LEAGUE OF WOMEN VOTERS

VOTER’S GUIDE, 2018 FALL ELECTION, BATON ROUGE

3. The school board now has the ability to vote on whether or not to approve industrial property tax exemptions through the states ITEP program. ITEP offers manufacturers a property tax break in hopes to attract/keep business in the parish. However, those exemptions cause EBR schools to lose an estimated $28 million in revenue. Should the school board approve or reject exemptions for existing manufacturers properties? Should it approve or reject exemptions for new properties? What factors would you consider?

Please know that after attending the Thursday, Sept. 20th East Baton Rouge Parish School Board meeting, my position on the question of the Industrial Tax Exemption Program as it relates to public schools changed. After considering the business community's request for predictability and ITEP guidelines of other states, I amended my position to the following:

School systems should be excluded from Industrial Tax Exemption Programs. Industry should not be able to receive an exemption for the share of the property tax owed to the school system.

In all other states with Industrial Tax Exemption Programs, property taxes owed to school systems are effectively excluded from consideration. Louisiana should adopt this practice in order to provide the business community with the predictability it needs to evaluate the merits of any new projects and in order to protect the funding for our school system. School systems are uniquely affected by economic growth and must have sufficient funding to fulfill their mission.

ORIGINAL ANSWER TO LWV QUESTIONNAIRE:

The purpose of an Industrial Tax Exemption Program should be to encourage investments in new or existing manufacturers’ properties that are likely to produce economic growth that will benefit the community and that would occur only if the exemptions are granted.

I would approve an application only if it fulfills the basic purpose of the Industrial Tax Exemption Program. There are two key components to this basic purpose:
 

1. Are the investments likely to produce economic growth that will benefit the community?
 

2. Is the exemption necessary in order for the investment to occur?
 

ARE THE INVESTMENTS LIKELY TO PRODUCE ECONOMIC GROWTH THAT WILL BENEFIT THE COMMUNITY?
 

To determine whether the investments are likely to produce economic growth that will benefit the community, I would consider the following:
 

If the school system is being asked to forego taxes owed to it in order to encourage economic growth that would not otherwise occur, it should do so only if it—the school system—can reasonably expect to see a return on its investment in that company’s creation or expansion.
 

In other words, if the school system is being asked to forego $10 million in taxes, it should first determine whether it can afford to divert $10 million from its primary responsibilities to invest in the applicant’s proposed new business or expansion. If the school system is in a position to make such an investment, then it should agree to do so only if it can expect the economic activity generated by the new or expanded business to produce more than $10 million in tax collections for the school system.
 

The creation of additional jobs alone is insufficient reason for the school system to grant an exemption, since the additional jobs should entail a growth in population that would in turn require additional services and increase costs to the school system. The tax dollars, therefore, are still needed in order for the school board to fulfill its responsibility to invest in its own system in order to provide the very services the economic growth will entail.
 

Potential costs to the community should also be considered. If the manufacturer is proposing an increase in industry that adversely affects the environment and is associated with a rise in health issues—and their related medical costs—for citizens, then those costs and drawbacks to the community should be weighed against the potential for any increase in economic growth.
 

IS THE EXEMPTION NECESSARY IN ORDER FOR THE INVESTMENT TO OCCUR?
 

In addition to considering whether the economic growth benefits the community, I would also consider whether the exemption is a prerequisite for the investment. The company must either demonstrate that the exemption is necessary in order for the company to be able to afford or to justify the cost of the investment. (If the company has sufficient revenue to finance the investment without the exemption, then it should not be granted an exemption.) Or it must demonstrate convincingly that the exemption is necessary in order to genuinely attract a new company or expansion or to prevent an existing company from relocating out of the area.
 

These considerations suggest approval of exemption applications should be the exception rather than the rule. This is especially the case because of the unique demands placed upon the school system in relation to economic growth. It is also supported by a fundamental principle of economic growth.
 

"The subjects of every state ought to contribute towards the support of the government, as nearly as possible, in proportion to their respective abilities; that is, in proportion to the revenue which they respectively enjoy under the protection of the state." (Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations)