Closing barn door on tax exceptions later better than never

It’s never too late to close the barn door after the horse has gotten out, as some Louisiana legislators demonstrated again as part of approving the details of new tax breaks established earlier this year.

The Joint Legislative Committee on the Budget had to approve of regulations issued by the Department of Economic Development incident to the new laws. But the natives seemed a bit restless and did not want to do the usual rubber stamping of anything proposed in this regard, no doubt because of the state’s continued precarious budget position and the exposure the issue of exceptions to the tax code increasingly is receiving, with a select legislative committee overseeing the matter.

Eventually, they went along with it, but only after grilling department officials to ascertain that some kind of oversight would occur. These concerned tax rebate agreements that could be offered to employers that would require their approval after a review by an independent, third-party economist aimed at making sure the state will get more tax revenue from the new jobs created than the tax money lost with the credit.

That’s nice to know that legislators seem so keen on making sure that forgone tax dollars get put to productive purposes. Except that, as the panel studying the matter has discovered, for many previous breaks legislators seemed to express no interest at all in getting such information, much less acting upon it in cases where the state suffers a net cost. Even more underwhelming if not downright betraying the public trust, they take advantage of these breaks.

Recent notoriety deservedly found its way to the generously-interpreted Department of Revenue regulation issued previously by its former head that infamously let loose millions of dollars in credits that the Legislature never intended – even as some legislators themselves filed for savings under the rule for the brief time it operated. But of far larger impact for a far longer period of time with full knowledge of it from the beginning has been the motion picture tax credit.

Statute required production of biannual reports that, among other things, assessed the cost of the credits compared to their benefits. After a decade, the trend never has changed: they massively lose money, on average over the period returning a buck for every seven forgone. Any legislator would have to live in a bubble not to know that. Yet not only has the practice continued, the presumably temporary credits eventually became permanent.

You might think some of those raising the alarm on the regulations just approved might have sounded it long ago on programs like the motion picture tax credit, such as state Sen. Robert Adley who proclaimed, “All I keep hearing is if I grant these tax exemptions, our revenue grows. But our revenue stream keeps going down on the corporate and income tax side. It just doesn't make sense, does it?" But that’s because guys like Adley don’t want to look in the mirror to find out the source of the problem.

As it turns out, Adley has filed successfully for the motion picture tax credit in the past, illustrating the manner in which they typically have cost the state in the range of half a billion dollars in net lost revenue over the decade. Most of the awardees of these get them in amounts that far exceed their state tax liability, so they sell them for around 75 cents to the dollar to others in the state that have can use them to offset their taxable Louisiana income, essentially lowering their taxes by a quarter if they fully offset. Adley, whose company he owns enjoys a no-bid contract to provide local governments with gas management services, has plenty of need for offset although he has purchased a small amount relative to that. Perhaps this explains why, in this particular case, he hasn’t seemed interested at all at what “doesn’t make sense” until now.

No doubt he’s not the only one in the Legislature that fits this profile. And while any genuine attention to the issue is welcome, the true test will come when, if any of, the fervor now getting generated to pare back the exceptions gets sustained in the future when budgetary times improve. If the reader feels appropriately skeptical whether that will happen, go with the feeling.