Changes needed to reduce BC EDD riskiness

All the fancy footwork in the world can’t hide the fact that as Bossier City plunges forward with creation of two new taxing districts it risks picking winners and losers among businesses and invites future elected officials to help themselves to increased tax collections.

This week, the City Council approved the boundaries of these. One gulps in the city’s four casinos while the other basically radiates out from the East Bank District to the Arthur Ray Teague Parkway to the south, to the Red River to the West, up to and over Texas Street especially along the river to the north, and to Hamilton Road and somewhat down Barksdale Boulevard to the railroad tracks the west, excluding some professional and industrial concerns and residences.

The ordinances fixed boundaries, and within these empowered the City Council to levy sales and occupancy taxes, established a management board in common for both headed by the head of the Greater Bossier Economic Development Foundation and eight others members (listing needed qualifications) appointed by the mayor, created a trust fund to hold collections from any avails which would be commingled, and defined uses for those funds in support of transportation, streetscaping, utilities, beautification, security, and for grants to new and existing businesses. Other details would come in the form of a cooperative endeavor agreement which it authorized the mayor to pursue.

As it stands, that agreement allows the mayor to appoint three representatives by his own devices, three from names forwarded by the casinos, and one name each from those forwarded by Boardwalk and East Bank merchants (all to be confirmed by the Council). It also specifies the levies at a maximum of two percent which may be used in either district, a 30 percent cap on projects in any one of the four defined areas with monies spent only on projects in the districts (unless at least seven of nine members override), unanimous consent for issuing any grant, a 25-year life for the agreement with renewal possibility, and an initial term of the GBEDF performing no cost administrative duties for two years with renewal possibility. That agreement must be ratified at a later date.

The sponsor Republican Councilor Chris Smith gave a short media presentation before taking up the ordinances, presenting a rationale for the strategy. As part of that, he noted other EDDs in the state and their results. But the examples he used were unlike what was intended in this instance. One, Juban Crossing in Livingston Parish, is akin to the Boardwalk, but that’s in the one district lumped in with the very different East Bank. And the presentation appeared to refer in another case to one of West Monroe’s three EDDs, the West Monroe EDD which is anchored around the Ike Hamilton Convention Center and contains lodging and restaurants in and around Interstate 20, comprised mainly of national chains.

By contrast, the new Bossier City EDDs are a mélange of large multinational corporations in the form of the casinos, hotels, and much of the Boardwalk coupled with the local merchants of the East Bank with some locals in the Boardwalk and the Chasing Aces golf facility off to the side. They vary tremendously in size and local ownership, and in fact the casinos compete against the East Bank businesses with the two hotels. Those different characteristics make all the difference in how the districts are put together and what power who has within and across the pair, as would come out.

Departing from standard practice, Smith invited questions in public comment that would be addressed by the lawyer who had put together the package, Mike Busada. He addressed several, displaying some fast shuffling that may have obscured but didn’t mitigate possible landmines in the deal.

Busada fielded a question about the unwieldy structure: why two districts when they will have one management board and trust fund in common? He noted that state law treated gaming revenues (included freebies given out) in a “very unique [sic]” way from other forms of taxes and fees, and averred sales taxes didn’t apply to such, but that still left a desire to “keep that clean.” Note how that really doesn’t explain the decision to differentiate: if sales tax differences don’t exist, what’s the issue? Busada said they feared inadvertent tax issues, but only moments earlier he touted his experience in constructing these things, and there are plenty of accountants out there with such expertise, so that should not have been a problem.

This matters because casino interests under the CEA likely will have a controlling majority over the use of all funds. As the Boardwalk’s composition and overarching provision of entertainment goal along with considerable national ownership among its tenants gives it more in common with the casinos, adding in the GBEDF vote which is far likelier to be sympathetic to the far larger revenue-generators than the discrete East Bank businesses, and casino interests – natural commercial antagonists to the East Bank and independent hotels – win every time even if the mayor’s three appointees are sympathetic to the latter group. That cannot help but steer disproportionately spending according to their agenda that can differ substantially from the others’.

It makes more sense if having two groups to keep them separate and funds used in each separate with separate boards. There is a valid concern in that the casino district is expected to raise at the two percent maximum level around $1.2 million annually and the other only $300,000, at which amounts if separated makes it more difficult to accomplish especially for the latter a plan, such as letting proceeds build for a couple of years, then issue, for example, $20 million in bonds for 25 years, to put a plan in place parts of which span both districts, but that concern can be mitigated by allowing the non-casino district to dip into the casino’s but not vice versa.

Rather than obscurant, in answering another question Busada leapt into disingenuousness. The non-casino district was drawn originally not excluding residences, which matters because then to impose the taxes the Council would have to have a vote held among residents. Asked why it was drawn in pockmarked fashion to exclude all, Busada’s answer deserves parsing in full:

  … the main reason you want to do that is because … if people that are residents live in the district everything that they purchase online is going to start getting collecting [sic] this extra tax. And so we don’t want somebody that’s living in the district to order something off Amazon and get charged one thing and somebody outside of the district. And so this makes sure that they’re not taxed that they’re not subject to that on their purchases. And so that’s … why we keep those out of the district ….

Yet note the unstated assumption that he must make for this to ring true: that a majority of residents have to vote this tax upon themselves in the first place. Which is unlikely they would do, which then scuttles the entire enterprise. No; the real reason this happened precisely was because the residents, if included, likely would vote it down and therefore had to be excluded for the city to pull it off.

And it was important for him not to admit this. Because there’s an active lawsuit trying to scuttle an East Baton Rouge EDD with it based upon the rationale that a deliberate attempt to pass a tax by excluding residents was behind its formation.

Another question dealt with whether the city could raid the trust fund for use elsewhere. Busada answered in the negative but then failed to back that. He said the documents prohibit that, and in fact that echoes statute, but statute is silent on whether a governing entity like the Council could dip into a constituent fund – because as the districts aren’t in statute but in ordinance thus for accounting purposes they remain a city fund – like this one. All it would take is a budget ordinance that includes the transfer.

Now, legally if the money in a fund is encumbered, such as tied to a revenue bond, it can’t be yanked out. But there is a difference between the district’s management board authorizing spending of money in the fund and the city’s governing authority transferring money out of the fund. However, this possibility can be cured with a specific provision in the CEA – as long as the CEA contains this language, which can be removed as easily as passing a budget ordinance.

Busada also made a statement that annual financial reports would have to be submitted to the Louisiana Legislative Auditor, to ensure accountability. But for those created by ordinance (some are by law, whether grandfathered), many don’t. At one point he asserted that strong economic growth in Lafayette was related to the presence of it having the most EDDs in the state. It has five, but only one reports its results to the LLA. Again, this is something that could be spelled out in the CEA – and just as easily removed if placed there.

Finally, one issue brought up was ignored. The initial district boundaries set in stone which businesses are subject to the new tax. But what if one not taxed sells out or moves and is replaced with one that should be subject to the tax? The only way not to create a competitive disadvantage favoring the new such businesses would be to pass ordinance after ordinance changing the lines every time such a thing happened to include them. And then there’s the reverse of a taxed location qualifying to be untaxed, with the same awkward solution.

And one issue wasn’t addressed at all. The GBEDF has absolutely no experience in undertaking a management role, as opposed to plenty of private sector entities that do, for a price. One can point to the initial two-year term as an off-ramp in case things go wrong, but is that a risk worth taking?

In short, unanimous Council approval (Republican Vince Maggio, who has a financial interest in the area recused himself from voting and Republican Joel Girouard was not in attendance) brings some risk. The broader vision for developing that area of the city that Smith laid out is a worthy goal and is attainable through bold action like this. But the ordinances and CEAs as written currently risk creating a kitty that can be exploited by a very few large interests, perhaps allied with special interests and politicians, at the expense of many smaller entities and taxpayers.

That’s neither likely nor inevitable. But the postures as is of the ordinances and CEAs raise that nontrivial possibility, which if the Council doesn’t make changes to either it must acknowledge as potentially problematic going forward.