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Shine the light on incentives, PAR Says

Click here to download a copy of the report.

The state Department of Economic Development (LED) should provide more accessible and consistent information about its discretionary incentive programs, according to PAR’s latest analysis, “Filling the Gap or Tipping the Scale? An Analysis of Louisiana’s Use of Financial Incentives to Spur Economic Development,” which was released today.

This study examines the state’s Mega-Project Development Fund and Rapid Response Fund, which are used to make discretionary incentive payments to businesses. The payments can be provided as direct cash payments or through the purchase of things such as facilities, land and equipment. These two funds are distinguished from other performance-based incentives offered by the department by the fact that they allow goods and services to be purchased for private entities, which can maintain ownership.

Louisiana’s use of financial incentives is consistent with practices in other states, but lacks some of the oversight and accountability mechanisms in line with neighboring states that are leaders in these areas. At a time when all state resources are scarce, the expenditure of these funds should be undertaken with only the highest degree of scrutiny.

There is very little information about each project on the LED Web site, and the biannual reports to the Legislature are cursory. Although project-specific performance information is collected internally by LED contract monitors, stakeholders are hard-pressed to determine for themselves the actual progress and economic impact of these investments because information about individual projects is not publicly available.

“Louisiana’s use of this type of business incentive has risen dramatically in recent years, from around $10 million allocated annually over the past five years to more than $300 million in just the past few months,” said PAR President Jim Brandt. “As these commitments are paid out, it is absolutely key that the public be given maximum access to all the measures designed to evaluate whether the investment is worth it.”

This analysis finds that certain changes in law and policy should be made to ensure that taxpayer dollars are committed only according to specific parameters and that more information about each project is made available throughout the entire life cycle of each deal – from negotiation to final payout.

The recommendations are as follows:

Recommendation # 1: Establish statutory requirements to guide future Rapid Response Fund project agreements.

Recommendation # 2: Expand the information provided in the biannual reports to the Legislature to include economic impact and performance information that enables the public to compare what was promised to what was delivered for each project funded by the Mega-Project Development Fund or the Rapid Response Fund.

Recommendation #3: Publish on the Department of Economic Development Web site certain general details about each pending mega-project deal, including, at a minimum, the parish(es) being considered for location and the nature of the business to be subsidized.

Recommendation #4: Publish on the Department of Economic Development Web site copies of all legal agreements, required reports and economic analyses guiding and informing Mega-Project Development Fund and Rapid Response Fund expenditures for each project.

“While it may be unlikely that either fund gets a huge infusion of state dollars in the next few years, economic development incentives will continue to be among the top spending priorities for future state budget surpluses,” Brandt said. “This report not only points to improvements in the transparency of spending underway now but also urges change that will ensure a more accountable and open process in the future.”

The primary author of the report is Dana R. Alfred, research analyst. Funding for this research was provided by the Credit Bureau of Baton Rouge Foundation. Copies can be downloaded at www.la-par.org.

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