In The News › TEDA lobbies parish for tax policy

TEDA lobbies parish for tax policy

Sunday, October 11, 2009
By Kathrine Schmidt, Staff Writer
The Daily Comet

HOUMA — It’s a tool that could help bring new businesses to Terrebonne. But it also could mean higher taxes for shoppers and business owners.

A Terrebonne business-promotion agency’s board recently voted to lobby the Terrebonne Parish Council to approve a policy that could pave the way for a tax district aimed at attracting retailers to the area. The council will consider the ordinance Monday during a meeting of the Budget and Finance Committee.

The scheme, called tax-increment financing, is a commonly used method of financing redevelopment or economic-development projects by local governments. The basic concept involves paying for immediate improvements, such as sewers, roads, waterlines and other infrastructure, using future tax revenue that is expected to result from the improvements.

The ordinance being considered by the Parish Council would create a policy along the guidelines established by state law for creating new sales or property taxes in select areas. The money could pay for infrastructure for new business or in some cases the building to house the new enterprise, among other uses.

While government grants and other incentives can help bring manufacturing or industrial businesses to a community, there are fewer options to help attract certain types of stores and service businesses, said Mike Ferdinand, CEO of the Terrebonne Economic Development Authority. With a nationwide economic slump and fewer government programs available, he said, using a tax district could help attract outlets that might otherwise go elsewhere.

“It’s typically a last-place financing instrument,” said Ferdinand, who introduced the proposal approved by TEDA’s board. “It’s another potential source.”

He said no interested businesses have submitted a formal request for tax-increment financing but businesses have asked if the financing method is available.

INCENTIVE FOR INVESTMENT?

Here’s how it would work: The Parish Council would create a taxing district that could levy a sales, hotel-motel or commercial-property tax in a specific area, typically near the improvement site. The tax revenue would benefit the improvement through a bond used to pay for roads or sewage or another economic-development purpose, like building a retail space for a business.
Sales tax in Terrebonne is already 8.5 percent. There’s a statewide cap of 9 percent.

While stressing the preliminary nature of the idea, Parish Manager Al Levron said the administration has discussed it. He said the tax could be a help “if properly implemented.”

“It would not be subject to vote of the people, it would be subject to the district,” he said. The tax district would be overseen by the Parish Council.

If shoppers objected to the tax, he said, they could avoid patronizing places where it was enacted.

“In areas of towns or cities where economic development is in a decline, if the tax base is in a decline, the TIF does provide an incentive for further investments,” he said. “How it would fit and where it would fit has yet to be determined.”

Levron says the idea is “worth consideration by the Parish Council.”

The five-page policy outlined by TEDA recommends “judicious” use of the TIF for “compelling” projects that wouldn’t otherwise be completed. Applicants will need to have explored other ways of paying for the project and have the ability to finish it. They would also be required to show how many jobs would be created. The guidelines would also favor projects that contribute at least 15 percent of the project’s cost, build public infrastructure and created higher-than-average paying jobs. No specific area for such a tax district has been identified.

‘IT’S NOT FREE MONEY

Janet Howard is president of the Bureau of Governmental Research, a New Orleans-based non-partisan research group. In a 2008 report on Jefferson Parish sales taxes, the group called a sales-tax TIF a “poor tool for economic development and recommends against its use.”

While in theory the policy would increase business traffic in the area and increase all tax revenue, it could also make older businesses less profitable and distort how the government uses land, that same report says.

“It tends to cannibalize your tax base because there’s an increased risk that you are taking revenues away from other retail businesses,” Howard said. “The community really needs policies and procedures that spell out what they’re trying to do. It has to tie in with a real economic-development plan so it doesn’t just become an ad hoc way of doing things. It’s not free money.”

A similar arrangement was used as part of the deal to bring Cabela’s, a sporting goods and outdoor store, to Gonzales. The community stood to gain from the increased business traffic and taxes that came with the store, Ferdinand said.

According to Clay Stafford, Gonzales’ finance director, the city put up the revenue from part of its 2-cent sales tax to repay a 30-year bond sold to build the retail outlet, which was aimed at drawing customers from 60 or more miles away.

“You have to determine, is this going to develop an area that wouldn’t otherwise develop?” Stafford said. “This was the theory: We’d rather take a half a cent of something than all of nothing. It was a big piece of property that wasn’t being developed.”

While he said it’s too early to declare the policy a success, he did note that other development has followed. A KFC restaurant and Hampton Inn have been built, and more projects are in the works. All of which, he added, will create sales-tax revenue.

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