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Promoting Fiscal Transparency — Up to a Point

ITEP controversies illustrate what corporate interests say they want and what they do are not the same.

The push for an improved website to document state spending is back. The idea, which under the broad branding of “Louisiana Checkbook” diverted much attention away from true fiscal reform during this year’s first special legislative session, comes up for hearings in the Senate Finance Committee Monday afternoon.

Bills filed by Sen. Rick Ward (R-Port Allen) and Sen. Regina Barrow (D-Baton Rouge) will require the website to “report all revenue, exemptions, credits and rebates,” including “incentive expenditures.” That makes the Senate bills very different from HB 510 by House Speaker Taylor Barras (R-New Iberia), which is the one pending hearing in House Appropriations. That bill, a duplicate of the one Barras filed during the special session, doesn’t include accounting of which businesses and industries are receiving tax breaks from the state or local governments.

It’s something Rep. Robert Johnson (D-Marksville) sought to remedy during the special session, by amending the bill to require tax break disclosure within broad ranges, such as $250,000 to $500,000, or over $2-million. It failed to muster enough House votes, but Johnson says he’ll be trying to add it to the Barras bill this session, as well.

It’s something promoters of the “Louisiana Checkbook” concept vehemently oppose.

“It takes it too far,” Louisiana director of Americans for Prosperity, John Kay, told The Advocate. “It’s a slippery slope that will lead to having to disclose tax returns that shouldn’t be public record.”

And it’s a pretty safe bet that AFP, LABI, and other industry groups will file objection cards to Ward’s and Barrow’s bills on Monday – even though Louisiana Association of Business and Industry president Steve Waguespack has pushed the transparency website idea by saying, “Accountability is the new normal. No excuses.”

Let’s take a closer look at why they’ll object, by drilling down into one particular program: ITEP.

The Industrial Tax Exemption Program has been a boon for business and industry since its creation in 1936; it’s actually incorporated into the 1974 state constitution. Under the program, the state Board of Commerce and Industry grants property tax exemptions to businesses and industries seeking expand in state, or to relocate here. Trouble is, there’s no state property tax, so it’s local property taxes they’re exempted from paying.

Thanks in no small part to a concentrated push from the statewide interfaith group Together Louisiana, in June 2016, Gov. John Bel Edwards issued an executive order requiring all future ITEP applicants to seek local taxing bodies’ approval first. It also requires that projects to be approved actually create new jobs, and that they truly be for the purpose of “manufacturing,” as defined by the state constitution. Now Sen. J.P. Morrell has filed SB 148, a constitutional amendment to make the provisions of the executive order permanent. That bill is being heard by the Senate’s Revenue and Fiscal Affairs Committee Monday afternoon.

In the meantime, parish councils and police juries, school boards and sheriffs have all been grappling with their newfound authority. Caddo Parish Sheriff Steve Prator was the first to say no to an ITEP application, while this past October, the Ascension Parish School Board publicly castigated those asking that company names, incentive amounts, and numbers of jobs created be revealed prior to approval of a package of ITEPs.

The Department of Economic Development was complicit in avoiding the spirit – if not the letter – of the governor’s executive order in that instance. While Ascension Parish Economic Development had code-named the applications Project Magnolia, Zinnia, Bagel and Sunflower, an LED representative at the school board meeting also refused to divulge the real names of the companies applying for the property tax abatements.

“I’m giving someone a blank check. I don’t even know who the check’s written to – it’s written to ‘cash’,” said attorney Brian Blackwell, who spoke in opposition at the meeting. “And the public doesn’t have that information to be able to know whether to oppose or support any particular exemption.”

“Together Louisiana will tell you if you deny the tax exemption, industry is going to make the investment anyway. I can assure you that’s probably not going to happen,” Greg Bowser with the Louisiana Chemical Association told the school board. “And if the investment is not made, then there is no tax revenue.”

That group of incentives was approved.

In East Baton Rouge Parish, the school board, sheriff, and Metro Council are scheduled to finalize their rules for granting ITEPs at a Monday morning meeting. The Baton Rouge Area Chamber is urging the allowance of exemptions without new job creation, and after work has been started or completed. That not only defies the governor’s order requiring new job creation, but it completely contradicts the state purpose of the ITEP program as an “incentive,” which is defined as “something that spurs action or activity.”

Adoption of the BRAC proposals would clear the way for approval of three ITEP applications that are especially problematic. Filed in December 2016 – after the governor’s executive order – they are for improvements made at Exxon Chemical, Exxon Plastics, and Exxon Polyolefins in Baton Rouge, for a total exempted value of $127,429,000. None of the projects create any new jobs, and all three have to do with “flaring” – to “minimize flaring”, “reduce flaring”, and “increase safety and reliability of flaring systems”.

Why is that problematic? Because October 31, 2017, the U.S. EPA and Louisiana DEQ announced the settlement of a civil action against those three Exxon facilities, plus others in east Texas. As part of the settlement of alleged violations of the Clean Air Act going back to 2006, Exxon was required to improve their pollution control systems, specifically addressing ten flare stacks located at the three Baton Rouge facilities. They’re also required to pay $2.5-million in civil penalties, instead of the $198,944,252 the alleged pollution racked up in daily fines.

The settlement decree states: “The Defendants have installed systems and equipment to recover Waste Gas generated by process units at their polymer and plastics manufacturing facilities,” which concurs with the info given in the ITEP advance notices, specifically, that construction was due to begin 01/01/2017 and be complete by 12/31/2017.

And leaving aside the lack of new jobs, and the lack of “incentive” due to project completion, the Exxon projects also violate one substantial part of the ITEP regulations – the part that says “environmentally required capital upgrades shall not qualify.” Environmentally required capital upgrades are defined as: “upgrades required by any state or federal governmental agency in order to avoid fines, closures or other penalty.” Improvements to ten gas flares on the three Exxon-Mobil properties in Baton Rouge as part of settlement of an EPA and DEQ lawsuit certainly seems to fall into that category.

So, Exxon wants to avoid paying property taxes on these legally-required improvements, while from 1998-2017, these three facilities have already been the beneficiaries of a total of $240,048,061 in exemptions from East Baton Rouge property taxes for schools, law enforcement, roads, water and sewerage maintenance, etc.

No rules currently require the Department of Economic Development to check with other state agencies – such as DEQ – for pending litigation or fines while processing ITEP applications, though they undoubtedly should.

And there’s no guarantee that a state transparency website including itemized corporate recipients of incentives, exemptions, tax credits, and rebates would make following this convoluted trail any easier for everyone. But the idea certainly makes industry uncomfortable, since it would actually allow taxpayers to see the return on their investment in corporate profits in lieu of good schools, roads and bridges, higher education and healthcare.

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