New Orleans businesses requesting local tax breaks through a controversial state program would need to provide well-paying local jobs and meet other requirements under new guidelines approved by a City Council committee Tuesday.
The ordinance, approved by the council’s Economic Development Committee, is aimed at ensuring that city residents benefit from the millions of dollars of annual property tax breaks given to New Orleans businesses through the Louisiana Industrial Tax Exemption Program, or ITEP.
For businesses to receive the benefit, which can cut their property taxes on new buildings, factories or other investments by 80% for up to ten years, they would need to create jobs paying at least $18 an hour and must be located in areas that are struggling economically, among other conditions.
If the rules are passed by the full council, New Orleans will become at least the fifth taxing entity in the state to exercise its right to restrict the tax breaks. In 2016, Gov. John Bel Edwards signed an order giving parishes more say in the awards, which are granted by the state but mostly impact tax revenues used by local entities. Those state guidelines were finalized this summer.
"Our people have been losing out," said City Councilwoman Helena Moreno. "This allows us to get a little bit of our control back."
For decades, the state Board of Commerce and Industry alone made the call on which businesses received the sought-after benefits, but local governments and other entities paid the price in lost revenues.
For the ten years ending in 2016, tax breaks awarded in the name of industrial development resulted in a loss of $13.7 billion in local tax revenues across Louisiana, according to the Louisiana Tax Commission. Orleans Parish gave up $112 million over the same period.
Critics argued there was little to show in job creation or other local economic benefits. Louisiana lost more than 36,000 manufacturing jobs from 2001 to 2016, according to federal data.
The rules proposed by the council received a cold reception from business groups Tuesday, who said that manufacturers and other businesses may find the requirements too stringent.
“I can tell you that as I look at this, I’m afraid that the criteria that they have come up with will disincentivize the manufacturing sector from wanting to undertake a contract under these terms,” said Jim Patterson of the Louisiana Association for Business and Industry, the state's largest business advocacy organization.
Under the rules proposed by the council, ITEP applicants must be located in a "distressed" area, or one where median per capita income is below the state average, or in another area defined by the state as depressed and in need of development.
They must provide well-paying jobs, defined under the state's Quality Jobs Rebate program as jobs that pay at least $18 an hour.
And they must demonstrate good-faith efforts to funnel at least 40 percent of their work hours on construction contracts to New Orleans workers, and 20 percent of those hours to disadvantaged local workers.
Disadvantaged workers are those that earn less than half of area median income, have been arrested, or fall into several other specific categories.
Business who don't meet the criteria would be rejected. If they fail to adhere to the rules over the life of the exemption, that failure would be considered when the company applies for a renewal of the exemption.
Moreno said other potential rules would also bar businesses who have already started work on capital projects from receiving tax exemptions under the program for those projects.
The Orleans Parish School Board, which created its own set of rules in July, will defer to the city's rules when faced with subsidy requests.
Under the revised guidelines set by the state, if a local taxing entity votes an ITEP request down, it goes nowhere -- and at least four entities have denied ITEP applications in recent months.
They are the Lafayette City-Parish Council, Caddo Parish School Board, Caddo's Sheriff and the OPSB.
Erika Zucker of Together Louisiana, a faith-based nonprofit that has been a leading advocate for tax-break reform, said the rules were needed after New Orleans lost a net 76 jobs since 1998 but gave up $10.6 million in tax breaks last year, and more than $160 million over two decades, to the ITEP program.
The city of New Orleans expects to take in $401 million in taxes next year, $146 million of which is estimated to come from property taxes.
Other entities, such as the school board, also receive property taxes.
Moreno said the rules will help ensure New Orleanians are reaping real benefits. "I have to acknowledge Gov. Edwards for recognizing that it was just not prudent" to put a "rubber stamp" on tax breaks, she said.
But Patterson, who is also LABI’s vice president of government relations, came out swinging against the rules Tuesday, which suggests the council could get an earful from business leaders as it considers the final proposal in coming weeks.
The new restrictions “are unfortunate, because manufacturers provide good jobs as a rule,” Patterson said. “And I’m concerned that New Orleans may be denying companies that opportunity.”