Constitutional Amendment 5 would make it legal for local officials to bargain away billions of dollars in future taxes for one up-front payment.
By Rebecca McCarthy
Lake Charles, pop. 78,000, is a casino town and petrochemical hub in Southwest Louisiana that’s often described in terms of how long it takes to drive somewhere else. Going east on nearby Interstate 10, Baton Rouge is two hours away and New Orleans around three and a half, with Houston a two hour drive to the west.
Lake Charles recently made national news on its own, as one of the first U.S. cities ever hit by back-to-back hurricanes just six weeks apart. Hurricane Laura’s sustained 150 mph winds left the city in ruins in late August, and residents had barely begun to clear those debris when Hurricane Delta dropped more than 15 inches of water on Lake Charles in early October.
Lake Charles and other communities across Southwest Louisiana facing as much as $12 billion in hurricane damages to homes and businesses, and another $1.6 billion in agricultural and timber losses.
So a new tax break for the state’s dominant oil and gas sector might not seem logical.
But a measure on this year’s ballot could change the state constitution in a way that ultimately exempts the industry from property taxes in perpetuity.
This story is part of DRILLED Local's 2020 election coverage.
The measure, called Constitutional Amendment 5, would allow local governments to make deals with manufacturers for up-front property tax payments into municipal tax coffers, in return for waiving future payments on new or substantially enlarged manufacturing facilities, as long as a two-thirds supermajority of both houses of the state legislature approved the deal.
If voters approve the measure, Louisiana’s $73 billion oil and natural gas industry, which the state has already blessed with substantial property tax subsidies, stands to save billions more.
Amendment 5 has its roots in the oil and gas sector. Cameron LNG, a 502-acre, multi-billion-dollar natural gas export facility south of Lake Charles, has worked to get a measure like this passed in Louisiana for years, says Broderick Bagert of Together Louisiana, a grassroots coalition of community groups opposed to Amendment 5.
In 2016, Cameron LNG tried to make just such a “payment in lieu of taxes” agreement with officials of Cameron Parish (the county south of Lake Charles, which is in Calcacieu Parish), offering them a one-time $4 million tax payment up front to fund public projects, in return for the forgiving as much as $200 million down the line, says Bagert, on “a $12 billion facility” that is “the most valuable piece of property in Louisiana.”
But Cameron Parish District Attorney Jennifer Jones challenged the deal, and a state judge ultimately threw it out as illegal under the state constitution.
Amendment 5’s passage would legalize such deals permanently, says Bagert, who estimates that local governments statewide stand to lose from $1 billion to $2 billion a year in tax payments.
Republican State Senator Mark Abraham, who represents Cameron and parts of Calcasieu parishes, as well as other parishes hard-hit by hurricanes Laura and Delta, is the sponsor of Amendment 5, acknowledges that local governments might cut bad deals that would benefit them in the short term, while giving away massive amounts of oil and gas industry tax money down the line.
But Abraham insists that the subsidy Cameron LNG would receive as a result of Amendment 5 would be merely a dollar-for-dollar loan, while cash-strapped parishes would be able to borrow against future tax dollars to fund schools, libraries, bridges, levees, and other public projects.
“Is it possible that the local government could give away the store? I guess it’s possible. But it’s highly improbable,” Abraham says, because local and state officials would block such moves. “Usually, a local official is very close to his constituents. So I believe the odds of giving away the store are almost none, even though technically, it could happen.”
But Louisiana already does give away the store. The state effectively gave up $1.5 billion of tax revenue in 2018 alone under its Industrial Tax Exemption Program, which absolves large manufacturers of property taxes for their first ten years of operation. Amendment 5 could make those exemptions permanent.
According to Cameron Parish records, Cameron LNG would have owed the parish more than $290 million in property taxes in 2018, but paid just under $32,000 thanks to the ITEP waiver. In 2019, the firm paid about $105,000 on bills totalling $246.3 million.
Cameron LNG has received about $3 billion in tax abatements over the past decade, Bagert says, money that cities like Lake Charles could have used for public schools and other civic services, and saved ahead for disaster relief.
Cameron LNG did not respond to repeated requests for comment.
Mary-Patricia Wray, a Baton Rouge-based political consultant currently working with an anti-Amendment 5 organization called the Louisiana Taxpayer Education Fund, believes there is still a shot at preventing the amendment’s passage. “I can tell you from experience that it’s much easier to get people to vote no on a constitutional amendment than it is to get them to vote yes,” says Wray, who also teaches Louisiana constitutional law at Tulane University Law School.
But should it pass, the resulting fiscal shortfalls would be disastrous for local governments, she says, which have little fat left to trim from their budgets thanks to the ITEP.
“We’ve cut essential services to the bone most everywhere in Louisiana, both at the state level and the local level,” said Wray. “Our schools never get better, our communities never get safer. We’re paying more for less.”
To preserve even a skeleton of local bureaucracy, she fears that lawmakers will hike individual tax rates, such as sales and income taxes.
Since early voting started on Oct. 16, Together Louisiana has been phone banking, distributing yard signs, and holding weekly house meetings over Zoom to encourage voters to reject Amendment 5. But there seems to be little pushback from elected officials, who approved Amendment 5 for the ballot in mid-May amid the coronavirus crisis. “In the COVID session, with everybody on lockdown, they ran it through,” says Bagert.
Meanwhile, government officials recently told Lake Charles residents who evacuated to New Orleans due to the hurricanes that they needed to leave their hotel rooms, which had been covered by federal disaster funds, and return to their homes. Several of the evacuees told a reporter for WWL New Orleans Eyewitness News that the support was being withdrawn even though their houses are still uninhabitable.
“I think it’s terribly unfair,” said Kathleen Randall, who lives in Baton Rouge and volunteers with Together Louisiana, “multinational corporations being relieved of a tax burden and the burden therefore being placed on the individuals who can least afford it.”
Rebecca McCarthy is a freelance writer based in Philadelphia. @clearymccarthy