Tax incentives sparked unprecedented economic growth in Louisiana following Hurricane Katrina. As some incentives expire or are repealed, what will be the catalyst for sustainable economic growth in Louisiana in the future?
Following Hurricane Katrina, developers, particularly in the real estate industry, packaged federal and Louisiana tax incentives to finance projects that may not have been economically feasible before the hurricane. Some incentives were newly-adopted or enhanced, while others had been in place for years but began to receive more attention in a post-tragedy environment focused on rebuilding. Louisiana, which historically had ranked very low in so many categories important to economic development, became one of the country’s leading markets in terms of the volume and complexity of financing transactions fueled by a heavy dose of tax incentives.
Some of the Louisiana incentives that are set to expire are:
- Angel Investor Tax Credit Program – expires July 1, 2015.
- Historic Preservation Tax Credit – not effective for the taxable years beginning after 2017.
- Technology Commercialization Credit and Jobs Program – no tax credits granted after December 31, 2017.
- Quality Jobs Program – no new applications to receive incentive tax credits or rebates will be approved by the Louisiana Department of Economic Development after 2017.
- Research and Development Tax Credit – no credits will be awarded for expenditures made and/or grants received after December 31, 2019.
A report prepared by the Joint Committee on Taxation, which can be found here, lists the Federal provisions set to expire between 2013 and 2024.
If extending, enhancing or creating new tax incentives is the answer for creating sustainable economic growth in Louisiana, then designing those incentives will require an industry-by-industry analysis. For example, many will argue that the film production industry requires a permanent incentive for it to stay in Louisiana. If the current Motion Picture Investor Tax Credit is materially reduced, the film industry might pack up and leave for another state with a more attractive tax credit program. Louisiana may want to look into a permanent incentive for the film production industry, given the level of economic returns from its increased presence in the state since the credit was adopted over a decade ago. Fortunately, there is no sunset date for the Motion Picture Investor Tax Credit. For other more inherently permanent industries, the initial spark from the tax incentive may be all that is required to produce long-lasting economic returns.
As we have learned over nearly a decade after Hurricane Katrina, out of great tragedy there can be tremendous economic opportunity that, if properly cultivated, will result in dramatic and unprecedented improvement in a city like New Orleans and in an entire region like the southern gulf coast. Tax incentives have played an important role in cultivating that economic opportunity over the nearly 10 years since Hurricane Katrina. They can and should play a significant role in the future. The challenge for the Louisiana State Legislature is designing tax incentives to foster sustainable economic growth in our most valuable industries.
Robert L. Wollfarth is a New Orleans-based attorney with Baker, Donelson, Bearman, Caldwell & Berkowitz, PC, where he is a member of the law firm’s Tax Group and the Mergers & Acquisitions Group. Wollfarth assists clients with a variety of business matters, including federal, state and local tax planning and controversies. He may be reached by email at email@example.com.