The New Orleans City Council on Thursday approved two five-year Industrial Tax Exemptions for a new factory in eastern New Orleans that will produce plastic packaging. The exempted property is worth $7 million, and the city stands to lose out on $435,634 in tax revenue over the first five years of the exemptions as a result of the vote, according to a presentation by Tracey Jackson, the Industrial Tax Exemption administrator for Mayor LaToya Cantrell’s Office of Community Development.
Historically, the City Council didn’t have control over the Industrial Tax Exemptions, or ITEs, which are granted by the Louisiana Department of Economic Development. But over the past few years, Louisiana Governor John Bel Edwards has made changes to the program that give local taxing authorities, such as the City Council, the power to reject applications.
In 2017, The Advocate reported that the ITE program was the state’s most generous tax break. And while the state had the power to approve the exemptions, it was local governments that had the most to lose. The program cost local governments $13.7 billion between 2006 and 2016, according to report. Orleans Parish lost out on about $112 million in revenue.
In 2018, The City Council created rules to govern how they would decide to grant or deny tax exemptions. The two ITEs approved on Thursday were the first to go through that new process, according to Jackson.
There were aspects of both exemptions that, according to the local rules, should have triggered denials. One application fails to meet a requirement to create permanent jobs, for example, while the other allows the taxable value of property to depreciate faster than local rules allow. There were also some apparent numeric mistakes that make it difficult to know what the ultimate impact will be on the city’s budget.
“We’re working through ironing out some of the wrinkles,” Jeff Shwartz, the city’s director of economic development, told the council. “[We will] continue to strive to improve the process.”
He said that one challenge was dealing with a short deadline for taking action.
“Something we’re realizing is that we’re under a very tight timeline,” he said after the meeting. “We basically have 60 days from the point that the [state] approves a project to get everything done on the local level. If we don’t approve it locally, if we don’t vote on it, it automatically moves to approval based on the state decision. It binds our hands a little bit. So we’re looking to how we can streamline the process.”
The council ultimately opted to overlook some of the flaws in the reports prepared by the ITEP Review Committee, which is made up of five officials from Cantrell’s administration. The committee recommended approval for both exemptions. The council argued that the benefits of new jobs and development to eastern New Orleans outweighed the loss of property tax revenue.
The factory is being built at 4120 Poche Street by an Italian company named Iriapak. According to the review committee report, the facility will bring in 14 new jobs by the end of 2020, and hopes to increase that to 25 jobs by the end of 2023.
The total five-year value of the exemption, according to Jackson’s presentation, would be $637,981. However, the council’s vote covers only about two-thirds of that. The rest will be decided by other local taxing bodies, including the Orleans Parish School Board and Orleans Parish Sheriff’s Office.
One of the exemptions is for $2 million in construction costs to renovate the building. The other is for $5 million to purchase the printing lines for the plastic packaging. Normally, companies will include both building upgrades and equipment purchases on a single ITE application if they’re for the same project.
Iriapak, however, submitted two applications because they applied with two different companies. The building renovation exemption was applied for by Iriapak RE USA LLC, the company that owns the land and building. The exemption for equipment purchases was applied for by Iriapak USA LLC, which will actually operate the new facility.
“The two applications today are being considered as one project,” Jackson told the council.
Council members Helena Moreno and Jared Brossett were the only members of council to vote against either exemption. They voted yes on the equipment purchases but didn’t support exempting the $2 million building renovation.
“Where I have some concern is the merging of these applications,” Moreno said. “That [building renovation] application itself does not meet the requirements… I don’t think it checks the most important box: jobs.”
The application says the renovation will create 55 construction jobs but no permanent jobs. Under the city’s rules, the ITE must result in at least 5 permanent jobs with an annual payroll of at least $225,000, according to one of the reports. Moreno said that she wanted to approve the larger $5 million exemption while rejecting the $2 million.
“Just last year we put in some rules on these exemptions,” she said. “And one reason was so much controversy around [the Department of Economic Development] rubber stamping these. … The city has great needs, the east has great needs. We just need to be super responsible and methodical when it comes to tax giveaways.”
Broderick Bagert of Together New Orleans, a group that has criticized the exemption program, along with Maxwell Ciardullo from the Fair Housing Action Center, spoke in support of rejecting the $2 million construction exemption.
“Thousands of homeowners faced skyrocketing assessments last year,” Ciardullo said. “Some of them are at risk of losing their homes. We ask that businesses pay their fair share as well.”
The five other council members aside from Moreno and Brossett voted in favor of both exemptions despite their arguments. They also approved the exemptions despite several flaws in the applications and ITEP review board reports.
For the $5 million exemption, for example, the application included a depreciation table for the equipment. The table showed that the equipment will, for tax purposes, be worth $0 in just over 10 years. The city’s rules, meanwhile, require exempted equipment to depreciate over 15 years at a minimum.
ITEs are granted for an initial five-year period, with a chance to be renewed for another five. The 15-year requirement was put in place to ensure that when the exemption expires, the city will still be able to tax at least some of the property’s original value.
“The ITEP review committee’s report ignores the prohibition on property with a useful life of fifteen or fewer years,” says a letter to the council from Together New Orleans. “It should be denied for that reason.”
The letter also took issue with the ITEP review committee’s cost-benefit analysis of the exemption’s impact on the city’s general fund. According to the committee report, the new factory will provide $439,160 in new taxes to the city over five years. Meanwhile, the report claims the exemptions will only withhold $34,729 in property taxes over five years.
However, Jackson’s presentation said that the lost property taxes will actually add up to $435,624.
The report on the construction exemption also claims that the building value would decrease from $296,000 before the renovation to $225,000 once the renovation is complete.
Ultimately, the council found the benefits of a new factory in eastern New Orleans to be more convincing.
“This is definitely going to lift up the spirit of the residents, giving us hope,” said Councilwoman Cyndi Nguyen, who represents eastern New Orleans.
*Correction: An earlier version of this story incorrectly stated that Councilwoman Helena Moreno was the only council member to vote against either of the tax exemptions. Both Moreno and Councilman Jared Brossett voted against one of them. (Feb. 6, 2020)