LA legal climate, tax structure explain deal loss

The incentive package that Louisiana offered to attract a new Toyota/Mazda plant had nothing to do with why the state lost out to Alabama. That Louisiana has an uncompetitive tax code, badly needs tort reform, and has uncertainty surrounding its industrial tax exemption program has everything to do with its jilting.

Last week, Toyota and Mazda announced Alabama had won over the joint plant’s siting. Louisiana offered a deal around a half of a billion dollars to land the $1.6 billion enterprise, but lost out to a deal Gov. John Bel Edwards Administration officials described as comparable in value. It included $110 million in land, $91.8 million worth of jobs training, $45 million in machinery, equipment, and land grants, employment tax credits worth $173.1 million, and $90.6 million in tax abatements, likely through the Industrial Tax Exemption Program.

Toyota already had a plant in Huntsville, and Alabama has other car assembly facilities. Then again, Shreveport has the idle former General Motors plant, although local politics with Caddo Parish assuming the role of venture capitalist that attracted a three-wheel automobile manufacturer to that facility that probably never will produce a single vehicle may have discouraged the joint venture from utilizing that location.

Louisiana lost not because Alabama could offer more in the way of incentives or because it did not have existing expertise in car building. Rather, it compared poorly with Alabama concerning its tax structure and legal systems.

Unfortunately, Louisiana has built up a sadly valid reputation as a tort-happy state, annually landing itself on the list of states and localities with the worst legal climate. Most recently, the American Tort Reform Foundation singled it and Florida, California, and New Jersey out for laws and attitudes that encourage jackpot justice. That creates one disincentive for major investment.

Then there’s tax rates, both state and local. Although Alabama doesn’t have the greatest rates, ranking tied for 20^th for top marginal corporate tax rate among the states at 6.5 percent, Louisiana’s is a discouraging 8 percent. Potentially millions of dollars in additional taxes each year doesn’t do a whole lot to attract business. And all of Edwards’ talk of raising taxes, especially on corporations although not as much as he proposed to do last year, can’t help matters.

Also, note that corporations pay the lion’s share of Louisiana local property taxes. That explains the durability of the ITEP program, which waives many of these for five to ten years as a compensatory measure. But Edwards has thrown that into some doubt by allowing local politicians to use an ITEP waiver as a bargaining chip, as well as by telling his appointees to put a voluntary cap on it at less than 100 percent and shortening it by two years.

Louisiana must drag around these anchors, explaining why corporations would have reduced appetite to pick the state when reviewing bids monetarily close to each other. Besides the obvious need for tort reform, lower, flatter income tax rates and something of the same for property taxes by lowering the homestead exemption would go far to make the state more business friendly. This would attract naturally economic development ventures and obviate the need to bribe firms to locate in the state by showering them with freebies and exceptions.

None of this is on Edwards’ radar -- if anything, he champions strengthening the status quo --  and legislative majorities don’t seem to have the stomach to make the necessary changes. And a result, expect Louisiana to continue to lose out almost always on deals like this.