Industrial Ad Valorem Tax Exemption Program(ITEP) in Louisiana
Recently, a UN Report vindicated claims of environmental racism in Louisiana that local environmental groups and civic associations have been making for decades. The focus of the report was on the federal government’s failed regulations, the “Sunshine Project,” and plans for further industrial development. However, the report failed to mention the idiosyncratic economic incentives in the state of Louisiana that drive industrial development and exacerbate environmental racism in “Cancer Alley“—increasingly called “Death Alley” by local communities to bring attention to other associated health ailments in the area.
Through corporate subsidy programs, such as Louisiana’s Industrial Ad Valorem Tax Exemption Program (ITEP), Louisiana loses billions in revenue each year. ITEP is a corporate subsidy program offered through the state of Louisiana. Before the rules for ITEP changed in 2018, originally companies eligible for ITEP received 100% property tax abatement for up to five years and were given an option for a three-year extension of 80% property tax abatement after the expiration of the original contract.
However, if a company filed advance notice after July 1st, 2018, then the contract could be renewed up to 5 years at 80% abatement. If a company filed an advance notice between June 24th, 2016-July 1st, 2018, then the board determines the length and terms of the contract, in which the company could be grandfathered into the original rules.
Since the rule changes, eligible applicants, which is restricted to manufacturers, can apply for 5 years of 80% property tax abatements, with the option of applying for 5 additional years, for a total of 10 years. ITEP is unique from other corporate subsidy programs in the United States in that it is solely controlled by the state of Louisiana with an unelected board, The Board of Commerce & Industry, who oversee ITEP applications.
On June 24th, 2016, Governor John Bel Edwards passed an addendum to ITEP that allowed local governing bodies to participate in decisions regarding local property tax exemptions, and if the company applying for it demonstrated both job creation and retention. The change in the governing body was welcomed by local environmental groups and communities, who felt like they finally had a role in the decision-making process with respect to local property exemptions. However, as of February 21st, 2020, the new amended ITEP rules allow private businesses denied any tax breaks by local governing bodies to appeal the decision and bring it in front of the Board of Commerce and Industry.
For local communities and groups, this was a step back in efforts to reform ITEP. According to a 2017 study conducted by Together Louisiana, they found that between 1996-2017 that the Louisiana Board of Commerce and Industry’s ITEP approval rate was 99.95% with only 8 total rejections in those 21 years. In the same study, Together Louisiana found that Louisiana Economic Development (LED) had never conducted a cost-benefit analysis of ITEP and its outcomes since the program’s inception in 1974.
The board’s approval rate and lack of oversight of its effectiveness made the Governor’s changes to ITEP especially concerning for local groups. Because the new rules allowed companies denied by local entities to appeal to The Board of Commerce and Industry, and for the board’s decision to overrule local entities should they “conflict” with the local entity’s reasoning behind the rejection, local groups and even some board members worried these new rules would erode local control and undermine the parish’s and local municipality’s governance.
Through the Board of Commerce and Industry’s incredible ITEP application approval rate over the past couple of decades, ITEP has resulted in $23 billion in public subsidies to just over 1400 companies. Most recently, the State of Louisiana Tax Exemption Budget indicates that in 2019, Louisiana lost $257,710,039 in revenue due to 27 state tax exemptions for oil and gas.
Although programs, such as ITEP, encourage industrial development in Louisiana, they have a negative impact on the budget of local parishes and municipalities. Because these companies are not paying property taxes for at least 11 years, neither the parish nor the local communities where the plants are located receive the revenue they would normally receive from other local businesses that help fund vital infrastructure maintenance and updates through their property tax payments.
Tax Breaks and ITEP Reforms
During the 2021 legislative session, HB318 was introduced with regard to ITEP. If passed, the bill would adopt similar governing measures prior to Gov. Edwards’s 2016 reforms, but keep the 80% property tax abatement clause. More specifically, the bill would revoke all governing power from local entities. HB318 differs from the 2020 addendum Gov. Edwards made insofar as it completely removes local governing entities from the decision-making process altogether; whereas, the 2020 reform allows the governing entities to still play a role in the decision-making process with respect to ITEP applications, but with the possibility that the decision could be overruled by the Board of Commerce and Industry.
The impact of ITEP can be seen most strikingly in Louisiana’s history of poor infrastructure ratings by the American Society of Civil Engineers and lack of infrastructure investment. Since 2013, Louisiana’s infrastructure has scored as either a “marginally performing infrastructure,” or a “crumbling infrastructure.” Louisiana’s current backlog in infrastructure repairs is complicated by previous Governor Bobby Jindal’s diversion of funds from the Transportation Trust Fund to Louisiana State Police budget for five of the eight years he served as Louisiana’s Governor, in which the diverted funds went as high as $72 million a year.
In an attempt to address the lack of investment in infrastructure improvements and backlog, but to avoid taxing businesses, the Louisiana Legislature most recently introduced and passed HB514. The bill would permanently increase state sales taxes and move around $300 million from the state fund, which helps fund public education and health care needs and projects, to the Transportation Trust Fund to pay strictly for transportation projects related to roads and bridges. In addition, the bill proposes to cut taxes for businesses through a phasing out process to be completed by 2025.
According to Louisiana Budget Project, Louisiana’s poorest 20% already pay 11.9% in income and sales taxes, compared to the wealthiest populations(1%) in Louisiana, who pay just 6.2%. HB514 would further exacerbate the tax burden on these poorer communities. This is significant because Louisiana lawmakers continue to propose bills like HB514 and HB318 to circumvent addressing the negative economic impacts that incentive programs like ITEP have on Louisiana’s budget. Because the state lawmakers must find some way to generate revenues lost, they then have to scramble to find ways to generate that revenue without taxing businesses, especially without taxing the oil and gas industry and face receiving an onslaught of backlash from lobbying groups, such as Louisiana Association of Business & Industry(LABI).
Cancer/Death Alley
One ethical question that arises with bills like HB514 and HB318 is how they work together with other tax breaks and tax incentive programs like ITEP and their impacts on vulnerable and high-poverty, racial and ethnic minority populations. For example, in Cancer/Death Alley, high-poverty, racial and ethnic minority communities face greater vulnerabilities with respect to climate change and environmental racism because they do not have the access to resources and decision-making powers that wealthier communities have. This is further exacerbated by the state’s prioritization of ITEP and regressive tax structure.
One way in which the combination of tax breaks, ITEP, and other corporate subsidy programs have impacted communities in Cancer/Death Alley is seen in the amount of lost resources and revenues from the parishes and local entities. This prevents them from being able to invest in vital infrastructure improvements, such as the levees systems, transportation services, drinking water, and stable sanitization, as is evidenced in Louisiana’s infrastructure report card over the last eight years. As a result, these communities and their parishes lack the ability to reduce their climate hazards and disaster risks.
There are two additional ethical concerns that impact the parish or local entity’s ability to invest in ways for high-poverty, racial and ethnic communities adjacent to petrochemical, oil, and gas plants to safely live and exercise their governing capacities. On the one hand, this includes the parish or local entity’s ability to purchase air monitoring devices to detect when high levels of pollutants such as PM 2.5, Ozone, and Volatile Organic Compounds(VOCs) are present, having reliable agencies to monitor and enforce air and water pollution violations, exposure to mobile and stationary air pollution, and mobility.
If the parish or local entity is too poor to invest in systems that would protect their community from air and water pollution from the nearby billion-dollar petrochemical, gas, or oil plant, then it suggests that ITEP, other corporate subsidy programs, and tax breaks available to industry Louisiana rely on to encourage industrial development are not financially viable. If the parish, local entity, or company want a petrochemical, gas, or oil plant to be in that parish or community, then they ought to have the ability to afford systems that safeguard the health and wellbeing of the community members from potential environmental hazards associated with the company’s product or production of the product.
On the other hand, it includes the parish or local entity’s governing capacity. More specifically, the corrosive environment the new ITEP addendum and associated tax reforms and breaks, proposed or passed, create with respect to ITEP applications. This is because of the Board of Commerce and Industry’s approval rate of ITEP applications and ability to overrule the local parish or entity’s decision. So, then the parish or local entity’s governing body may not feel as if they have the real capacity to make decisions regarding ITEP applications, especially if they find sufficient reasons to reject the application.
Despite ITEP and other tax incentive programs and tax breaks encouraging industrial development, they come at a great cost to high poverty, racial and ethnic minority populations in Cancer/Death Alley, who are then tasked with footing the bill for the property, state, or sales taxes that industries are not paying. As more companies take advantage of the available corporate subsidy programs Louisiana offers, the heavier the industrial expansion becomes in the area, which is already inundated with petrochemical, gas, and oil plants and overburdens high-poverty, racial and ethnic minority groups with air pollutants and taxes. Thus, when discussing Louisiana’s idiosyncratic economic incentive programs and tax breaks that encourage industrial growth, it is equally important to discuss the cost to high-poverty, racial and ethnic minority populations in Cancer/Death Alley.
Siobhain Lash
Siobhain Lash is a Job Market Candidate in the Philosophy Department at Tulane University, New Orleans, Louisiana. Her interests primarily lie in environmental ethics, and philosophy, politics, and economics. She is a 2022-2023 Murphy Institute Graduate Fellow through the Center for Ethics and Public Affairs, Tulane University. From 2020-2022, she was a Mellon fellow through the Mellon Graduate Program in Community-Engaged Scholarship, involved in a project with Tulane Environmental Law that incorporates philosophy, politics, and economics. Her article, “Louisiana’s Idiosyncratic Economic Incentive Programs and Cancer/Death Alley, was published in the Blog of the APA August 2021. In addition, her public philosophy article, "The Nightmare Before Christmas and Moral Responsibility," was published in Philosophy Now's December 2020/January 2021 edition.
