A city of New Orleans agency that’s responsible for tens of millions of dollars in tax breaks is in need of a standardized and transparent set of policies for determining which projects should receive the incentives, according to a city watchdog.
A public letter issued Tuesday (Aug. 6) by New Orleans Inspector General Ed Michel raised concerns over how the Industrial Development Board of New Orleans chooses to approve payments-in-lieu-of-taxes deals, also known as PILOTs, in the city. PILOT deals allow developers to forgo annual property taxes, instead agreeing to pay local taxing bodies a fixed rate, which is typically lower than a property’s potential tax burden. Such deals, which can last for decades, are used to attract economic development to the city.
Michel’s letter encourages the IDB to adopt formal policies for evaluating PILOT applications with explicit criteria in line with the city’s overall economic development goals.
This is not the first time the IDB has been subject to this criticism. As the letter points out, the board received similar recommendations in 2018 from a consultant hired to evaluate the city’s economic development programs. But it has yet to implement those recommendations.
The stakes are high for the city. According to the 2018 report, the IDB’s PILOT program cost $109 million in property taxes between 2007 and 2016 but failed to attract the high-paying jobs developers often promise. The report found that city PILOTs create 175 jobs per project, on average, with an average annual wage of $36,750. That report called on the IDB to improve its PILOT approval process “to increase accountability.”
“Transparent policies and procedures will reduce opportunities for fraud, waste, and abuse while ensuring efficient administration of the PILOT program and good stewardship of the City’s tax dollars,” Michel said in a Tuesday news release.
Representatives for the Industrial Development Board did not immediately respond to request for comments Tuesday. But city officials defended PILOTs as a critical tool to attract development to New Orleans.
“The IDB’s PILOT program is an important tool to support economic development,” the New Orleans Office of Economic Development said in a statement. “While all processes have some room for improvement, the IDB engages in a transparent and public process for each proposal received. The City looks forward to working with the IDB and the OIG to clarify and update existing processes and to continue to improve the economy for all New Orleanians.”
The letter comes after months of scrutiny over the city’s use of tax breaks following the award of a $21.6 million tax break PILOT to developers of the River District development to spur the construction of a new regional headquarters for Shell. Unlike most PILOT deals in the city, the River District tax break was not granted by the Industrial Development Board but instead facilitated by the New Orleans City Council.
Still, public upset led to renewed scrutiny over the IDB and how it approves PILOTs — a fact that some IDB members have bemoaned at recent public meetings and in interviews.
“We don’t understand, as the board, why all of a sudden things are being proposed regarding us as a board and our make-up at the legislature with no conversation for us as to why,” Iam Tucker, vice president of the Industrial Development Board, told Verite News in an interview in May.
IDB lacks clear criteria for approving massive tax breaks
At the heart of Michel’s letter is the fact that the Industrial Development Board lacks clear criteria for how and whether it approves a proposed PILOT.
PILOT deals can be used to lessen or eliminate the property tax burden of a development or project.
There’s a small armada of agencies that can issue PILOTs, including Finance New Orleans, the New Orleans Port Authority and the Exhibition Hall Authority. But the most prolific granter of PILOTs in New Orleans has been the Industrial Development Board, which has the broadest latitude of any local public entity when it comes to approving PILOTs for new developments. Recent recipients of PILOTs with the IDB include Five O Fore Golf, the South Market mixed-use development and Starlight Studios.
Currently, the Industrial Development Board uses a one-page flow chart to detail its four-month approval process, which includes conducting analyses of the proposed projects to determine whether their value would outweigh their cost. But according to the Inspector General’s review, the board does not have clear set of criteria or a formal process, such as a scoring matrix, as to how to apply these analyses to their decision-making.
“The lack of standardized selection criteria allowed opportunities for outside influence to affect the selection process, potentially overlooking concerns, and using limited resources on projects that did not meet the City’s social and economic policy goals,” Michel wrote in the letter.
The Bureau of Governmental Research, a public policy think tank, has long been calling for a more robust review of the city’s granting of PILOTs, most recently in an April report sent to New Orleans City Councilmembers Helena Moreno and JP Morrell. The independent government watchdog called on the city to take a strategic approach to PILOTs centered on establishing criteria that help facilitate job creation or area redevelopment.
“It really shouldn’t be the developers that are driving the bus,” said Rebecca Mowbray, the group’s president and CEO. “It really needs to be the community sitting down and deciding what are our priorities as far as economic development. Where would we like to create incentives? It flips things around so developers are responding and offering proposals that meet our present criteria.”
The Industrial Development Board does require developers to use local workers and minority-owned businesses in their projects. However, in an interview, Michel noted that many of the jobs associated with PILOT projects are in construction, meaning that they are not long-term.
In recent months, both local and state lawmakers have turned their attention to both the IDB and how public agencies greenlight PILOTs.
This spring, state Rep. Jason Hughes, D-New Orleans, introduced legislation to add seats to the Industrial Development Board representing taxing bodies, including the school board and the sheriff’s office. That proposal never made it out of committee.
In February, Morrell and Moreno announced they would review and update the city’s policies around economic development incentives.
“Prior to the report, Councilmember Morrell was already working on a resolution for possible reforms to the Industrial Development Board,” Monet Brignac, communications director for Morrell, told Verite News. “At this time, our office is still reviewing the report by the OIG and we will consider any suggestions that the IG may have.”
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