By David Jacobs | The Center Square
(The Center Square) – The Louisiana Legislative Auditor suggests capping the state’s Quality Jobs incentive program, arguing the tax rebate mostly goes to benefit job growth that would have happened anyway.
The head of the state’s economic development department says the auditor’s analysis is too narrow and underestimates the program’s value.
The Quality Jobs program provides up to a 6 percent cash rebate of annual gross payroll for new direct jobs for up to 10 years. It also offers a state sales tax rebate on capital expenditures or a 1.5 percent project facility expense rebate on the total capital investment, excluding tax exempted items.
The LLA found that 59 Quality Jobs projects that started in 2011 and 2012 generated $10.1 billion in direct, indirect, and induced household income for Louisiana. But most of that spending likely would have occurred even if the program didn’t exist, the auditor’s report says.
In the best-case scenario, LLA estimated the program generated $1.45 in household income for every dollar it cost the state, but only 10 cents in state tax revenue. In the worst-case scenario, the program generated 10 cents in household income and one cent in state tax revenue for every dollar.
“As a result, it is possible that the program generates more in household income than it costs the state, but the program is still a net loss for the State Treasury,” the report states.
The auditor suggests enacting caps on the program similar to those imposed to the Enterprise Zone program in 2016, which it says would have saved the state about $84.8 million on those 2011 and 2012 projects.
LLA also recommends incentivizing program recipients to spend more with Louisiana-based businesses, estimating that only about a third of the spending tied to the program currently goes to state companies.
In his written response to the LLA report, LED Secretary Don Pierson says the agency engaged an outside firm, Regional Economic Modeling Inc., to do a more extensive evaluation of the program based on what he says are the proper metrics. According to REMI, the program boosts the state’s economy by at least $4.3 billion per year, adding between 36,000 and 49,000 jobs and up to $2.6 billion in personal income annually, while generating between $78 million and $105 million in state tax revenue.Ω
The REMI report said the program generates between $1.10 and $1.72 in taxes for every dollar expended. Even if the program doesn’t pay for itself, “REMI believes that the Quality Jobs program is likely a sound investment for Louisiana, given its impact on economic growth in the state,” Pierson says. He cites a Virginia study that found 70 percent of projects surveyed would have been eliminated or downsized without the available incentives.
“LLA is provided by statute with the duty to conscientiously audit state programs to seek improvement and inform taxpayers,” Pierson says. “Here, LLA’s function has been fulfilled by REMI, an out of state company, at additional taxpayer expense, because LLA could not produce a report that fulfills its statutory duties.”