End ITEP as part of LA property tax overhaul

Republican Treas. John Schroder got told by GOP state Rep. Richard Nelson that anything you can do, I can do better. Voters need to listen to that even if legislators don’t.

Both have announced a run for governor this fall, and both have spoken publicly about something that other candidates haven’t: reform of the Industrial Tax Exemption Program. ITEP allows the state to forgive local property taxes up to ten years for a concern that builds new infrastructure.

However, the governor has veto power over those arrangements, and since Democrat Gov. John Bel Edwards took office he has shaped how the program has worked by saying he will veto anything that doesn’t feature fewer years, a smaller portion written off, and approval of major local government bodies. These actions have had an indeterminate but negative impact on it: a poorly-designed report attempting to show the rules changes didn’t scare off new business failed to assess that properly but in passing indicates those did discourage new activity.

ITEP wouldn’t be needed except that Louisiana local governments charge among the top tier of states in highest average industrial property taxes, a consequence of the Constitution thrusting so much of property tax burden on business, given the nation’s highest homestead exemption. Making matters worse, the nation’s highest sales tax and a corporate income and franchise tax, the latter a rarity, discourage business investment.

To address this, Schroder said he would make marginal adjustments, an idea that has some bipartisan support among legislators. He said he would want rules that ensure that business has access to such a program, even a generous one, but that local governments should have some formal input into the process as they would bear potential costs from the new activity.

By contrast, Nelson wants to engage in radical surgery by eliminating ITEP entirely. This would come as part of a broad and extensive revision of the state’s entire tax regime, including that of local governments. Emanating as a campaign plank converted into bills in the current legislative session, the centerpiece of the package is HB 414 which amends many parts of the Constitution. Unfortunately, Monday a House panel appeared unenthusiastic about these, leading Nelson to pull the lot.

Nelson’s idea would have eliminated corporate income and franchise taxes and another tax exemption program which compensates for high taxation on corporations, on the inventory tax that makes local governments whole but that the state pays for. The homestead exemption would have declined 73 percent while state revenue-sharing would have gone down, and local governments also could double their general alimony property taxes, or those levies that don’t otherwise need voter approval.

In essence, wiping out income and franchise taxes would balance the likely higher property taxes for corporations. Local governments would collect more of those but also see smaller revenue-sharing and bear paying the inventory tax exemption.

With perhaps the exception of doubling the general alimony ceiling which on the balance would favor too much local government revenue-raising at the expense of homeowners and business, the package would have triggered a welcome rebalancing of tax burdens to encourage economic development. It also would have solved for the ITEP problem, which is as much a revenue as a political problem.

Schroder spoke to this, saying that reduced ITEP tax shielding besides forcing applicants to pay more also put more money in the hands of local governments that may not behave as fiscally responsibly as necessary. ITEP when fully absolving of taxes not only makes it more likely that applicants receive a sufficient return on investment, especially when competing against so many other locations in other states with better tax structures for business, but it also limits tax revenues coming into local governments that increases incentives for wise spending of what they do receive.

The current arrangement erodes that prudence and provides another reason why Edwards’ rules are untenable if the state wants to improve upon its worst-in-the-nation economic performance over the past decade, and why marginal changes won’t cut it. Only ending ITEP coupled with property tax rate and homestead exemption reductions and/or corporate income and franchise tax reduction if not elimination will solve for this shortcoming.