Turns Out There Are Consequences To Voting Against Jindal…

…and Sen. Dale Erdey found that out last week.

Erdey was the author of SB 673, which was a bill that would establish a special taxing district for the Juban Crossing shopping center in Livingston Parish and use the proceeds to pay for infrastructure improvements around the mall – which hasn’t been built yet and at this point looks like it might never be.

But SB 673 fell victim to Gov. Bobby Jindal’s veto pen.

June 15, 2012

The Honorable Glenn Koepp
Secretary of the Senate
State Capitol
Baton Rouge, LA 70802

Re: Senate Bill No. 673 by Senator Erdey

Dear Mr. Koepp:

Senate Bill No. 673 by Senator Erdey diverts dollars away from the State General Fund to a local real estate development at the Juban Crossing Economic Development District.

There is an existing process through which a project can receive a State match for local tax increment financing revenues committed to the project. If the Louisiana Department of Economic Development (LED) determines that providing a State match for a project will result in a positive return on investment to the State, LED may submit the project for approval to the Joint Legislative Committee on the Budget.

For these reasons, I have vetoed Senate Bill No. 673 and hereby return it to the Senate. I encourage the author and the supporters of the Juban Crossing project to continue to work with LED.

Sincerely,

Bobby Jindal
Governor

And with that veto coming down on Friday, Erdey is red-hot – and he’s complaining about a “vendetta” which denied him a trophy from the session.

Juban Crossing falls in Senator Dale Erdey’s district. He asked the legislature to approve a bill to use state tax money for infrastructure improvements at the site for sewer, drainage and roads.

State lawmakers approved SB673. But Governor Jindal said no. Erdey says Jindal is playing hardball politics.

“Kinda consider this a personal vendetta. The Governor has targeted those who voted against the education package,” said Sen. Erdey.

While the education plan did pass, of the seven state lawmakers from Livingston Parish – three voted against the Governor’s education reform. Erdey was one of the ‘no’ votes.

Now he says it’s like the Governor, who’s always touted economic development, has turned his back on progress in this parish. On 1,500 construction jobs and 2,500 new permanent jobs, said Erdey.

Jindal said the project should get the approval of Louisiana Economic Development. But Livingston officials say it’s already clear LED’s economic director doesn’t approve of the project because it will take money away from Baton Rouge.

Erdey also says two Baton Rouge projects: Renaissance Hotel and River Park were handled the same way – but only Juban Crossing was vetoed.

“This one here is being scrutinized differently. The Governor has turned his back on Livingston Parish. As well as 39 public officials who signed a support letter for this project,” Sen. Erdey said.

Two things here.

First, Erdey voted against Jindal’s voucher bill. He voted against the governor’s teacher tenure reform. And he voted against Jindal’s bill to give tax breaks for entities who underwrite scholarships to private schools – which passed in the Senate by a 33-6 margin.

In other words, Erdey fought Jindal’s most important legislative initiative tooth and toenail.

And he did it when he was looking to the governor for one of the most important pork projects in the history of his district.

The special taxing district model the Juban Crossing project relies on assumes that jacking up the sales tax rate within the borders of the mall will generate enough revenue to pick up the cost of the roads, drainage, sewer improvements and the rest – infrastructure one would normally expect the developer of the property to pay for. It’s an incentive to get developers who might be less-than-committed to pushing projects, or perhaps developers who are interested in a little rent-seeking to go with their profit-seeking, to make investments in one’s jurisdiction that they might otherwise pass on.

And for the developer, it’s a terrific deal. After all, the cost of the project drops significantly as a result of a TIF (tax increment financing) project.

But TIF’s have lots of detractors – particularly in California, where the practice originated and has recently been discontinued over dissatisfaction with its abuse and the overall results generated by it.

Among the reasons TIF’s are falling from favor in a number of places (via Wikipedia)…

  • Although generally sold to legislatures as a tool to redevelop blighted areas, some districts are drawn up where development would happen anyway such as prime areas at the edges of cities. California has had to pass legislation designed to curb this abuse.
  • The designation as blighted, essential to most TIF implementation, can allow governmental condemnation of property through eminent domain laws. The famous Kelo v. City of New London United States Supreme Court case, where homes were condemned for a private development, was about actions within a TIF district.
  • The process arguably leads to favoritism for politically connected developers, implementing lawyers, economic development officials and others involved in the process
  • In some set-ups school districts within areas that are big TIF users are experiencing larger increases in state aid than those within areas that are not relying heavily on this mechanism. This may be creating an incentive for governments to over-TIF and to take on more risk. Governments are under no obligation to recognize when TIF would seriously harm a school district’s financial condition.
  • Normal inflationary increases in property values can be captured with districts in poorly-written TIFs, representing money that would have gone to the public coffers even without the financed improvements.
  • Districts can sometimes be drawn too large and capture value that would have been increased anyway for unrelated reasons.
  • Approval of districts can sometimes capture one entity’s future taxes without its official input, i.e. a school districts taxes will be frozen on action of a city.
  • Capturing the full tax increment and directing it to repay the development bonds ignores the fact that the incremental increase in property value likely requires an increase in the provision of public services, which will now have to be funded from elsewhere (often from subsidies from less economically thriving areas). For example, the use of tax increment financing to create a large residential development means that public services from schools to public safety will need to be expanded, yet if the full tax increment is captured to repay the development bonds, other money will have to be used.

Many of these can be envisioned as consequences of the Juban Crossing project, and given the state of the economy and in particular the weakness of brick-and-mortar retail (which isn’t just the result of the Obama depression; online shopping is putting an increasing dent into the viability of large retail centers, particularly in places like Juban Crossing where commercial success isn’t guaranteed anyway), the project’s failure is a distinct possibility.

And who bears the risk in the event of failure? From the Baton Rouge Advocate’s Jan. 29 article on the development

Revenue from the 2-cent tax will be used to repay bonds that will be sold to create streets and other infrastructure, said Jim Ryan, of Governmental Consultants of Louisiana.

Local government has no liability in connection with those bonds, said Ryan, who is a financial adviser to the parish.

Sure does sound like the state of Louisiana – otherwise known as the taxpayers from places nowhere near Juban Crossing or Livingston Parish – will be on the hook.

So to recap, Erdey says the Juban Crossing bill was vetoed because of Jindal’s personal pique – but he sees nothing out of the ordinary in his opposition to Jindal’s prime legislative initiative and no foreseeable consequences to that opposition.

“Entitlement” is a word that comes to mind here.

Mind you, Jindal can’t exactly stand on principle where the concept of monkeying with the tax code to reward rent-seekers and opportunists is concerned. Jindal’s justification for the veto is that Louisiana Economic Development isn’t for the Juban Crossing project and LED needs to sign off on such projects if he’s going to allow them to go forward. And while that’s a defensible argument, LED routinely pushes projects every bit as iffy as this one. We don’t really have to rehash the sad saga of V-Vehicle, do we? And just this week C.B. Forgotston outlined the fiasco that was the Globalstar “economic win.”

So while Jindal can say he’s pursuing a strategy of economic development which is about pirating out-of-state manufacturers and other high-value employers to site their facilities and hopefully headquarters here, and a shopping mall out in the Livingston Parish sticks doesn’t really fit into that strategy – and he can say it with some legitimacy – we know that Erdey’s gripe about a vendetta is probably a little closer to the truth.

But the fact is, Erdey was asked for his vote on education reform. So were J. Rogers Pope and Sherman Mack, the two Livingston Republican state representatives in the House who joined Erdey in opposing the teacher tenure reform and the school choice bill. And the three of them proceeded to stick their fingers in Jindal’s eye.

Jindal wasn’t obligated to back Juban Crossing. Erdey just assumed Jindal would back the project, because, well, it’s what Erdey wanted. And Jindal has to want what Erdey wants, right?

Maybe education reform was what Jindal wanted. And if Bobby was petulant about Erdey’s “no” votes, he’s the governor. Erdey’s been a state legislator since 2000 – does he not understand that when you’re looking for a pork project out of the governor you’re expected to back him on the legislation he wants passed?

This is an example of legislation being akin to sausage-making. But while Erdey is entitled to make a stink about Jindal’s retaliation, he’s not entitled to the rest of us, who may not be so excited about the concept of having to be on the hook in the event of Juban Crossing’s potential failure, agreeing that he’s the aggrieved party here. He put his chips in the middle on education reform, and he lost.

And that’s his problem. It’s Pope and Mack’s problem, too. And it might well be Livingston Parish’s problem. But it’s not Jindal’s problem, and it sure isn’t the taxpayers of the other 63 parishes’ problem.

By the way, from the people of East Baton Rouge Parish who have watched Livingston bleed our tax base dry as they profited from a dysfunctional, entrenched and politicized school board in this parish – and who noticed with interest that the in-crowd there opposed educational reforms to the failed system which enabled that bleeding to take place with a selfishness bordering on vulgarity despite the fact that the people in Livingston Parish actually supported those reforms – a piece of advice: if you want a shopping mall financed with TIF dollars, then back the bonds yourself.



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