The last thing Democrat Gov. John Bel Edwards wants the voting public to know is the wages of his fiscal policies that helped drive the Bayou Steel Group into bankruptcy.
Earlier this week, the company with 2016 estimated $229 million in revenues at its LaPlace facility filed notices in Louisiana and Tennessee, where it has a smaller plant, of layoffs affecting over 400 workers, some 376 of them in Louisiana. It also filed for bankruptcy protection, listing no assets and liabilities of between $50 million to $100 million and having between 5,000 and 10,000 creditors.
The firm had operated as a subsidiary of Black Diamond Capital Management since 2006, which subsequently sold it in 2008, then bought it back in 2016. Black Diamond, a privately held alternative asset management firm, specializes in high yield credit, stressed and distressed credit, restructurings and business turnarounds. Throughout its history, Bayou Steel had problems maintaining profitability, including a stint as a public company listed on the American Stock Exchange, now known as the NYSE American.
This news came at a very unwelcome time for Edwards, who in his zeal to convince voters that he doesn’t bear some blame for one of the highest unemployment rates in the country and no job growth during his term (actually down a couple of thousand) takes credit for job creation projects not started by him, arriving just days prior to Oct. 12 elections. So, he went into damage control immediately.
Monday, his office released a statement that read, “While Bayou Steel has not given any specific reason for the closure, we know that this company, which uses recycled scrap metal that is largely imported, is particularly vulnerable to tariffs.” It also then includes some statistics that imply that tariffs caused a business slowdown in this sector, and stated that Edwards had expressed “concerns” over tariffs in a 2018 note to Republican Pres. Donald Trump.
The only problem is, more detailed statistics disprove this idea that increased tariffs on scrap steel and iron had elevated prices enough to drive Bayou Steel out of business. The latest data available, from this May, came in just as tariffs enacted a year earlier were lifted against Canada and Mexico and halved on Turkey. Those North American countries produced 78 percent of all imported scrap.
In fact, steel scrap prices per ton fell 30 percent from the previous May upon introduction of tariffs. In turn, this decline caused pricing of the finished product, of which Bayou Steel manufactured, to drop as scrap inventories were pared by buyers thinking a floor has yet to come and they could wait to buy more. Ironically, tariff relief, not presence, has played into this fall because that kept domestic scrap prices higher. It’s actually market uncertainty that depressed prices (which benefits consumers who use the product), of which tariff regimes play just a part.
A much more prominent cause of Bayou Steel’s woes, in this environment of falling prices for scrap that forced it to lower prices to entice buyers, comes from its margins not receiving Louisiana tax relief. Had in 2018 Edwards acquiesced to Louisiana House of Representatives desire to renew none of the 1 percent sales tax imposed in 2016 instead of keeping 0.45 percent of it, this would have lowered buyer’s payments to the LaPlace facility about $1 million and stimulated more demand. As well, in-state purchases were made more expensive by that amount; for example, concerning the facility’s tenth-largest creditor Louisiana Scrap Metal owed over $765,000, that higher sales tax increased the cost of doing business by $3,500 more on that amount.
It all adds up. Throw in Louisiana’s comparatively bad business climate under Edwards, and it’s state fiscal policy much more than national tariff policy which caused Bayou Steel to go belly up. Edwards may try to concoct excuses that don’t cut it to shift blame elsewhere, but in reality fiscal policy he endorsed helped to make a casualty of Bayou Steel, and adds to his legacy of negative job growth.