ITEP triage doesn't help LA economy
Trying to make the symptoms less severe doesn’t cure the disease.
Last week, the Gov. John Bel Edwards Administration rolled out new guidelines regarding the Industrial Tax Exemption Program. This offers to alleviate relatively high property tax rates paid by business when it expands in a parish by offering abatement for a certain period.
For decades prior to Edwards entering office, the Board of Commerce and Industry that oversees granting the break routinely would forward to governors a recommendation that the company enjoy a 100 percent deduction for five years, with the possibility of five more. Early in his term he promulgated an executive order saying he would grant only partial relief for three years after the initial five years, and that four kinds of local governments involved could opt out.
However, this led to a patchwork of decision that complicated matters and added to uncertainty. Afraid this discouraged increased business activity, the BCI – comprised of a majority of Edwards’ picks – at the governor’s request approved new decision rules. Henceforth, a break of 80 percent will last all ten years, and the local governments between 30 and 60 days of the application can veto that for their taxes.
In part, a significant reduction in requests prompted the change. Things may pick up slightly with greater predictability built into the process – or may not, given now no break will happen up front, discouraging firms who have higher initial costs.
But none of this addresses the fundamental problem involved: business pays way too much of all property taxes in Louisiana, approaching 90 percent. By way of example, according to 2015 data New Orleans had, among the largest cities in all 50 states plus the District of Columbia, the 40th highest effective rate (assessed rate adjusted by exemptions) for homesteads, the 29th highest for apartments, the 25th highest for commercial property, and the 10th highest for industrial use. The preference for homesteads also appears in the ratio of effective rate for homesteads versus commercial property, where New Orleans ranked eighth.
This imbalance deters investment, and so to compensate in part the state has ITEP. Still, that’s not enough, and effectively raising it won’t make matters any better, even if that offsets the over-complexity of the rules for the last two years.
Only by amending the Constitution to lower the homestead exemption – preferably through something like shielding the first $10,000, taxing the next $10,000, then exempting up until something like $60,000 – followed by a mandated reduction of rates will create a more realistic taxation structure. At first, total revenues taken in by each jurisdiction would not change, but because business property taxes would decrease these savings would come back to consumers to compensate for increases on many. Better, it would attract more business formation, relocation, and expansion that would stimulate future economic growth and tax revenues.
Then the state could toss the entire ITEP concept, or perhaps scale it back considerably. Tinkering with it at the margins, that in fact may make it less effective, won’t encourage business development the way fundamental reform will. Edwards’ cosmetic alterations do nothing to aid the country’s worst economy.
Posted by Jeff Sadow at 12:40