Critics say tax credit program flawed

A tax credit designed to spur economic development in depressed communities roared to the forefront of a legislative committee meeting Monday at the State Capitol.

State Economic Development Secretary Stephen Moret told legislators that he is looking at making changes to the enterprise zone tax credit because it largely is benefitting big companies investing in affluent areas.

In the fiscal year that ended June 30, 2011, the state granted $91 million in enterprise zone tax credits.

The credit’s top applicants include Walgreen’s, Rouse’s Enterprises, Raising Cane’s, Wal-Mart and a company with Shell service stations.

House Speaker Chuck Kleckley, R-Lake Charles, said the chains probably would locate in Louisiana without the tax credit.

He agreed with Moret that refinement is needed.

“We’re subsidizing to the tune of $91 million big box retailers that are coming into small communities and other areas and squeezing out ... small, family-run businesses,” Kleckley said during a meeting of the Revenue Study Commission.

However, Mark Atwood with Atwood’s Bakery in Alexandria submitted a letter arguing the program also benefits small businesses like his.

Atwood said the enterprise zone tax credit helped him
expand from 4,800 square feet to 10,500 square feet and
from 10 employees to 28 employees.

“We may not be adding hundreds of jobs but the jobs we add are solid ones,” Atwood wrote.

The commission is in the midst of reviewing hundreds of tax breaks that reduce state government revenue during a time in which officials are struggling to cobble together funding for hospitals, colleges and other public services. For the upcoming state budget year, the state is facing a nearly $1 billion shortfall.

On the agenda Monday were a slew of tax breaks that benefit businesses ranging from a nationwide drug store chain
to Shreveport’s Moonbot Studios.

Jan Moller, director of the Baton Rouge-based Louisiana Budget Project, said the enterprise zone tax credit offers a poor return on the state’s investment.

The Louisiana Budget Project is an arm of the Center on Budget and Policy Priorities, which examines policies affecting low- and moderate-
income families and individuals.

The enterprise zone tax credit provides a $2,500 per job tax credit plus either a sales and use tax rebate or a 1.5 percent investment tax credit.

Moret said the tax credit program is much broader in Louisiana than in other states because, among other things, it does not require that businesses locate in an economically disadvantaged zone. Alabama and Mississippi make that a requirement.

The credit was supposed to help poor communities in Louisiana by encouraging hiring. However, the Legislature later changed the program’s rules.

In 2010, Moret’s department reported that 95 percent of the enterprise zone incentives in Louisiana went to companies with more than 500 employees.

State Sen. Sharon Broome, D-Baton Rouge, asked if the credit is elevating poor and distressed areas at all.

Moret said the program is not effective at encouraging investment in depressed areas. He noted that there are parts of Baton Rouge where access to grocery stores is limited.

He said companies are not breaking any rules by using the credit to invest in affluent areas.

“We are looking at changes,” Moret said.

Moller made a number of suggestions for the Jindal administration and legislators to consider.

He said the number of credits could be capped each year, businesses could be required to operate inside an enterprise zone and employment benchmarks could be set.

State Sen. Dan Claitor, R-Baton Rouge, asked Moller to outline how the program is a bad return on the state’s investment.

Moller said big box stores pop up in Texas, Alabama and Mississippi without the benefit of an enterprise zone tax credit. He said investments would be made regardless of the program.