The excellent series on the value brought by tax exceptions continues in the Baton Rouge Advocate with a piece on property tax exemptions and payments for job creations by large firms, complementing earlier information about enterprise zones. Together, they point the way to needed reforms of these jobs credit programs.
Large projects either may qualify
for money doled out by the state on a case-by-case basis that could include
money up front but also requires performance standards on metrics such as money
spent and jobs created by the employer, or qualify for rebates or exemptions
through programs built in state law. In the case of the former, the state can
claw back money if the targets aren’t met.
Enterprise zones spending
constitutes a tax rebate for employers that expand their workforces by at least
10 percent by having 35 percent of those hires living in a zone, which are
areas judged as distressed economically by the state using metrics such as high
unemployment rates, low income levels, and the number of residents living below
the poverty level; or if they received public assistance; or if they lacked
basic skills; or if they were “unemployable by traditional standards” because
they lacked training, had a criminal record, or were physically challenged.
Previously, the law stated only that an employer locate in a zone.
That change has sparked controversy
because it means many firms qualify that are located not just outside of the
zones, but even in areas doing well economically. Further, many are in retail
and represent large corporate chains. Retail activities tend to churn money but
don’t produce value-added products that are key to economic growth, and with
large operators involved it’s unlikely that siting decisions in these
non-distressed areas would have been any different without these kinds of
incentives.
Direct economic development funding
also has its problems, chiefly in that it often constitutes little more than a
bribe pursuant to a bidding war with other states to get a firm to locate or to
continue operations in the state. Instead of paying to get the private sector to
come, as if to make up for an inherent blemish, more economically efficient
would be to lower taxes across the board to make the place lovelier to begin
with. Why collect taxes just to give the proceeds away and hope some comes back
to the community instead of not collecting them in the first place and letting the
community keep them?
The argument that Secretary of
Economic Development Stephen Moret makes on this account, congruent to the
underlying theory that states need to engage in this shuffling of resources, is
that Louisiana’s historical underdevelopment requires a kind of “shock therapy”
to jumpstart it and catch it up to other states. This view held great currency
in the past couple of decades in the state and led to creation of specialized
funds such as the Mega-Project Development Fund, into which in the past the
state dumped hundreds of millions of dollars to court companies, and the Rapid Response
Fund, which doles out smaller amounts but in a much quicker fashion when quick
but less consequential decisions need be made.
But fiscal stresses exacerbated by
the economic non-recovery of Pres. Barack Obama’s
policy-making by 2011 led the state to abstain from refilling the MPDF, leaving
less than a fifth of it to remain compared to its height, and almost all of
that taken since either went for other LED projects including the RRF or to
fund other budget items. It now contains about a hundredth of what it did, with
no signs from legislators they intend to replenish it in any amount any time
soon.
Which is as it should be. As
tenuous as the “shock therapy” argument is, it’s now a moot point. Despite ill
national economic winds, Louisiana has bucked the tide over the last several
years in
employment by bringing its unemployment rate down typically to no worse, if
often much better, than the national rate, its number of jobs continues to
climb to historic highs, and in the last decade its per capita income has increased
substantially both in dollar and comparative terms, now up the 29th
among the states. Continuing gains in secondary areas, such as in educational
attainment, also signal that, if there ever was, there is now no longer any
need for shock therapy by way of these kinds of incentives. There may be a case
for a small RRF, but the MPDF should have its balance transferred there and
closed.
Exceptions based upon enterprise
zones also need rethinking. The original concept that gained prominence through
the Pres. Ronald
Reagan Administration held that the break should stimulate development in a
geographical area, particularly where there was little else but low-income
housing. The idea was to create jobs that could attract labor within the area and
to provide services needed in the area, such as grocery stores, gas stations,
and other basic necessities, with any other kinds of commercial or industrial
job providers as lagniappe.
To achieve this, the law should be
changed to disallow retail outlets from qualifying for these credits except
where they are located physically in an enterprise zone. This better balances
the goals attracting higher value, thus greater generators of tax revenue,
jobs, of encouraging the hiring of those in less-advantageous situations, and
providing incentives to locate businesses in areas where these individuals
disproportionately live.
Such breaks aren’t entirely
useless, but must be evaluated by asking the right questions. It’s not that
they make a significant difference in siting decisions, for at the margins they
surely do even as other factors government policy cannot control directly loom
far bigger in importance. It’s that they provide at least one cent more in incremental
tax revenue over expenditures for their funding. Chances are the enterprise
zone program, if resituated closer to its original intent, can do that, while
direct funding may meet this cost-effective standard in certain cases, but
probably the state has been too lax in too many instances (with perhaps ponying
up to keep low-wage, low-skill food processing jobs in the state its ebb).
The latter program in effect would
be neutered by not refilling the MDPF. Fixing the former will require courage
from the Legislature – always in short supply during election years as is 2015,
leaving 2017 constitutionally this next time the program could be rebalanced in
a regular session of the Legislature – and from the governor – who if the wait
must be until 2017 will not be term-limited Gov. Bobby
Jindal. Best would be if Jindal would stump for these programmatic changes for
this year, but in all likelihood the best that can be done is to query his
potential successors on the campaign trail to secure commitments from them if
elected to make these necessary alterations.
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