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December 8, 2014

Smart Incentives Are Building A Better Louisiana

As economic development leaders of the two largest regions in the state, we can agree with much of what was reported in your recent series, “Giving Away Louisiana.” Our Byzantine system of tax exemptions definitely has room for improvement and should be rigorously evaluated to ensure it is best serving the people of Louisiana.

But well-researched as the series is, we are surprised by what was not reported: first, that economic development incentives are only 4 percent of total exemptions; and second, that, overall, they are working well and are generating a substantial return on investment for taxpayers.

Ask the citizens of Louisiana what they want from their leaders, and you will regularly hear “more jobs” and “economic growth.” And in this regard, our current economic development system, tax incentives included, is doing remarkably well. The economy of southeast Louisiana has not only come back from the destruction and uncertainty of Hurricane Katrina — it is doing better than in decades.

Global companies like GE Capital and IBM are expanding here, bringing thousands of high-quality jobs. Other companies, like Globalstar, are relocating their headquarters from California to the north shore. Foreign companies, like Methanex, of Canada, and Agrigren, of India, are investing billions and creating thousands more jobs. And corporations that previously left, like Chiquita, have come back home. In fact, our super-region has earned more economic development wins than anywhere in the South over the past decade — three times more than Houston — and the state is approaching 2 million jobs for the first time in history. The result is going to be more diverse jobs, and a stronger and more accessible middle class.

Louisiana has gone from worst to first in key business rankings, in both perception and reality. Business Facilities now has us No. 1 in the country for business conditions. KPMG says we are the No. 2 place in the U.S. to start a company, and the publisher of Forbes called us “the economic turnaround of our lifetimes.”

Tax incentives play a vital role in this success. While projects are rarely determined solely on incentives, these programs do play a critical dual role of first attracting attention to a state that has historically been ignored, and second, of providing a difference in the final decision against stiff competition, like Texas.

To be sure, economic development organizations like LED, BRAC and GNO Inc. are entrusted with driving this growth in a responsible way that protects taxpayer funds and ensures a positive return. This occurs in a number of ways.

First, every discretionary incentive project undergoes a comprehensive financial and economic analysis to ensure it has a positive return on investment. Second, the state’s incentive programs that are enshrined in law are performance-based, meaning they are not earned unless the company produces the business investment and job creation. Finally, all discretionary projects are bound by legal contracts that require pro-rata repayment for any underperformance.

The Advocate series notes that many of the incentive programs have increased in expense. What was not said was that the public should expect the cost of programs like Quality Jobs to increase when the state is seeing growth in investment, and, yes, quality jobs. Simply put, it is an indication of success.

Agreed, the articles are based on good research and make some excellent points. Some of our state exemptions should be redesigned. Moreover, our overly complex tax code should be simplified, with rates lowered for everyone.

But the larger story, of an economy that languished for 40 years roaring back to life, needs to be the primary focus. Over the next 10 years, as all of these job announcements come online, the economy of Louisiana is going to continue to diversify and grow. The last thing we want to do now is to take the legs out from underneath our state’s economy, just as it is beginning to run.

Smart incentives — along with pro-business reforms, robust workforce development and aggressive economic diversification — are creating a better Louisiana for everyone.

Thank you!

Michael Hecht
President and CEO
Greater New Orleans, Inc.

Adam Knapp
President and CEO
Baton Rouge Area Chamber