Who’s To Blame For The Deindustrialization Of Baton Rouge?

The town of Zachary, population of just under 18,000, occupies the northernmost reaches of East Baton Rouge Parish. It’s known largely for its excellent schools, which have made it a destination for a small number of middle-class suburbanites looking to escape the disaster that is the East Baton Rouge Parish public school system and the threat that system poses to their children’s future.

But Zachary’s economy has been based for a long time on heavy industry. Georgia Pacific’s paper plant at Port Hudson, just west of Zachary, is a major employer, and other smaller industrial concerns operating in and just out of the Zachary city limits have been responsible for a disproportionate share of the town’s employment.

That might be changing – and not in a good way. Last week, GP announced it was closing down part of its operations – shuttering a division at its plant making paper for printers and copiers, and laying off some 650 employees. Days later, BASF followed suit, announcing the closure of its chemical plant in Zachary at the loss of some 54 jobs by the end of 2019 and consolidating those operations at its larger facility in the Ascension Parish town of Geismar. And following on the heels of the BASF announcement a third manufacturer, Thompson Pipe, yesterday announced it was shuttering its facility in Zachary at the loss of 120 jobs. Thompson Pipe is consolidating its Zachary operations with a larger facility in Alvarado, Texas and moving those employees who are willing across the border to the Lone Star State.

So that’s more than 800 jobs lost in a town of about 17,500 people. And they’re manufacturing jobs – meaning their footprint is massive. Some studies, including those cited by the Baton Rouge Area Chamber, peg the economic impact of a manufacturing job on the economy of an area at 10 to 1, or 10 jobs in supporting businesses for every one job at a manufacturing plant. If that’s even remotely true, losing 800 jobs in these three facilities could mean 8,000 jobs are now at risk.

With the understanding that those 54 BASF jobs are still going to exist in the Baton Rouge area. They’ll just be in Geismar, in Ascension Parish, rather than in East Baton Rouge. As we all know, the migration of people from East Baton Rouge to Ascension has been ongoing for a generation; now it’s jobs heading that way.

But why? The bulk of the losses here come from the fact that there is a diminishing market for printer and copier paper, because people are keeping records electronically much more than on paper – and GP isn’t going to keep a factory open that makes a product they can’t sell. That being said, there is still a lot of demand for paper products, and rather than shut down its Port Hudson business paper operation the company could have chosen to repurpose it. One wonders about BASF’s decision to consolidate in Geismar; there is a considerable traffic issue in Ascension Parish given the dearth of roads there, and to bring even more people to work at BASF’s facility will only make that problem worse – something which isn’t as severe an issue in Zachary. And while the Thompson Pipe decision makes sense, it’s worth asking why they built their huge facility south of Fort Worth rather than somewhere around here.

One reason why this trend seems to be building is something we’ve talked about over and over – it’s the business climate, stupid.

Or, better put, it’s the stupid business climate.

Louisiana, after all, hits industry with a whopping inventory tax. So if you’re making a product, if you don’t want to get slaughtered on costs you’d better get that product out of your warehouse in Louisiana as soon as it’s made. You’re also paying a corporate income tax in Louisiana that you’re not paying in Texas or Tennessee or Florida. And while property taxes are higher in Texas, in Louisiana we have a $75,000 homestead exemption that nobody else in the country has, which means business pays 80 percent of the property tax in the state. On top of that, this is one of the most overlawyered places in the civilized world; proof of that can be found on every billboard along the highway. And the highway is terrible, highlighting Louisiana’s inferior infrastructure. And let’s not even talk about the poor quality of the public schools and what that does to the quality of the workforce.

To get around these things, and particularly the unfriendly tax climate, Louisiana’s politicians created the Industrial Tax Exemption Program, or ITEP. Through that program a business entity wishing to make a capital investment in an industrial facility can get a tax abatement for 10 years of property tax so long as Louisiana Economic Development and the state Board of Commerce and Industry are on board. But after taking office this state’s Democrat governor John Bel Edwards decided through an executive order to change that process and cut local governments in on the ITEP action, and in Baton Rouge that has been an abject disaster – with all of these economic development decisions now at least partially in the hands of parish councils and school boards the Alinskyite leftist group Together Baton Rouge has mounted an all-out assault on ITEP applications, with an eye toward convincing entry-level politicians with zero understanding of economic development that industrial actors seeking tax abatements for capital investments in Louisiana parishes are the bad guys.

We’ve reported on TBR’s attempts to deny ExxonMobil ITEP applications. This week they’ve been crowing about the fact they managed to defeat an ITEP application for Georgia Pacific, which plans (or planned) a $42 million investment at its Port Hudson facility to make upgrades to its operations which aren’t being shut down.

So for $772,000 in property tax swag which will undoubtedly be wasted by local governments, what do you think the reaction will be in the Koch Industries boardroom? Georgia Pacific has paper plants in lots of places, you know, and if they’re willing to shutter one division of their plant at Port Hudson because they don’t think it makes enough money anymore what makes you think they won’t shutter the rest of the plant and move its operations elsewhere?

And this isn’t just about Georgia Pacific. It’s about an entire business environment. Which in Baton Rouge is absolutely toxic for industrial operators at this point.

Following the GP, BASF and Thompson Pipe announcements, which you would think might make them opt for a lower profile for a few days to let people process the bad news, Together Baton Rouge doubled down by releasing a dubious study claiming the rest of Baton Rouge’s businesses are paying 2.5 to 3.5 times more in property tax than ExxonMobil, and therefore ITEP doesn’t improve the business climate – something Baton Rouge Area Chamber president Adam Knapp castigated as a flat-out lie…

In its latest critique of the Industrial Tax Exemption program, Together Baton Rouge released a report today that argues the average East Baton Rouge Parish business pays more than twice as much in property taxes, on the dollar, as ITEP-exempt companies.

The report, citing property tax data, states the average business pays $16.26 in property taxes for every $1,000 in owned property; meanwhile, ITEP businesses—typically large corporations—pay an average of $6.83 in property taxes for every $1,000 in property owned.

TBR—a community group and frequent ITEP critic—says the report refutes a common argument in support of the program: that the tax exemption program helps level an uncompetitive business tax climate in Louisiana—especially when compared to neighboring Texas.

“For the idea to have merit … it would have to be true that ITEP lowers business taxes,” the report reads. “For the overwhelming majority of businesses in East Baton Rouge and across the state, that is not the case.”

The group’s reasoning is exemptions do not lower overall property taxes collected in a parish. Rather, exemptions given to one company simply shifts more of the tax burden to other taxpayers. In other words, those who don’t get exemptions pay more in property taxes.

The same basic theory holds for the homestead exemption, though the benefit extends to the primary residence of any property owner.

The Baton Rouge Area Chamber, which supports ITEP, strongly disputes the report’s findings.

“The report’s conclusion totally gets wrong the reason ITEP exists: the incredible economic impact of manufacturing,” BRAC President and CEO Adam Knapp says in a statement. “For every one job in manufacturing, another 10 jobs are created.”

Together Baton Rouge’s refusal to recognize this benefit to the broader business climate, Knapp adds, demonstrates its attempts to sow division in the community.

“Their fantasy math about property tax rates only continues it further,” he says.

The reason somebody like ExxonMobil – who is by far the largest property taxpayer in East Baton Rouge Parish, by the way – has lower rates than Bob’s Bait Shop isn’t fatcats having political power. Knapp’s 10-to-1 ratio notwithstanding, Bob’s Bait Shop is going to sell a lot more bait with 15,000 ExxonMobil employees living in Baton Rouge than if those employees are living in Baytown or Corpus Christi. So Bob generally couldn’t care less that his property tax rate on the bait shop is a little higher than ExxonMobil’s – ask Bob and he’ll tell you he absolutely wouldn’t trade his property tax bill for the one ExxonMobil is paying, regardless of the rate.

Which is why Knapp says TBR’s report is bovine scatology without actually quibbling about the numbers.

“We dispute the premise,” Knapp says. “Disputing the numbers isn’t informative to the key and missing question of why manufacturing investment matters to our community’s economic growth.”

We’d go even further here, because the mere fact this argument exists on such a prominent level in Baton Rouge colors the trajectory of industrial development in this market. Nobody is listening to the little Saul Alinsky clones in Texas, or Florida, or Tennessee, and the economies in those states are booming while ours just stinks. Louisiana’s economy is coming off two years where it actually shrank rather than grew, and that was amid the state enjoying the fruits of an industrial capital expansion fueled partly by ITEP and launched during the tenure of Edwards’ predecessor. Since the local politicians were cut into the ITEP discussion, capital projects in the state are down by 72 percent. And in the last two years 55,000 more people have left Louisiana than have moved in. Our unemployment rate is the third highest in America and personal income in the state actually dropped last year while it’s rising quickly across the country.

Why would anybody want to site an industrial facility here? As noted Louisiana economist Loren Scott has repeatedly said, site selectors now value the ITEP program at zero when evaluating Louisiana, because the street-fight companies have to engage in if they want to access the program is so full of uncertainty and unpleasantness that no forecast of benefits from it can reasonably be made.

We had a conversation not long ago with someone in the oil and gas industry, which is a key target of the governor and his trial lawyer allies who are ginning up lawsuits blaming them for coastal erosion, who told us that of all the places on earth to do business Louisiana right now might be the worst. At least in Third World hellholes like Kazakhstan or Nigeria there’s a poo-bah somewhere who can be greased in order to secure favorable and predictable business treatment – here, no deal is sacred, because at the next election you might find yourself presented with a John Bel Edwards who unleashes hordes of grasping local politicians and goose-stepping communists from Together Louisiana and its various local satrapies with whom you’ll have to fight an existential battle.

It isn’t worth it. Not when business has so many other options. And not when there are so many places happy to entice jobs and capital.

None of the three plant-closing announcements are a surprise. Frankly, we’re waiting for other shoes to drop – lots of them – in Baton Rouge.

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