state struggles with its budget
Among the financial challenges that face Louisiana Gov. John Bel Edwards as he struggles to balance the budget, shaping an appropriate role for the state in future economic development efforts looms large.
How much can and should state government do to encourage job growth? The answer has never been simple, and financial excesses of the past administration have made the question more complicated.
Under Gov. Bobby Jindal, the Louisiana Economic Development Department churned out a steady stream of press releases announcing corporate groundbreakings, company expansions and out-of-state businesses that planned to open satellite operations in Louisiana.
The announcements came in handy for Jindal’s PR team as he flitted about the country touting economic successes in his home state to enhance his hoped-for run for the U.S. presidency.
Less well publicized than those corporate announcements was their cost to Louisiana.
Louisiana is hardly alone in throwing benefits such as tax credits, worker training dollars and outright grants at corporations to encourage them to create new local jobs. Rising competition to lure national and international businesses has steadily upped the ante for any state that hopes to claim a piece of the corporate expansion pie.
Their increasing commitments to this economic development rivalry has put some other states in similar situations as Louisiana, which finds itself trying to balance its business bidding against budget pressures that have cut deeply into crucial areas such as public education and health care.
When a state is flush with cash, its spending on business expansion incentives is less likely to come under questioning. But when budget debates turn into a tug of war among vital government functions, criticism of “corporate welfare” tends to crop up.
Recently, for instance, questions arose over commitments the state made in 2013 to get IBM to sink roots in Baton Rouge with construction of a new downtown office building dedicated to software development and training. The corporation’s “client innovation center” would stand near a new 11-story apartment building and parking garage, largely funded by the state, the city and the Baton Rouge Area Foundation. The $55 million project would bring 800 jobs to the capital city, IBM officials promised.
IBM opened the new center in the spring of 2015, but a year later the company began a global contraction that could result in as many as 14,000 job layoffs around the world. The move followed four years of declining revenues at IBM.
When a Baton Rouge reporter requested comment from IBM as to whether the cutbacks would affect ongoing hiring by the company in Louisiana, an IBM spokesman had no answers. He did claim that the company is “ahead of schedule” in creating new jobs in Baton Rouge. But if IBM is unable to reverse its revenue decline in coming years, might Louisiana end up struggling to pay down its bond debt while seeking new tenants for a Baton Rouge office building?
Similar questions have emerged regarding a business deal the state helped New Orleans land a few years ago. In 2014, the Port of New Orleans announced the return of Chiquita Brands International to local docks with the promise that banana imports would provide a boost to container cargo volume at the port. The deal worked, and cargo numbers did, indeed, take an upward leap.
But a few months ago word surfaced that Chiquita is considering taking its cargo business out of New Orleans again. This after the state committed $12 million to help the company move operations to Louisiana from Gulfport, Miss.
Economists estimate that a departure by Chiquita from New Orleans, if it comes to pass, could cost 350 local jobs.
Clearly, government-funded incentives aimed at luring private-sector employers are akin to a roll of the dice in the name of economic development. The agreements signed by private companies that receive state subsidies carry no absolute guarantees. And even though incentives generally are performance-based – meaning the benefits accrue only if a company meets its stated local hiring or payroll goals – it’s difficult for a state agency to audit, or even monitor, a corporation’s payroll growth.
None of which is to suggest the state should cease investing taxpayer dollars into business recruitment.
New Orleans, for instance, can point to a number of business success stories that unfolded with help from the state. One is GE Capital’s downtown software development center.
Louisiana committed about $15 million to lure the project to New Orleans, and in 2012 the company opened the center and began hiring workers.
Recently, company officials said GE Capital’s local hiring likely will exceed its initial 300-job target during the coming year.
Still, Louisiana’s quest for job growth likely will become tougher than it was during the breezy-spending years of the Jindal administration. Louisiana’s colleges have suffered through almost a decade of budget cuts, and during that time state services for impoverished citizens also have been squeezed.
In years to come, state economic development officials likely will have to resign themselves to having fewer millions available to dangle in front of new business prospects.
Louisiana Economic Development oversees about two dozen incentive programs aimed at luring private employers. Highlights include:
• FastStart work force training assistance customized for eligible companies;
• Angel Investor Tax Credit for individuals who invest in start-up businesses;
• Payroll incentives that rebate up to 15 percent of a company’s new payroll;
• Industrial tax exemption, a 100 percent abatement of property taxes on new investment;
• Tax credits for companies in the areas of digital media, software development, music, theater and motion picture production.