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The Next Move 

If the state survives the rest of this hurricane season, and revenues continue at the current clip, will business and industry go on the offensive for additional tax reform? By Jeremy Alford Business and industry hit a policy milestone in 2004 when the state Legislature approved a long-range phase-out of taxes on corporate debt and manufacturing equipment. It was just about the time Gov. Kathleen Blanco and other state officials started pushing their "Open for Business" mantra, which took on a whole new significance after Katrina and Rita.

During last November's hurricane-recovery session, special interests were also able to force through a small tax cut on electricity and natural gas, but the momentum came to a noticeable halt in this year's regular session when lawmakers turned their attention to other matters having little or nothing to do with economic growth.

But the political landscape is shifting again, and the next several months could present new opportunities. Budget surpluses for this year and next could top $1 billion as revenue forecasts remain bolstered by oil prices and recovery spending. To top it off, 2007 will be an election year, with the usual political tension compounded by the first statewide impact of legislative term limits. That could make for a generous Legislature next spring, as many lawmakers realize it's "up or out" for their political careers.

Business advocates are already eyeing the situation and crafting a strategy that focuses on furthering the tax reforms already in place. Those plans are tempered by the knowledge that the state's rosy fiscal situation could flip at any moment. State Treasurer John Kennedy, for one, has warned that the "recovery bubble" will eventually burst, leaving Louisiana in a less-than-desirable financial position -- unless long-range plans are in place for economic development beyond the recovery phase.

Special interest groups interviewed for this story realize the likelihood of that scenario, but each argues that their membership will be there to support the economy when the fizzle starts -- but policymakers should make every effort to strengthen business and industry now.

Dan Juneau, president of the Louisiana Association of Business and Industry, one of the largest and most influential lobbies in the state, says hastening the current phase-out of taxes on business equipment and debt are among his group's top priorities for next year. "It would be nice if those taxes were accelerated, or even eliminated outright, but largely we just need to make sure they eventually come off the books," he says.

The state sales tax on manufacturing equipment has been evaporating slowly over the past two years, with 35 percent coming off in July. More will be removed each year until 2010, when all of the tax will be eliminated. Even though it is in the process of being abolished, Juneau says the tax still places Louisiana at a disadvantage against other southern states that don't apply any sales tax to manufacturing equipment.

There should also be an effort to apply the equipment tax break to small businesses that rely on desktop computers and other more common machinery, says R. Charles Hodson Jr., state director of the National Federation of Independent Business, a nonprofit advocacy group with 6,000 members statewide. Doing so would send a symbolic message to an underrepresented constituency, he adds.

"It's a fairly narrow band of equipment that can be used, and unless you're a huge manufacturer, you're really not getting any benefit," Hodson says. "I understand we need to be looking for that silver bullet, like landing a Mercedes plant, but let's not forget about our small businesses and those that are already here."

The groups being led by Juneau and Hodson are also considering asking lawmakers to accelerate the phase-out of the state's tax on corporate debt. The mechanism, which collects upwards of $120 million annually for the state, is being eliminated over the course of seven years beginning this year.

Dan S. BornŽ, president of the Louisiana Chemical Association, says his membership's No. 1 issue for the coming year is eliminating the remaining 3.3 percent sales tax on the use of natural gas and electricity, the only levy of its kind in the nation. It originally was reduced from 3.8 percent during last November's special session, but BornŽ says the job needs to be finished in 2007.

"That impacts every business in the state that receives a utility bill," he says. "It also protects the petrochemical industry because we buy so much natural gas to keep generating power and electricity. We use natural gas the way a bakery shop uses flour, and that tax is eventually passed on to consumers."

Aside from the state's fiscal concerns, the biggest unknown next year will be how term limits -- during an election year -- will affect these issues. BornŽ says the lure of early retirement, coupled with the need to get re-elected, might make for a perfect situation for business and industry. Then again, it's something the Legislature has never faced.

"It's an election year like none other and the first of its kind," BornŽ says. "We'll be cruising uncharted waters because there's no telling what (effect) an election year layered with term limits will have on public policy issues and whether they gain traction. But I don't think it'll be a year where lawmakers are looking to tax anybody, so we're safe from that for now."

SIDEBAR Business and Industry 2007 Wish List If the state makes it through this year's hurricane season, and tax revenues continue at the current clip, lobbyists for business and industry could make a strong argument for more tax breaks. After all, it's been more than two years since the Legislature -- and governor -- gave them a nod.

Here's a quick rundown of a few items that would be included on the legislative wish list, according to the Louisiana Association of Business and Industry:

• Utility taxes: While the Stelly Plan tax swap did away with residential taxes on utilities, business taxes were overlooked. Given the unpredictability of fuel prices, this perk could go a long way toward maintaining and recruiting business.

• Accelerating the phase-outs: In 2004 the Legislature approved a gradual phase out on the corporate franchise tax on debt and the sales tax on manufacturing machinery and equipment. Both will be gone in four-to-six years, but an accelerated schedule or total elimination is preferable.

• Fix the insurance mess: With a surplus of state money expected before the end of the year, a solution to some of the insurance woes picked up post-Katrina could be closer than imagined. Prying money from lawmakers' hands during an election year, however, is easier said than done.

Jeremy Alford can be reached at jeremy@jeremyalford.com.

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