tax exempt bonds

A simple Google search for "Jindal incentive," looking for descriptions of incentives the Louisiana Governor has put on the table for all sorts of groups, brings back 1.6 million hits.  There are so many subsidy announcements that it's hard to imagine even a McDonald's restroom can be built in the state without a subsidy, or that Jindal has time outside of his incentive announcements to actually run the state. 

Billions in gifts, but detailed data as well

But the volume of subsidies is only half the picture.  What I found so interesting about Louisiana that while it does seem to massively subsidize everything, its tracking of the support is quite good relative to what I've come across in other states.  The staff involved with these programs were forthright and responsive.  Queries were dealt with quickly and accurately, providing documents able to show in detail who was getting what from the state. 

This mixture is striking.  The state's biennial Tax Exemption Budget runs more than 400 pages, with details on each provision that lets this group or that out of paying into the state coffers.  Aggregate data for each tax base is presented (see page 6), showing both actual collections and how much the State estimates they've given away.  Corporate tax collections were $198m, for example -- compared with exemptions from corporate taxation of $1,459 million.  They calculate more than 88% of the tax base is exempt.  Thirty-six percent of the tax base for severance taxes (i.e., oil and gas) was exempted somehow.  And the total exemption is likely much higher:  one properly should not credit severance taxes (which are payments to the state for giving up valuable natural resources) if the proceeds are simply plowed back into support services for the same sector.

Without the level of transparency that Louisiana has on its subsidies, there would be no way to assess whether the policies make sense, or whether there are better ways to meet whatever job and development goals have been set forth as justifications for the giveaways.  But the magnitude of the subsidies, and their persistence over time, is a stark reminder that transparency alone is not sufficient for subsidy accountability and contestability. 

With so much documentation of the amount given away, Louisiana should do much more to assess the return it is getting on those "investments."  It's "hidden budget" is now as big as what the state is actually collecting in revenues.

Distribution of GO Zone Bonds is Skewed

There is another important lesson in Louisiana's data as well:  even "general" subsidies to job creation and investment tend to disproportionately favor the entrenched and powerful industries.  Louisiana's allocation for a special class of tax-exempt bonds, the Gulf Opportunity Zone Bonds (GO Zone), illustrates this. 

GO Zone Bonds were authorized by Congress in 2005 to help the states most hurt by Hurricane Katrina to rebuild.  Louisiana received the largest capacity of the Gulf states.  By the end of the program in December of 2011, it had used just about every bit of capacity (unused capacity by some accounts was less than 200 dollars) it had been granted.

Using data provided to us by the Louisiana State Bond Commission, we grouped recipients by industry.  Fossil fuel-related recipients included pipelines and fossil fuel storage, fossil-fueled power plants, extractive operations or firms supplying those operations, and chemical production reliant on fossil fuel feedstocks.  In some cases, a recipient project would related to other sectors as well as fossil fuels; these were included in a split category.  Some key findings from this exercise:

• Fossil fuel-related recipients received 57% of the $7.8 billion in bond capacity issued.  Once joint projects are included, this jumps to 65%.  This fossil fuel sub-group also had a higher success rate than other sectors, with 53% of the applications being allocated capacity (versus 32% for all applicants) and 76% of the allocated capacity ultimately being issued (versus 48% for all sectors).
• Two fossil fuel-related projects received the right to issue $1 billion in bonds each -- a Marathon Oil Corp. refinery and a Lake Charles Petroleum Coke Gasification Project.  Many other projects received tax exempt capacity in the hundreds of millions of dollars. 
• The program was highly popular, with applications for all projects three-times the level of available funding.  About half of the capacity that received an initial allocation under the program did not end up being able to issue bonds, however.
• Applications by plant-based biofuels firms were $1.5 billion, of which about $1.2 was allocated.  Yet, the sector ended up getting nothing (though a sugar facility and animal-fats biofuels project did receive GO Zone capacity).

The table below summarizes this key data.  A full listing of the applications, sorted by industry, can be found here.

Summary of GO Zone Applications and Issuance by Sector