The Legislature in its recently-conducted session got it mostly right in regards to government subsidization of new business, but it needs to change the laws permitting it to make sure that economic growth rather than corporate welfare is the purpose behind it.
Six bills this past session sought to grant tax increment financing (TIF) power to local governments. This gives a tax break, generally on sales although in concept it could extend other kinds of tax credits, to entities that do business within the boundaries of the designated district. The idea stems from the enterprise zone concept which is to encourage businesses to locate in that area, by making the cost of doing business cheaper, presumably underserved and/or underutilized because of the distressed nature of the area.
However, the several Louisiana statutes that address TIF variably address whether the area must be “blighted” or that it appear unlikely that many employers would locate in an area because of its depressed nature. This has led to attempts, some successful, for relatively industrious areas to acquire the designation. Baton Rouge legislators authored TIF bills for two different locations, with the apparently more prosperous of the two being rejected while the other, to encourage refurbishment of the old Jimmy Swaggart Ministries dormitory, may have passed only because of the decrepitude of the building – a marginal use of the power at best.
Three other TIF bills went nowhere but HB 887, which allows for TIF districts in New Iberia, passed. Although the bill says the intent of the legislation is “to eliminate and prevent the development or spread of slum, blighted, and distressed areas; to allow the rehabilitation, clearance, and redevelopment of slum, blighted, and distressed areas; to provide for the expeditious conversion of blighted or underused property into habitable residential dwellings in the city of New Iberia,” this nebulous language does raise the specter that these powers could be used similarly to the most notorious uses of TIF districts in Louisiana, those in definitely non-distressed areas of Denham Springs and Gonzales created to permit big box retailers to forgo some sales tax payments.
It could even be worse. In 2005, seeking ways to make more palatable to the public some $40 million of taxpayers’ money going to build a city-owned hotel, Shreveport’s former mayor Keith Hightower sought TIF for it but was rebuffed in the Legislature. (The hotel was built anyway, about 20 percent paid for by state tax dollars, whose annual expenses always have exceeded its revenues.) Neither Louisiana’s law nor Constitution prohibit government giving itself a tax break to put itself in competition with the private sector.
These loopholes need closing, preferably by a Constitutional amendment since TIF use currently is a matter of statute and can be changed on a case-by-case basis. An amendment that restricts TIF use to redevelopment of obviously blighted areas is something the 2010 Legislature needs to take up to get approved next fall. Only then can TIF be used as an economic development tool that benefits the citizenry more than privileged private investors.
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