Audit critical of La.’s Enterprise Zone program

Millions of dollars in economic development incentives intended to create decent-paying, full-time jobs in economically disadvantaged areas are also going to businesses in more prosperous areas, and in some cases employing minimum wage, part-time workers, an audit of the Louisiana Enterprise Zone program conducted by the Louisiana legislative auditor found.

Louisiana’s Enterprise Zone program subsidizes salaries through tax credits and rebates.

From 2008 to 2010, 930 businesses received the so-called EZ incentives. However, the audit, released Monday, found that 632 of those businesses — 68 percent — were not located in an Enterprise Zone, and they received $123.9 million in incentives, 61 percent of the $203.1 million in incentives granted from 2008 to 2010.

Some 40 percent of Louisiana Census tracts are in Enterprise Zones, which are economically depressed areas due to high unemployment, low per-capita income and a high number of residents receiving public assistance.

The Enterprise Zone program, like other economic development incentive programs hoping to grow all industries from movies to manufacturing, is administered through the Louisiana Department of Economic Development.

For its part, LED says it agrees with the findings.

“We agree with the general findings and results presented in the performance audit of Louisiana’s Enterprise Zone (EZ) program,” Stephen Moret, secretary of Louisiana Economic Development, wrote in his response to the legislative auditor. “In fact, the Louisiana. Department of Economic Development (LED) identified a number of similar findings in its 2009 report covering the Enterprise Zone (EZ) program,” he noted.

However, the program — as both the audit report and Moret have pointed out — is being administered according to state law. And state law says the businesses do not need to be within an Enterprise Zone to participate. The law only requires that 35 percent of employees meet one of four hiring requirements. One of those requirements is that the employee live in or near an enterprise zone.

“The requirement that businesses locate to and operate in an Enterprise Zone was eliminated from state law in 1999,” the audit report reads. “Due to this change in law, the program’s eligibility requirements have little to do with stimulating growth in enterprise zones.”

The audit report recommends that the Louisiana Legislature amend state law to require businesses to operate within an Enterprise Zone to participate in the program, which is the case with similar programs in Alabama and Mississippi.

The Enterprise Zone program also allows for a business to earn tax credits and other incentives on low-paying, part-time jobs in sectors like retail or food service, which LED officials have said do little to create new jobs, often shifting positions from one establishment to another.

Between 2008 and 2010, 25.8 percent of Enterprise Zone incentives went to retail establishments, the audit found.

At the most recent meeting of the Louisiana Commerce and Industry Board last week, more than a dozen of the 41 applications for the Enterprise Zone program were for retail or hotel establishments. In fact, Family Dollar had nine applications for stores across the state.

Neighboring states such as Texas, Arkansas, Mississippi and Alabama do not allow retail businesses to participate in their Enterprise Zone programs, the state audit points out, and neither should Louisiana, the audit continues.

Louisiana’s Enterprise Zone program rules also allow for part-time employees to work a minimum of 20 hours per week for six consecutive months with no benefit requirements.

“None of the four competing, neighboring states to Louisiana allow businesses to include part-time employees when qualifying for EZ program incentives,” the audit report reads, adding this is another area in need of legislative attention.

The legislative auditor also criticized Louisiana’s Enterprise Zone program for its lack of transparency when it comes to keeping the incentives it pays to individual businesses under wraps. Louisiana law currently prohibits the state from disclosing the amount of incentives received by each business. This does not seem to be standard practice in other states. For example, Texas shares with the public both the names of businesses that participate in the program and the amounts of incentives each individual business receives.

LED does release the name and location of each business applying for and participating in the Enterprise Zone program, as well as how much capital investment the business anticipates making. The participating businesses must also provide an estimation of how many employees will be hired. However, LED officials have stressed these are all estimated amounts.