04/08 - Economic Development in Louisiana

What is Louisiana doing to ensure its economic future?

Two and a half years after the storms of 2005, Louisiana is still benefiting from its "construction economy." The record high price of oil is a windfall for state coffers. But the national economy is weakening and concerns are growing about inflation and a possible recession. What is Louisiana doing to ensure its economic future? Louisiana Public Square goes to Alexandria, Louisiana for "Economic Development in Louisiana."


Panelists:

* Congressman Rodney Alexander (R), District 5

* Tim Barfield, Secretary, Louisiana Department of Labor

* Dr. Joe May, President, Louisiana Community and Technical College System

* Stephen Moret, Secretary, Louisiana Department of Economic Development

Backgrounder

Go to the Louisiana Department of Economic Development’s web site at http://www.led.louisiana.gov and you will see a very positive picture painted of Louisiana’s economy. Details of business incentives, jobs programs and attractive loans are mixed in with Louisiana business success stories: the multi-million dollar film industry; a high-tech start-up in Ruston; deep water ports and natural resources.

Economic development is a complex endeavor, with multiple variables and many direct and indirect forces at work. Four of the most important issues relating to economic development are: taxes, infrastructure, "image" and education.

TAXES

In 2003, Louisiana ranked 38 on the Tax Foundation’s State Business Climate Index. In 2008, the state ranked 32 overall based on five criteria, including individual and corporate and sales taxes. The Foundation issued its ‘08 index prior to Louisiana’s recent special legislative session, which addressed several corporate tax issues. New laws will accelerate the phasing out of a tax on machinery and manufacturing equipment.

That will likely elevate Louisiana even higher in the 2009 ranking. But more needs to be done, according to Dan Juneau, head of the Louisiana Association of Business and Industry. He says, "We tell a company that if you are going to come to Louisiana or you are going to expand in Louisiana and you are borrowing capitol to do it, we're going to tax your debt." According to Juneau, "That's an important tax to get rid of."

A 2006 Ernst and Young study reported that in Louisiana, business' share of total state and local taxes was 60.6%. Only five states had a higher percentage. This, in part, reflects Louisiana's low property taxes and high homestead exemption.

INFRASTRUCTURE

The world’s largest port complex sits astride Louisiana’s section of the Mississippi River. Five deepwater ports along the River, together with a sixth one in Lake Charles, handle 485 million tons of cargo per year and ship 20% of all waterborne commerce in the United States.

The Ports Association of Louisiana claims their industry has a $33 billion impact on the Louisiana economy – 23% of the Gross State Product. The ports support, directly or indirectly, over a quarter of a million Louisiana jobs.

A weak U.S. dollar has helped exceed pre-Katrina tonnage levels. Port officials predict export increases in the 15% to 20% range in over the next three years.

The Jindal administration made it clear in the special session that it is ready to pour big money in Louisiana’s ports and roads. Given that the state has been ranked in the bottom fifth nationally in level of investment in highways, bridges and roads, this is welcome news for economic development specialists. They say poor infrastructure is a barrier to business expansion and recruitment.

In addition to setting aside hundreds of millions of dollars for one-time transportation-related expenditures, the legislature passed laws aimed at increasing and stabilizing funding for transportation projects on a consistent, recurring basis.

IMAGE

Louisiana has an image problem. Some of it is based on misperception; some of it is based on fact. We are one of the poorest states; we are one of the unhealthiest states. We are one of the biggest polluting states, per capita. We have a lingering legacy of high-profile public corruption scandals that will be hard to lay to rest. But some things are changing.

A legislative special session earlier this year re-wrote a number of Louisiana’s ethics laws. In February, the Center for Public Integrity gave Louisiana 99 out of 100 points on a survey for its new laws concerning elected and public officials' financial disclosure.

Some health indicators have improved in the past few years. Louisiana's childhood immunization rate climbed to 32nd nationally, up from 46th, according to Centers for Disease Control and Prevention (2006).

Louisiana cities and towns, like Natchitoches [for retirement living] and Alexandria [for being a top wilderness city] have been cited as exceptional by national organizations. Madisonville and Mandeville were both named among the "2007 Top 100 Places to Live" in the U.S, according to Relocate-America. The ranking is based on statistics and feedback from the people who live, work and play in these communities.

The problems of Louisiana’s "bad" image need to be addressed at the root cause level by a concerned and active citizenry unwilling to accept less than the best.

EDUCATION

Of all the factors that go into the mix of economic development efforts, the one that gets mentioned most often is education. Lack of education and poverty track each other closely.

In 2006, Louisiana ranked 3rd poorest state in the nation, with a poverty rate of 19%. Twenty parishes have poverty rates of 25 % or more. Many of those same parishes have high school graduation rates below 50%. Louisiana ranked 44 in high school graduation rate in 2006. About 20% of the state’s adults do not have a high school diploma or equivalent.

This would be bad enough in the 20th century -- and it was: a poorly-educated workforce dragged down development then, too. But in the 21st century, an even higher level of education is required. About 65% of available jobs will require a two-year degree or advanced training. About 8% of Louisiana’s workforce has that type of education.

More than 95,000 job slots in Louisiana are currently vacant because the state lacks qualified workers to fill them. These are jobs for which no new roads need to be built; no tax enticements need to be offered to prospective employers – they are here now, awaiting qualified Louisiana workers.

Workforce development attempts to close the gap between available jobs and qualified workers. Past failure to get a better handle on matching business needs with worker training is part of the motivation behind a proposed major overhaul of the Louisiana Department of Labor. A key part of the re-organization would be the consolidation of the state’s many independently-operated training programs. Legislation to create the new Louisiana Workforce Commission includes measures to coordinate job market information and anticipated occupational demand. Regional boards would be established to facilitate training requirements to local needs.

The proposed Labor Department make-over comes at a time of unprecedented labor demand in Louisiana and along the Gulf coast. The projects listed below will require tens of thousands of construction workers in the next two years:

* Marathon Refinery, St. John Parish, cost: over $1 billion
* Lake Charles co generation Plant, cost: over $1 billion
* Kinder-Morgan Terminal Project, Ascension Parish, cost: $100,000,000
* Louisiana Sugar refinery, St. John Parish, cost: $100,000,000

Regarding higher education, Louisiana’s financial investment in public colleges and universities has increased in the last two years. But out-migration by graduates seeking better opportunities in other states is still a problem. One of the reasons may be Louisiana’s low national ranking [31] in the number of high-tech jobs. This could be linked to low funding for research and development: only two states spend less than Louisiana on R & D.

FINAL NOTES

Despite Louisiana’s many economic challenges, progress is being made – especially if one recalls the decade of the 1990s. That was when Louisiana had the second lowest job growth in the South. It was also the only southern state to see a reduction in its Gross State Product [1996 – 2000].

Real Gross Domestic Product [GDP] measures the output of all goods and services produced by labor and property. Between 2003 and 2006, Louisiana began catching up with its peers in the South on a per capita basis. GDP per capita is calculated by dividing GDP for a given year by the population in that year. These numbers can be thought of as the average share of output per person.

Chart
Source: Bureau of Economic Analysis

Louisiana's Real GDP has also been climbing in recent years, but this data must be tempered by the fact that Louisiana had the second smallest percent change in real GDP in the Southeast in 2006: 1.7%. That's about half the regional average.

Louisiana Real GDP: 2003-2006
Source: Bureau of Economic Analysis

Quick Facts

* Louisiana is being praised for improved efforts in enrolling, retaining and graduating college students. Louisiana set goals for all three areas, and prior to the hurricanes saw a 2 percent increase in enrollment, a 76 percent retention rate (5 percent improvement over the 2000 rate) and a 5 percent improvement in graduation rates (Bill and Melinda Gates Foundation, May 2006).
* A college education is more affordable in Louisiana than in the entire country of Canada and all but two other U.S. states. A study found that the combination of low tuition, the TOPS program and lots of federal aid for students makes Louisiana the third most affordable state (behind New Hampshire and Oklahoma) in which to attend college (Educational Policy Institute, April 2006).
* Tulane University's A.B. Freeman School of Business has been named one of the 10 best schools for finance in the world by the global business newspaper Financial Times. The ranking is based on the recommendations of more than 11,000 MBA alumni from around the world who responded to this year's survey (Financial Times, January 2008).
* Louisiana State University's Robert S. Reich School of Landscape Architecture has been ranked 2nd in the nation by DesignIntelligence, the leading journal of design professionals. This is the third consecutive year LSU's landscape school has been ranked among the top five in the nation. LSU has been in the survey's top 10 schools every year since the survey began several years ago (DesignIntelligence, Jan. 2008).
* Louisiana is one of three states recognized by the Southern Regional Education Board for showing exceptional progress in narrowing the achievement gap among black, Hispanic and white high school students on the state's comprehensive exams required for high school graduation. Louisiana has seen a 24% jump in achievement by black students since 2002. Hispanic students showed 22% improvement, and white students improved by 13% (Southern Regional Education Board, July 2007).
* This month, Lake Charles made Forbes.com's list at No. 9 of Top 10 Up-and-Coming Tech Cities [2008]. Also this month, Louisiana received a "B" in Governing Magazine's government performance measurement. The grades are based on evaluations of information, people, money and infrastructure.
* In January 2008, four Louisiana companies made Fortune Magazine's list of "100 Fastest Growing Companies for 2007." At No. 10 is Global Industries of Carylss, No. 19 is Freeport-McMoRan Copper & Gold of Phoenix, No. 26 is Hornbeck Offshore Services of Covington and at No. 54 is Superior Energy Services of Harvey. Freeport recently moved its headquarters from Louisiana to another state.
* In December, Business Facilities Magazine ranked Louisiana No. 4 in the first ever State of the Year Awards. The awards are based on the most significant relocation expansion projects of 2007. Also in December, the U.S. Department of Commerce's Bureau of Economic Analysis ranked Louisiana No. 3 in personal income growth for the third quarter of 2007.
* In November 2007, the American Planning Association said St. Charles Avenue has been recognized as one of the "Top 10 Avenues in America."
* In October 2007, the American Society of Home Inspectors said Louisiana ranks No. 1 in regulations governing the home-inspection industry. Also in October, four Louisiana companies made Forbes' annual list of "America's 200 Best Small Companies." LHC Group of Lafayette came in at No. 7; Amedisys of Baton Rouge, No. 32; Gulf Island Fabrication of Houma, No. 43; and Hornbeck Offshore Services, No. 55.
* Louisiana has finished fourth in Business Facilities magazine's first State of the Year awards, which go to the places that did the best job of economic development. Louisiana had $5.75 billion in investments during 2007.
* Local officials in Northwest Louisiana broke ground in January on the Cyber Innovation Center, a $100 million research park that will support and foster collaboration, research and technology development in the cyber space industry. The permanent installation of a proposed military Cyber Command and its 500-600 officers coupled with the research park could have a transformative impact on the northwest region of the state, and indeed the state as a whole (CABL Wire, 2008).
* Louisiana ranked 4th in the nation last year for the number of jobs created and the amount of business investment in the state. The rankings are based on the number of jobs created or projected to be created in the last year among its top five largest projects, and on the total projected highest capital investment totals among the top five companies in each state (Business Facilities Magazine, January 2008).
* The U.S. Bureau of Economic Analysis says that personal income–a measure of all sources of income of all residents–jumped 1.8% in Louisiana to nearly $144 billion in the July-September 2007 period (U.S. Bureau of Economic Analysis, December 2007).
* The oil & gas industry supports $70.2 billion in sales for Louisiana firms (Louisiana Mid-Continent Study, 2007).
* Louisiana has the second largest refining capacity among the states (16.7% of the total U.S. capacity)
* 88% of U.S. offshore rigs are located in Louisiana's Outer Continental Shelf (LDNR, 2007)
* According the Louisiana Department of Economic Development [LDED] web site, since implementing tax incentives for the film industry, the annual employment growth rate in that sector has been 23 percent each year in Louisiana -- the highest in the nation. The LDED claims the incentives have helped spur $800 million in economic stimulus for the Louisiana economy since 2002.

Louisiana State Business Incentives

The Small Business Loan Program provides loan guarantees or loan participation to banks for Louisiana small- and medium-sized businesses. Guarantees may be up to 75% depending on dollar amounts. Also provided is a loan participation of up to 40%. The maximum dollar amount for a guarantee or participation is $1.5 million. Applicants are required to have a business plan and a bank that is willing to consider the loan.

The Industrial Tax Exemption Program exempts new manufacturing facilities and expansion from state, parish, and local property taxes for up to 10 years. Initial exemption is for five years with an option for an additional five years. This program also includes exemptions for miscellaneous capital additions.

The Quality Jobs Program is available to companies engaged in manufacturing and basic industry, plus administrative and auxiliary services. Companies must offer a basic health benefit plan to new employees and pay at least 75% of the premium. A company must also offer health insurance to the dependents of employees, but 80% of the new jobs must average at least 30 work hours per week. Benefits include a rebate of 5% or 6% of the annual gross payroll for full-time new direct jobs created. There is a rebate of sales/use tax for capital investment, and there is a five-year contract with an option for a second five years.

Our Panelists:

This program was also funded in part by the Louisiana Forestry Association

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