Business of Politics

State collecting on un-met business incentives

by Jeremy Alford, LaPolitics

Over the past 24 months 15 companies have paid back to Louisiana Economic Development $8.3 million in reimbursements to the state for up-front business incentives because the companies did not measure up to expectations outlined in their cooperative endeavor agreements.

Over the past 24 months Louisiana Economic Development has seen 15 companies pay back $8.3 million in reimbursements to the state for up-front business incentives they were provided to relocate to or expand here.

The money had to be returned to the state because the companies, most often due to unforeseen market conditions, did not measure up to expectations outlined in their cooperative endeavor agreements.

The issue made a splash in statewide news coverage last month as a handful of companies that had received incentives announced plans to make layoffs, shutter operations or abandon construction.

That’s why, LED Secretary Don Pierson said, that the state requires contract language, in the case of discretionary incentives, that compel companies to reimburse. For statutory incentives, or those established by law, LED also builds in performance-based rules.

The number of projects that have triggered clawbacks in the form of reimbursements or reduced payments so far this year has been four, valued at a total of $134,357. But more could be on the way as reporting deadlines draw near.

AAR’s aircraft maintenance operation in Lake Charles is one of the latest that has observers concerned. Expansion plans appear to be slowing and LED is currently evaluating the company’s performance — an analysis that may lead to a reduction of our reimbursement of AAR’s capital expenditures.

LED Secretary Don Pierson

“We are working hard to support AAR in its goal of continuing and expanding operations at its Chennault International Airport facilities,” Pierson said. “The company is actively pursuing long-term contract with major airlines and air transport companies. In the event that the company were to close its facilities before Sept. 30 — an outcome we are working hard to avert — the company would owe approximately $490,000 to the state for payroll underperformance in the project year ending Sept. 30, 2015. The company also would owe the state of Louisiana $2 million for unmet performance targets in future project years.”

Over the past couple of months, Bell Helicopter changed its jet production plans in Lafayette and Union Tank Car moved forward with lay offs in Alexandria.

Bell Helicopter is not in an underperformance situation right now, Pierson said, but the company would owe the state a reimbursement equal to 30.5 percent of any payroll shortfall should it not create 75 jobs by the end of the calendar year.

Union Tank Car did have payroll underperformance issues and has made clawback payments totaling $1.7 million.

Nucor announced plans in December to shutter its St. James Parish steel mill. Pierson said Nucor and the state “continue to maintain a positive dialogue about the company’s existing facilities and investment, as well as constructive discussions about potential future investment in Louisiana.”

To date, Nucor has received a $30 million performance-based grant. Due to the company’s decision not to move forward with another phase of capital investment, Nucor is repaying $30 million in state bond obligations.

Pierson said it’s important to note that sometimes clawback penalties are not fully invoked. If a company produces a portion of what they projected, LED will provide a portion of the incentive benefit at a reduced rate. Often a reduction is in a scheduled payment to the company, he added, because the company will typically have to demonstrate performance before gaining a benefit from the state.