The New Orleans City Council on Thursday approved a contract that will send up to $70 million in local sales taxes over the next 18 years to an economic development district called BioDistrict New Orleans, which covers hundreds of acres of land that includes the VA Hospital, University Medical Center and the old Charity hospital building.
While it’s unclear exactly how the money will be spent, the general goal is to help foster the growth of the city’s latent biosciences industry. The money will be managed by the BioDistrict’s appointed board with oversight from the council.
The BioDistrict board is made up of 15 members: a representative of the mayor of New Orleans; four members appointed by the governor of Louisiana; a representative of the Louisiana Department of Economic Development; representatives from LSU, Xavier University, Dillard University and Tulane University; two residents within the district appointed by state legislators; and three members nominated by Greater New Orleans Inc., the New Orleans Chamber of Commerce and the New Orleans Business Council.
The contract was approved in a 6-0 vote. Councilman Oliver Thomas was not present during that portion of Thursday’s meeting and did not cast a vote.
“We talk frequently in these chambers about how there’s too few industries in the city of New Orleans,” Councilman Joe Giarrusso said. “If you look at other cities, whether it’s Houston or Birmingham, they are thriving in large part because they have strong medical districts. And I would like to see New Orleans lead in that regard as well.”
At a Wednesday council committee hearing, the contract got support from local businesses, residents and representatives from local universities. The proponents said a thriving biosciences industry would diversify the city’s economy, expand local businesses and jobs, create promising educational tracks for students and help the city retain local talent that might otherwise seek higher paying jobs in other cities.
But the contract also attracted a sizable opposition that has been fighting it since it was first submitted for council consideration in late 2021. They argued that while nearly everyone agreed the city would benefit from a larger biosciences industry, this particular funding mechanism was a bad deal for taxpayers that would divert funds that would otherwise be used for general city services. And, they said, there was no way to know if the funding would actually help achieve that goal.
“They have no master plan saying what they’re going to do, so all of this is talk,” Joshua Roth, a resident who has been fighting the contract for nearly a year, said at the Wednesday committee meeting. “They’re asking you, on faith, to commit $70 million in tax money.”
The deal has changed significantly from when it was first submitted by the BioDistrict board for council consideration in late 2021. The contract was withdrawn repeatedly over the past year as community members raised objections
“I’ve withdrawn it many times due to public input and revised it so there could be additional oversight and accountability measures,” Councilwoman Helena Moreno said on Thursday. “I know that this has been an incredibly long process but I believe we’re finally at a point now where I’m certainly comfortable moving forward with the [contract] because it has the right amount of checks and balances.”
The contract has been amended to require the council to approve the BioDistrict’s annual budget, as well as a master plan every five years, and allow the council to cancel the agreement before it expires in 2039. The BioDistrict also cut its footprint in half and got rid of its expropriation powers — the ability to force residents, landowners and businesses to sell their property to convert it to public use.
Most recently, in early October, Councilwoman Helena Moreno deferred consideration of the contract at the last minute when community members said it still had significant problems.
In the last two weeks, the contract was changed to explicitly include the district board’s obligation to follow open meetings and records laws. And the contract now says that the district “shall seek to secure ownership interests of any intellectual property created as a result of District investments and activities” and that the city is entitled to 25 percent of those earnings.
There was broad acknowledgement this week — among the critics, council and BioDistrict board — that the contract was significantly improved from its initial iteration.
“I want to thank the members of the public who gave input, who attended public meetings, who provided information in writing, who did research and provided hours, because we have a better document now, as many will admit, I think including the board,” Councilman Eugene Green said on Thursday.
But not every critic was satisfied. Several speakers present on Wednesday and Thursday argued that there were still issues the council hadn’t addressed. One particularly strong objection came from Henry “Tut” Kinney, a former Assistant City Attorney in New Orleans who has worked for various government entities in Louisiana.
“This is not legal,” Kinney said on Wednesday. “This entity cannot do the things they want to do. It has not been vetted by a single lawyer for the city. I can tell you right now I will be filing suit if this passes.”
Kinney couldn’t be reached immediately following Thursday’s vote. But in an interview earlier this month, he raised concerns about how the district could legally invest public dollars in for-profit businesses.
Other critics have similarly expressed concern about the fact that it fell to an ad hoc group of residents to point out all these flaws and demand changes to the contract.
“As a community, we achieved a lot of changes,” Roth said. “We found a lot of problems. And we found ourselves having to negotiate on behalf of the city. … All of those [changes] we saw were things the city should have raised.”
Despite those changes, Roth said there were still fundamental issues with the funding mechanism, called a tax incremental financing (TIF) agreement, that will give the BioDistrict a portion of sales tax growth that occurs within the district’s footprint.
Under the contract, the city will retain all sales tax revenues it was already receiving in 2021 as a baseline. But any sales taxes collected above that baseline will go to the BioDistrict, although there is a cap on annual BioDistrict revenues that limits the overall payout to roughly $70 million over the 18-year life of the contract.
Andy Kopplin, chair of the BioDistrict board and president of the Greater New Orleans Foundation, has told the council that the idea is that the BioDistrict would only be funded by sales tax growth it is responsible for.
“If there is no sales tax growth, there is no funding for the BioDistrict,” Kopplin said during an August presentation to the council. “So the idea is that investments made in this district grow jobs, grow economic activity, increase sales taxes and some of those increased sales taxes is shared with the BioDistrict.”
But the contract’s critics argue that isn’t how it will work. First, they argue that because the BioDistrict wasn’t required to create a master plan before the contract was approved, it’s unclear how the BioDistrict’s spending would actually increase sales taxes in the area.
“You have platitudes,” Kinney said on Wednesday. “There is no plan. Not one single plan. Secondly, you talk about tax incremental financing. There is not one single relationship between the increase in taxes and what they produce.”
Second, critics argued that the way the contract is written, it appears likely that the BioDistrict will get credit for tax growth it had nothing to do with that’s caused by inflation, economic recovery from the coronavirus pandemic and other unrelated economic growth.
To start, the contract uses 2021 as the baseline year for sales tax collection, even though the coronavirus pandemic was still wreaking havoc on the city’s tourism economy and related sales tax collections. On top of that, the contract only grows the baseline sales tax collection by 2 percent a year to adjust for inflation. The inflation rate over the last 12 months is roughly eight percent.
Despite those concerns, council members said that they were comfortable moving forward, given the importance of the BioDistrict’s mission and due to the council’s budgetary control and ability to cancel the contract.
“We have been talking about a bio-district in our city since 1994,” Green said. “And I want to just emphasize that many cities have moved forward and been very successful in developing their bio-districts. This is a very significant undertaking today, but it’s important.”