’re helping them be more competitive, and that secures those existing jobs for the future.”
Since its inclusion at the 1974 Louisiana Constitution Convention, ITEP remained relatively untouched, unchanged and formally unchallenged for decades. In 2016, however, Gov. John Bel Edwards issued an executive order that set forth new guidelines for the long-standing business incentive program — and a restructuring of authority that gave local governments a role in approval process for the first time.
Gov. Edwards’ action required each ITEP contract proposal to contain job creation and/or job retention thresholds that needed to be met to qualify for tax exempt status. Just as important, the ITEP revision requires that affected local taxing authorities sign off on the level of acceptable local tax exemption afforded to ITEP projects in their jurisdictions – allowing for some tax revenue to benefit local services like public schools, fire/police, and drainage projects. Essentially, each affected local body – municipality, parish, sheriff and/or school board – either approves the BC&I’s recommendation for approval in their jurisdiction, or declines the same, thereby resulting in 100% of those ad valorem taxes flowing to that body from day one. If the local body does nothing, it is presumed that the application is approved with no further action.
“This is a substantial gain for local jurisdictions, giving them immediate tax revenue that they did not have prior to Governor Edwards’ executive orders,” Pierson said of the 2016 reform. “At the same time, manufacturers still get a significant incentive to reinvest in Louisiana manufacturing sites and jobs, or to invest here for the first time.”
While the 2016 ITEP changes did give locals more of a voice, it also created some confusion about the role and authority of those granting approval. To counter that, the Louisiana Board of Commerce and Industry authored rules in 2018 that clarified the ITEP process going forward, and provided interested developers a “clear path” toward acceptance.
Today, the ITEP process begins at the state level. Once the Board of Commerce and Industry approves an ITEP application, the terms of that particular agreement go before local officials who have up to 60 days to approve or reject the ITEP contract.
Approved ITEP contracts now offer an 80 percent local property tax exemption for 10 years (as opposed to the previous 100 percent), allowing 20 percent of tax revenue to be utilized immediately.
“We’ve done a comprehensive job of educating and informing the school boards, sheriffs and police jury, parish council and municipal governments statewide about their role and options,” Pierson said. “We think ITEP is a real plus for them, and that the investments made by manufacturers in their communities — construction jobs, labor and materials, sales taxes, business purchases in the service industry, charitable contributions — really add up to great value and a great reason to support an ITEP application.”
With that said, several debates continue on both sides of the aisle about ITEP’s revisions and what occurs during that 10-year grace period. But what often doesn’t get discussed, Pierson says, is the economic impact of ITEP after the decade-long exemptions expire.
As an example, Pierson points to the $3.9 billion expansion of Marathon’s Garyville Plant completed in March 2010. That capital investment created thousands of jobs during the construction process and expanded the refining capacity of a site that employs 905 direct workers – an immediate boost to the local economy.
And now, ten years later, the tax exemptions that played a role in prompting that expansion expire — thus raising property tax revenue in St. John The Baptist Parish by 80 percent this year, according to Pierson.
“That’s a striking example of just how effective the Industrial Tax Exemption Program is to Louisiana,” he said. “With it, we have one of the most competitive business climates for attracting manufacturing investment. Without it, we would drop to the lower tier of states.”
In 2019, there were a few legislative attempts to minimize or eliminate the voice of local governments in deciding whether an applicant should benefit from exemption of local ad valorem taxes. After contentious legislative debate and a down-to-the-wire vote, those measures failed.
Karen White, Executive Counsel, Louisiana Municipal Association, said that local governing bodies understand the advantages of using ITEP as a tool for economic development and are thankful that the potential exemption of their precious local property taxes is now a decision within their control. The statewide associations representing these local bodies, she said, have taken the initiative to collaborate with LED to develop uniform guidance for the evaluation of ITEP applications to provide consistency and predictability in the process, while simultaneously retaining the flexibility to make decisions tailored to the needs of their respective communities.
