Editor’s Note: A guest post by Jim Patterson, Vice President of Government Relations and Director of Taxation and Finance at the Louisiana Association of Business and Industry.
Louisiana’s erratic tax system places us at a perennial disadvantage when in competition to attract business investment and development. For decades now, the Legislature has haphazardly patched our state’s tax structure with “fixes” in efforts to balance it against the better systems of our competitors, but these “fixes” have come at a cost. Now, thanks to a continually expanding global marketplace, technological advancements and a vastly unstable tax system, manufacturers in Louisiana are reevaluating their investment.
This past year, Louisiana’s manufacturing sector was hit hard by bills enacted to raise hundreds of millions annually in business taxes. As if that was not bad enough, the situation only worsened when the Governor acted immediately after the final special session of 2016 to restrict the state’s key economic development tool known as the Industrial Property Tax Exemption (IPTE) program. The IPTE program exists to attract manufacturing facilities to our state, to encourage them to remain and expand their operations after locating here.
Attracting these manufacturers is critical to growing productivity in our economy. They take raw materials and turn them into marketable products, which ultimately increases Louisiana’s economic vitality. The impact goes well beyond the high-paying jobs it provides directly. Thousands of contractor jobs associated with manufacturing capital projects are a significant part of the local and state economies. Merchants and service providers, as well as federal, state and local governments, feed off of manufacturer-generated revenues. They recirculate those dollars, adding to the multiplier effect of the activity created by manufacturers.
Furthermore, once a facility is established, it generates a wide variety of tax revenue that would otherwise have never been available to the parish or the state. The company’s income is taxed, its sales are taxed, its purchases are taxed, payroll is taxed, and any entities that are part of the multiplier effect are also taxed. Larger manufacturers can represent significant percentages of a parish’s revenue stream, which ultimately enhances the well-being of those within the parish, and in the surrounding region over the long term. This significant revenue stream is clearly evident when considering the condition of parishes with facilities receiving the IPTE and those parishes without manufacturers.
These benefits of manufacturing are exactly why states aggressively compete for investment. Three-quarters of all states have industrial exemption programs similar to Louisiana’s current program. These states not only have tax incentives, but they also have a strong workforce, ample available land, better transportation infrastructure and local governments eager for new investment. The attributes in other states, coupled with the tremendous uncertainty surrounding the application of new rules regarding Louisiana’s IPTE program, simply make our state less competitive for jobs and investment both nationally and globally. With today’s technologies, it is easy to locate almost anywhere on the planet and conduct business across the globe.
While state and local tax structures are certainly not the only factors considered when a manufacturer is determining where to locate its facilities, these policies are significant and often the deciding factor. There are tax features unique to Louisiana, which make it a challenge for businesses to operate here. These challenges diminish the attraction and we should not assume that manufacturers have to be here. Certainly, Louisiana’s natural resources must be harvested here, but they do not have to be manufactured into goods here.
A viable IPTE program is necessary for a healthy business climate in Louisiana. This economic development incentive brings many long-term, significant benefits to the state and its parishes through direct jobs, indirect jobs, and the ongoing need for support services and supplies. Any new capital investment helps retain those jobs and necessitates the robust hiring of new graduates from our state’s universities and colleges.
Louisiana’s economy is extremely vulnerable at this time. Let’s hope that state leaders carefully consider their actions with the IPTE program as they develop rules to govern it going forward. Louisiana cannot afford to risk further injury to its economy.