In the early 2000s, Laverne Simoneaux, a single mom, left her position as a university librarian to teach in the East Baton Rouge Parish’s public schools, where her three young daughters were students. In the nearly two decades that followed, she experienced the countless frustrations of working in a chronically underfunded public school district in one of the nation’s poorest states. The impact of this is felt in multiple ways: textbook shortages, classroom supplies funded out of her own pocket, a paycheck that lags the national average for teacher pay by nearly 20 percent. Then, there were the annual budget shortfalls that would leave her wondering at the end of every school year whether she would still have a job in the fall.
“We were getting reduction in force letters every June that would say they didn’t know if they would have enough money to pay us, and you’d have to wait until the end of the fiscal year to find out if they could afford to keep you on,” says Simoneaux, now 63. Simoneaux teaches ESL [English as a Second Language] at a Baton Rouge elementary school, where 70 percent of the students are Black or Latinx. “I know this is not how they operate in Texas. This is not how they operate in Connecticut. This is not how they operate in New York.”
Unlike Texas, Connecticut, or New York, however—or any other state for that matter— Louisiana’s constitution allows a state board to exempt some of the wealthiest landowners in the state—the chemical plants, oil refineries, and large industrial manufacturers—from paying the local property taxes that fund schools, law enforcement, and other public services. For decades, this politically appointed board routinely rubber-stamped tax abatements for big industry, depriving chronically underfunded local governments of billions of dollars in property tax revenues—some $23 billion between 2000 and 2016 alone. Most egregious of all, the local governments directly affected by the revenue loss didn’t even have a say in the process.
In 2016, that changed, when Louisiana’s then new governor, John Bel Edwards, issued a series of executive orders reforming the Industrial Tax Exemption Program, or ITEP. The catalyst for the reforms was pressure from Together Louisiana, or TLa, a community organization of some 250 mostly faith-based institutions of which Simoneaux is a part. Fueled by outrage and armed with decades worth of data, the group was able to show the governor how ITEP, billed by industry as an economic development incentive, was in reality one of the most outrageous examples of corporate welfare in the country.
“We have been giving away more money in so-called incentives than anywhere else in the country and what do we have to show for it?” Simoneaux says. “Our schools are some of the poorest in the nation. Our roads are crumbling. We want industry to be good citizens and pay their fair share.”
While industry would argue it’s always paid its fair share, in 2016, the year the reforms went into effect, only 33 percent of industrial property was subject to taxation; the other two thirds was tax-exempt. In the five years since the reforms went into effect, some $16.5 billion in industrial property has returned to local property tax rolls. As a result, local governments are realizing nearly $300 million more a year. Of that amount, local school districts have seen $100 million more per year. Sheriffs, half of whom are funded solely by ad valorem taxes, have realized $55 million more per year. Parish (Louisiana county) governments are receiving about $110 million more per year.
The story of how citizen activists like Simoneaux and Together Louisiana took on Louisiana’s powerful petrochemical industry by slaying what had long been industry’s sacred cow, ITEP, is truly a tale of David versus Goliath, and it shows the effectiveness of community organizing—especially when the battle is being waged on an uneven playing field. But while the changes have been transformative, the reforms have required constant community mobilization to hold. What’s more, when Edwards leaves office at the end of 2023, his successor may bow to industry pressure and attempt to undo the reforms. It will take continued vigilance and activism to protect what is a fundamental principle of democratic decision-making: the right of local governments to make budgetary decisions and exercise control over their tax base.
A New Kind of Challenge
Louisiana’s ITEP was written into the state constitution in 1936 with the goal of luring the growing petrochemical industry to invest in Louisiana. At the time, the Baton Rouge newspaper heralded the move as the second most significant news event of the year. But what arguably began as a legitimate economic development incentive, over time, came to be viewed by industry as an entitlement.
The constitutional provision gave the state Board of Commerce and Industry carte blanche to exempt 100 percent of an industrial manufacturer’s local property taxes for up to 10 years. It’s easy to give away someone else’s money, and the BC&I proved adept at giving away local property tax revenues in the name of economic development, regardless of whether the exemption request supported legitimate new investment. Between 2000 and 2016 alone, the BC&I approved 99.95 percent of ITEP requests, fully exempting the state’s largest manufacturers and chemical plants of 100 percent of their property tax liability and costing local governments an estimated $23 billion, even as industry cut more than 26,500 jobs during that same period.
Taking on the battle for ITEP reform was a challenge unlike any other TLa’s faith-based network of community organizations had faced. Leaders divided the work among volunteers from their member institutions. They combed through years of ITEP applications to determine how much each refinery or manufacturer had been exempted from paying, what those exemptions had cost local governments in lost revenues, and, specifically, whether the companies had to follow through with legitimate new job-creating investments or simply packaged a bundle of routine reinvestments and tried to pass them off as new expansion worthy of a tax break. Teams of volunteers also reviewed exemption requests to determine whether any refineries had made good on their threats to scuttle a project or shut down a plant if an ITEP exemption was denied. (Spoiler alert: none had.)
The organization also focused on educating its member institutions and broader constituents through civic academies—gatherings where presentations and videos explained how Louisiana was an outlier not because it had an industrial tax exemption on the books but because of the way the program was abused. For many of Simoneaux’s fellow teachers, these sessions were eye opening. Most had never heard of ITEP, she recalls, much less understood how it operated. “No one knew anything about this,” Simoneaux says. “The more people learned about it, the more outraged they became and the more determined to do something about it.”
Unlike other states that tied tax exemptions to job creation, Louisiana was giving away local money without any oversight, cost-benefit analysis, job requirements, or follow-up. The information, which was widely shared with the media, was compelling, detailing how Louisiana ranks among the top producers and refiners of fossil fuel in the nation yet remains among nation’s poorest states. The data also noted that Louisiana gives away more in corporate subsidies than any other state in the nation—10 times the national average, 18 times the southern average, and 32 times as much as Texas.
The data proved persuasive to the new governor, who initiated ITEP reforms through executive order. In addition to giving local governments ITEP approval rights, his order tied the program to the creation of net new direct permanent jobs; capped the exemption at 80 percent of taxes owed; and disallowed exemptions on miscellaneous capital additions or investments that were mandated by the federal government.
A Glimmer of Hope
Of course, signing an executive order is easy. Getting tax abatements reversed to the tune of hundreds of millions a year is not. Why has the coalition in Louisiana been so successful?
Many factors lie behind its success. First, the rule that caps the exemption at 80 percent means ITEP recipients must still pay 20 percent of their tax bill annually to local governments, whereas in the past they didn’t have to pay anything for 10 years. This increases the tax breaks’ visibility. Second, in a small percentage of cases, taxing authorities have denied ITEP applications, meaning companies must pay their property taxes in full, though only four percent of applications in five years have been fully rejected by all three taxing authorities in a parish. Still, as seemingly significant as these reforms have been, a recent report commissioned by TLa suggests those two changes alone account for just five percent of the additional revenues.
Instead, the report, produced by the Institute for Energy Economics and Financial Analysis, suggests that the primary factor behind the additional revenue is that the creation of a local, public process of deliberation by the entities whose revenues are at stake has significantly changed the behavior of ITEP-eligible companies. With a local approval process in place, industrial manufacturers seem much less likely to pursue gratuitous exemptions. In the post-reform period, the balance of ITEP projects has shifted substantially from routine capital investments to the development of new facilities. Since 2016, 83 percent of applications have been for start-up projects, up from 35 percent prior to the reforms. In other words, the mere requirement to publicly justify tax exemption proposals before three local public bodies appears to have led companies to dramatically reduce the number of ITEP exemptions they apply for in the first place.
Local government officials in industrial parishes are feeling the difference and testified at a legislative committee hearing in April 2022 about the positive impact the rule changes are having in their jurisdictions. Some mentioned the additional revenue. “We have about $4 million (more per year) coming on the tax rolls to the sheriff’s office so we feel very fortunate,” said Sheriff Brett Stassi of Iberville Parish, a rural and industrial parish on the Mississippi River, where nearly one-in-four residents live in poverty and the largest employer is the Dow Chemical plant.
Other officials said having a seat at the proverbial table was as important as the additional revenue because it has forced industry to be accountable to local officials. “It has really opened the door for us to have dialogue,” said Sheriff Willy Martin of St. James Parish, another heavily industrial parish on the river that is receiving nearly $13 million more per year in ad valorem taxes, including nearly $3 million more for the sheriff’s department. “It gives us a chance to explain to them what we’re dealing with and the hardships we have.”
For Simoneaux, the impacts have been small but significant. East Baton Rouge Parish is realizing nearly $10 million more per year in ad valorem tax revenues since the reforms, about $2.3 million of which has gone to the local school system. It’s not as though the district is flush with cash, but Simoneaux received a slight raise in 2019 and hasn’t gotten a reduction in force letter in three years. “It’s better, but we still have a long way to go,” she says. “We still have a teacher shortage, and we’re still not paying what we should. But there is a glimmer of hope we’re heading in the right direction.”
Holding the Line
Despite the popularity of the policy changes among local officials, industry advocates have filed bills trying to weaken or invalidate the governor’s executive orders in every session of the legislature since the reforms were enacted in 2016. TLa has fought these efforts in several ways. The organization’s bill reading committee has had to be constantly vigilant. Volunteer leaders have testified in committee hearings. Community members have written op/eds and letters to the editor for the local media. One thing that is clear: when ITEP is in the spotlight, opponents are less able to cut deals that favor industry at the expense of local governments, small businesses. and individual taxpayers.
In 2020, blocked by the governor, industry sought to get a ballot measure approved. The program was known as Payment in Lieu of Taxation, or PILOT. Yes, in many communities PILOT refers to arrangements that nonprofits make with local governments to make partial payments in lieu of paying the property taxes they would pay if they had a for-profit status. But here what PILOT meant was a sweetheart discount deal on property taxes for corporations. The state legislature, in a special session, agreed to place the measure on the fall 2020 ballot.
Again, community leaders through the TLa network mobilized, with hundreds of volunteers working phone banks and canvasing precincts in New Orleans, Baton Rouge, and Shreveport—the state’s three largest cities—where early voting turnout had been 30 percent or less. The targeted get-out-the-vote effort, which used about 1,700 “block captains” across the state, was an extension of a strategy the organization had used during the previous year’s gubernatorial race. In the end, voters defeated the measure, known as Amendment 5, in all 64 parishes across the state. Statewide, 63 percent of all voters voted against the measure.
TLa also has continued to compile data to refute false narratives perpetrated by industry associations. Notably, as a TLa report shows, investment continues to rise despite the new rules: the value of capital investments approved for ITEP exemptions has increased 47 percent when compared to the five years prior to the reforms, and the number of industrial startup applications has increased seven percent.
Despite the success of the reforms, Louisiana’s current ITEP rules are vulnerable to the political whims of Edwards’ successor, who will take office in January 2024. Given industry’s continued resistance over the past six years, it is not unreasonable to suppose that the powerful lobbying associations representing the petrochemical industry will encourage the next governor to issue a new executive order returning control over exemptions to a state entity with nothing to lose by giving away local money. Already, at least one Republican candidate for governor has indicated his willingness to undo the years of progress that have come with the reforms, although legally and administratively that may not be as easy as it sounds.
The 250 grassroot organizations that make up TLa have vowed to continue their efforts to uphold the fundamental principles of local control over local tax dollars—and the organization plans to make local ITEP control a key issue in the 2023 gubernatorial race. Simoneaux believes it’s critical the organization focus on the campaign as a strategy for preserving the reforms that are just beginning to make things better for teachers in her district. She plans to hold candidates’ feet to the fire because going back is not an option.
“We’re already behind the eight ball in Louisiana in so many ways,” she says. “Our students deserve more. Our teachers deserve more. We can’t go back.”
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