On Monday, the East Baton Rouge Parish Industrial Tax Exemption Committee will hold what likely will be its decisive meeting to establish parish policy for industrial tax exemption requests going forward. In the past, these exemptions have been approved automatically by a state board, without local input.
The exemptions are costing local entities in Baton Rouge nearly $70 million in lost revenue this year.
Governor John Bel Edwards restored local control over industrial exemptions through an executive order, and East Baton Rouge will soon establish its policy for local approvals.
Three competing proposals have been put forward by committee members embodying very different philosophies and approaches to the question of when and on what terms it is appropriate to award public subsidies to businesses making capital investments into their own facilities.
We’ve summarized the three proposals below and have created a policy brief, including the original proposals.
You can download that document by clicking here.
Proposal I: “Revised BRAC model”: Guaranteed public subsidy for annual capital expenditures
Proposed by School Board Member Michael Gaudet and Metro Council Member Matt Watson
This proposal is an amended version of the Baton Rouge Area Chamber (BRAC) model introduced at first EBR ITEP committee meeting, which would set exemption rates by the amount of capital invested.
Under this model, the majority of capital expenditures of EBR Parish’s industrial sector would receive annual public subsidies of up to a 100% property tax exemption for 5 years and an 80% exemption for an additional 3 years (the maximum allowable by the state). Investments by existing firms into long-standing establishments would receive exemptions on the same terms offered to new plants or competitively-sited expansions. Exemption tiers range from 50% to 100%, with higher exemption tied to larger investments.
Job creation would not be a requirement to receive the exemption.
Projects already complete and in operation when an exemption is being considered would be eligible to receive an exemption.
Proposal II: “Revenue breakeven model”: Exemption percentages to bring net positive revenue to public bodies at 10 years
Proposed by the City-Parish
The model establishes limits on the extent to which industrial tax exemptions can negatively impact the budgets of local governments, seeking to create a more predictable and stable revenue environment.
The proposal includes some provisions to limit “ITEP churning,” but regular annual capital investments, while not “favored,” would be eligible. The proposal similarly “favors” investments that create jobs, but does not contain a specific requirement for new job creation.
“Retroactive incentives” would be prohibited, meaning no project already under construction before local support is finalized could receive an exemption.
The exemption percentages would be set not by the amount of capital invested (the BRAC model) nor by the number of jobs created (the TBR model), but based upon the percent that would allow public entities to begin to see net positive revenue by the end of the 10th year after the investment.
Exempt percentages would be capped in two ways. First, a fixed maximum of an 80% exemption would apply both exemption terms.
Second, a project-specific exemption cap would be determined by a publicly available modelling tool, taking into account specific project details (e.g. investment amount, property tax rates, average economic life of the property, etc.). Based on this model, the exemption percent would be set such that public entities would begin to see net positive revenue after a maximum of 10 years. If a project’s specs end up differing from those projected, claw-back provisions would enact automatic adjustments to the rate to restore a net-positive revenue basis for public bodies by year 10.
In special circumstances, the exemption caps described above could be exceeded, for one of four established scenarios: 1) to attract a new manufacturer, 2) to attract an an entirely new facility of an existing manufacturer, 3) to prevent the immanent closure of a facility and 4) to encourage environmentally-positive investments. The environmental provision would allow a bonus of up to 5% above the normal cap, but only on the environmentally-oriented portion of the investment.
Proposal III: “New jobs model”: Exemption percentages set by job creation and in-parish hiring
Proposed by Metro Council Member Lamont Cole
This proposal draws from the tax exemption guidelines of most Texas counties to establish potential exemption percentages based on the standard of job creation.
Two criteria drive the exemption amount a company would receive: 1) the number of jobs the project creates (with differing standards for small and new businesses, on the one hand, and large existing businesses, on the other); and 2) the percent of parish residents hired to fill those jobs.
Eligibility would begin with a minimum requirement to create 3 jobs (for small or new businesses) or 5 jobs (for larger, existing businesses), with exemption tiers running from 20% to 100%. The highest exemption level would be reserved for companies that create 25 net new jobs (for small or new-businesses) or 100 net new jobs (for large existing-businesses). Half the exemption rate, therefore, would be established by the number of jobs created.
The remainder of the exemption percent would be determined by the proportion of new hires who reside in East Baton Rouge Parish. There would be no restriction or requirement for local hiring, but it would tie 50% of the maximum potential subsidy offered by parish tax-payers to the percent of jobs filled by residents of that parish.
A special “immanent closure provision” would allow exemptions at a higher rate, including on investments that do not create jobs, if a plant is facing a “real, concrete an immanent prospect of closure.” Enacting the immanent closure provision would require a two-thirds vote of the ITEP Committee.
Under this proposal, after-the-fact incentives would be prohibited, fast-depreciating property would be ineligible and caps on the exemption percent would be established to assure net positive revenue by the end of the life of the exemption (5 or 8 years).
To review original documents for all three proposals, click here.