Wednesday, December 20, 2017

The Last #LALegi

Don't look now but we're only two months away from the next special session of the Louisiana Legislature (probably.) This would be the sixth installment of the Special Session franchise under JBE's governorship. The drama in this episode derives, as usual, from the approach of the dreaded "fiscal cliff." 
Nearly a year after a task force made several suggestions for stabilizing Louisiana's state budget, Gov. John Bel Edwards is urging the Legislature to return to those recommendations to solve the looming $1 billion "fiscal cliff" the state faces.

"The Legislature has yet to address the long-term structural tax reform that we need to implement," Edwards said Monday during a luncheon in Baton Rouge. "If we don't fix the cliff, no one is going to want to put their name on the cuts that are necessary."

One wonders how much longer they can drag this tired plotline out. I'm sure they would have considered selling the whole #LaLege cinematic universe to Disney but the "Hollywood South" thing is problematic, budgetarily speaking.

On the other hand, so is Louisiana's industrial tax exemption regime where, the Advocate reported last weekend, global corporations are routinely subsidized by the state even as they continually cut jobs.
Experts say it’s foolhardy to pay manufacturers to embark on projects that result in long-term job losses — even if it’s good for the company.

"It's one of the great mysteries of public policy: Why subsidize capital improvements for the manufacturing industry?" said Michael Hicks, director for the Center for Business and Economic Research at Ball State University in Indiana. "You're spending a lot of money to attract jobs that won't actually come, or you're actually increasing the rate at which firms are likely to buy or substitute machinery for people."

The loss of jobs in manufacturing is hardly unique to Louisiana: Jobs in that sector are down nationwide, thanks to technological improvements and access to cheaper labor overseas. But given those trends, Hicks wonders why Louisiana and other states continue to lavish these businesses with tax breaks.

"Incentivizing a sector that is shrinking in employment doesn't make sense," he said.
Why would we keep doing this, then?  Well, in part it has to do with systemic political inertia.  The industrial tax incentives are structured in such a way that they primarily hit local parish and municipal budgets first and the state budget indirectly.  So legislators don't necessarily have to deal with them head on.  Instead, they argue over the consequences in the form of payments to  revenue starved local governments for schools, police, etc.  for which, of course, there is never enough money.

Say, for example, the city of New Orleans were to land Michael Bagneris's hypothetical "nuts and bolts" factory. No doubt there'd be a big press conference. Probably a brass band  would play and there would be some Mardi Gras Indians running around or something.  We'd all be told to rejoice that a "job creator" came to town because of "incentives" like the industrial tax exemption.  For the next ten years, the factory would pay little or no property tax depriving the city of revenue.    Meanwhile, the #FixMyStreets people still want their potholes filled, S&WB has to hire 300 people to run the pumps, NOPD wants another raise, etc.  But there's no help from Baton Rouge because, well, there's this fiscal cliff coming and... well, everybody is just gonna have to do "more with less."

Everybody but the Nuts and Bolts company, of course. They do quite well collecting their subsidy which isn't even tied to an actual jobs created quota or anything.  So there's nothing to stop them scaling back operations or downsizing/outsourcing jobs as the Nuts and Bolts business changes over time. There's also nothing to stop them closing or moving away once the deal runs its course. All the while the city, and indirectly, the state, are left with no tangible benefit.

Part two of the Advocate's report looks at how this precise scenario is currently playing out in Cameron Parish.  It's estimated that the Parish is missing out on as much as $700 million a year in revenue that should be generated by a massive boom in energy and chemical plant construction.
Even as Cameron Parish misses out on $700 million a year, its Police Jury is scraping by on a budget of about 1 percent of that sum: $8 million a year. Cameron Parish’s public school system, which is awash in red ink, makes do with just $22 million annually. In total, the parish collects about $38 million a year in property taxes, about 5 percent of what it gives away in exemptions.

Cameron and Calcasieu are among five Louisiana parishes -- the others are St. Charles, St. John and Iberville, all along the Mississippi River -- that in a typical recent year have exempted more property tax to industry than they have collected overall.
Just a few years ago a Wall Street Journal article that got passed around a lot described the supposed Louisiana industrial boom as "Qatar on the bayou." Oddly, this was intended as praise.. as was the article's gee whiz description of the fancy "Nazi" technology.
It is expensive, elaborate and dirty work. Sasol plans to reduce, or "crack," the gas into ethylene, a raw chemical used in plastics, paints and food packaging. It also plans to convert the gas into high-quality diesel and other fuels, using a process once advanced by Nazi scientists to power Panzer tanks. The state of Louisiana is even kicking in $2 billion of incentives to make it happen.
Not to worry, says perpetual industry shill Loren Scott. Surely this corporate tax giveaway will pay for itself.  That's how these always work, right?
"As an economist, I can only say,‘'Wow. Holy Cow,'" said Loren Scott, a Louisiana economist who has studied the state for 40 years. "We typically measured expansion in terms of hundreds of millions of dollars. Something like that makes your eyes bug out." He expects, for instance, that once 10-year tax-abatement deals expire, schools boards will "find themselves with a bonanza."
The bonanza is always just a decade away. Nevermind how many fiscal cliffs we need to plunge over before we get there. In the meantime, we'll just keep shelling out tax exemptions in exchange for, well, more job cuts. Makes about as much sense.  (Advocate graphic below)

On what one supposes must be the bright side, Sasol has just announced it is still building the Nazi inspired "cracker" but ditching an accompanying gas-to-liquids plant. And maybe that's for the best given the amount of money it saves. The Industrial Tax Exemption would have cost as much as $2 billion.
The state package that lured Sasol's GTL plant included $115 million for land acquisition and infrastructure costs.

It also included a rarely used rebate program designed to lure new industries and technologies. Under the Competitive Projects Payroll Incentive, Sasol could have gotten a payroll rebate of up to 15 percent for each GTL job, for up to 10 years, according to Louisiana's economic development department. Sasol expected the GTL project to create 750 jobs with an average annual salary of $88,000. Based on those numbers, the rebate would have amounted to about $9.9 million a year over 10 years.

Separately from those incentives, the Industrial Tax Exemption, a state-granted break on local property taxes, would have been worth an estimated $1.7 billion to $2 billion to Sasol had the GTL project gone forward.
Don't worry, though. The "cliff" is still real so we're definitely going to watch this movie again.  Will the coming session present us with creative new ways to confront the problem? Or will they fall into the same formulaic devices they relied on last year?
State lawmakers in 2016 agreed to temporarily increase the sales tax and roll back some credits and exemptions to plug the budget shortfall – at the time described as a "bridge" to a more comprehensive plan to be approved before the hike expires in July.

Given the opportunity to take up the issue during this year's legislative session, the Legislature, driven mostly by House Republican leadership's push for more spending cuts, didn't adopt any major proposals, prompting the need for a special session before the temporary measures expire in June.

"We have to get it done this time," Edwards, a Democrat, said.
 Or they could just keep setting up the next sequel.  Isn't that how this works now?

No comments: