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Edwards order politicizes tax exemption program

Last month Democrat Gov. John Bel Edwards issued an executive order that will do nothing to save state taxpayers money or promote economic development and will increase the incentives for local governments to make deals to empower them, if not steer preferential treatment towards local politicians and their allies.

Edwards’ JBE 16-26 covers the way in which the state implements its Industrial Tax Exemption Program. This allows the state through its Board of Commerce and Industry, most of whose members the governor appoints and serve concurrently with him, to give out exemptions from, among things, local property taxes for five or ten years. Statute deliberately defines these breaks as needed because of the uncompetitive tax structure in Louisiana that means businesses pay most property taxes.

By the Constitution and regulation, a firm must certify it is wanting to enter but feels discouraged from doing so or is threatening to leave the state because of the uncompetitive tax structure, fill out paperwork justifying the exemption, and negotiate a contract with several state agencies that may have additional contractual conditions added such as for performance. After five years, it can petition to have another five years’ worth of exemption and to have certain kinds of expenditures included.

The order says Edwards unilaterally will not approve certain allowable expenditures and that all requests must have contracts in advance that specify certain performance goals. Further, local governments will provide input to the Board on the desirability of an exemption.

To date, the Board has operated as a largely non-political entity that decided whether a request for exemption seemed valid. Of course, the state more easily could have changed its tax structure not to make business pay most local property taxes and that inventory gets taxed at this level that then becomes subject to a rebate paid by state taxpayers to compensate. Spreading out the burden by making all homeowners pay would relieve somewhat that burden on business and not require all of these exceptions in the tax code.

But Edwards’ change now introduces significant politicization of the board. Controlled now by his cronies and allies, they can arrange to provide a veto power over handing out exemptions unless the firms in question cough up concessions to local governments and their special interest constituencies. These could come in the form of following economically inefficient political agendas, such as requirements for use of “disadvantaged” workforce members or suppliers that either will have a negative impact on economic development or put off the firms entirely from relocating to or staying in Louisiana. Worse, it allows local officials preferment opportunities, such as requiring that business to go to their political allies, and the making of unspoken bargains, such as employment or contracting of family members that ethics laws do not address.

Keep in mind this order does nothing to improve the fiscal picture of state government. It affects in no way the several billion dollars a year uncollected by the state through tax exceptions. Nor does it come with any effort to scale back state revenue sharing, now that presumably fewer exemptions given for smaller amounts will have more tax dollars flowing into local coffers.

Naturally, this order received cheers from Edwards Administration appointees and special interests that would benefit from the new politicization, alleging that it would induce more “accountability” into the process. But if proponents actually took accountability seriously, then measures to produce that would come by statutory changes and regulatory adjustments resulting from these consequent to a complete overhaul of Louisiana’s fiscal structure hopefully occurring next year. This would insure more objective evaluation of proposals and cut out the politics introduced by the procedures now stipulated by Edwards.

Make no mistake, the order does nothing to improve economic development in Louisiana. It only represents a throwback to politics of old, where policy-making in this area served government, particularly in its expansion, and its officials and their allies while leaving the state and its people as an afterthought.

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