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Analysis: Edwards gets new criticism with tax break change

March 1, 2020
Originally posted on Associated Press

In his latest changes to a lucrative Louisiana property tax break for manufacturers, Gov. John Bel Edwards managed to irritate a base of his supporters while also failing to win any rousing enthusiasm from the state’s largest business lobbying organization.

The Democratic governor seems to provoke controversy every time he touches the 80-year-old Industrial Tax Exemption Program. And he’s been tweaking the program repeatedly since taking office in 2016. 

The program, known as ITEP, gives approved manufacturing facilities exemptions from paying local property taxes for up to a decade.

Edwards has limited the program to an 80% tax break over two five-year terms, instead of a full exemption from property taxes, and he’s required businesses to create or retain jobs with the projects seeking exemptions. 

But the adjustment that prompted the largest outcry from business groups involved Edwards giving local governing authorities — sheriffs, school boards, parish councils and other elected officials — the ability to decide if businesses get the tax exemptions. Those property taxes fund local government operations. 

Business organizations criticized the local approval process as confusing, complicated and damaging to economic development in a state with an already difficult-to-navigate tax structure. Edwards defended the changes and said the program remains among the nation’s most generous manufacturing tax break. The governor said 39 other states have similar property tax exemption programs requiring local resolutions of support.

Amid consistent complaints about the decisions of local officials, however, Edwards also promised during his reelection campaign last year to consider tweaks to the process. Now in his second term, the governor scaled back some of that local authority he granted.

The latest rule change from Edwards gives businesses whose tax break requests are rejected by local authorities the right to appeal to the state Board of Commerce and Industry to override the denial of the exemption. That appeal right was approved Feb. 21 by the Board of Commerce and Industry, which is packed with Edwards appointees.

Together Louisiana, a group of faith-based and community leaders and Edwards allies, had been influential in the governor’s decision to put limits on the tax break program, urging Edwards in 2016 to give more scrutiny of Industrial Tax Exemption Program applications. The group described the state-level approval process that existed before Edwards as a corporate giveaway.

The governor’s decision to grant an appeal right angered the organization. In a statement, Together Louisiana said the changes “undermine local control over local tax dollars” in a caving to business lobbying groups.

Edwards defended the appeal right as clarifying the rules for the tax break program. 

“My commitment to local control over ITEP projects has not wavered,” he said in a statement. He added: “In no way does this action take away the ability of local leaders to approve or disapprove of tax credits. In fact, in the vast majority of cases, I anticipate that the state will not entertain an appeal under this clarified rule at all.”

He said the appeal right comes into play if a company thinks a local authority’s decision conflicts with the state rules for the tax breaks. 

The language of the appeal right, however, is fairly open-ended, giving wide discretion to the Board of Commerce and Industry to determine whether a contradiction exists.

Baton Rouge Area Chamber President and CEO Adam Knapp described the appeal right as a “step toward reestablishing predictability and consistency” in the program and reducing “the chaos and confusion of the past four years.” 

“Local bodies will continue to have the authority to approve or reject applications, but not the authority to invent new rules for the program,” Knapp said in a statement. 

The head of the powerful Louisiana Association of Business and Industry, meanwhile, largely dismissed the appeal right. 

In a statement, organization President Stephen Waguespack noted the Edwards administration claims the rewrite “doesn’t change the program much at all.” Waguespack suggested more significant changes are needed to a tax exemption he described as “the most important economic development tool for Louisiana over the past several decades.”

“We urge the administration to continue their efforts to repair this program and stand ready to work with them to get it right,” Waguespack said.