State Pockets Go Deep for Business

MARCH 16, 2009

   By now, Timmy Teepell has learned more about the poultry
business than he ever wanted to know. The governor's chief of
staff has been the state's point man on a bold rescue plan for
a chicken processing plant to be closed next month in
Farmerville following the bankruptcy of its owner Pilgrim's
Pride. Not only would 1,300 workers lose their jobs, but 300
independent growers face economic ruin from debt incurred
upgrading their facilities to the standards required by the
company.

   Teepell committed $20 million from the state to match that
amount from a California firm bidding to buy the plant, with
an agreement that the new owner maintain the workforce for
five years. When Pilgrim's Pride rejected the offer, Teepell
doubled the government's ante to $40 million of a $60 million
total, with reports the state could go higher still.

   If a deal is struck, it would mark a blessedly happy ending
for employees and growers as well as state and local
officials. Happy, yes. Ending? Don't count on it.

   When area legislators, in a hearing at the State Capitol,
heaped praise upon the administration for stepping up to the
crisis, other North Louisiana members were quick to remind
that the wood products industry, hit by closures and idlings
of paper mills, is going through a slow-moving crisis just as
severe.

   As the national recession creeps closer to Louisiana, how
long will it be before Teepell again dons his Superman's cape,
refills his briefcase with cash and darts off to the aid of
another state business in distress?

   The administration's decisive and costly action is made
possible by the state's so-called Mega Fund, $414 million the
governor had set aside last year for incentives, such as
infrastructure improvements, to businesses looking to locate
here or to existing firms considering expansion. The Pilgrim's
Pride venture appears to create a new category of business
bailout.

   Assuming the chicken deal works out, it's unclear what the
state gets for its $40 million-or-more intervention, besides
keeping 1,600 families whole. No ownership interest was
mentioned. Market conditions are questionable as its current
owner cites an industry-wide over-supply of chickens due to
people eating out less.

   It still could be the right thing to do, but the governor
and Legislature need to decide some policy to guide future
corporate rescues, since this likely won't be the last.

   Or the first. The state has been subsidizing businesses for
years, most famously the New Orleans Saints, due $23.5 million
this year and next to finish a 10-year, $186 million payout.

   And the Saints have nothing on the new golden child of
corporate welfare: the movie business.

    Through its Movie Production Tax Credit Program, the
state, in effect, covers 25 percent of a film company's in-
state expenses and 35 percent of its in-state labor. This has
brought producers flocking and has catapulted Louisiana to the
third leading movie-making state, behind California and New
York.

   A state-commissioned economic study released last week
counted $462 million in direct spending on movie production in
2007, including 3,000 direct jobs paying on average about
$35,000 per year, a $105 million payroll.

   On the other side of the ledger, the state paid out $115
million in tax credits to investors, who purchased them at a
discount from the movie producers. Minus state taxes paid on
film projects, the net cost to Louisiana was $101 million--or
about equal what those 3,000 direct jobs paid.

   It's a new, clean, glamorous industry, but not cheap. A
bunch more economic development like it would break the state.

   To save money, two years ago legislators decided to phase
down the credits, to 20 percent in 2011 and 15 percent in
2013, with the expectation that the movie industry would
better establish itself here by then.

   But with other states now offering competing movie tax
breaks, creating what Economic Development Secretary Stephen
Moret calls an "incentive arms race," Gov. Jindal now proposes
keeping the credits at 25 percent, or $100 million or so a
year as long as the cameras are rolling.

   He and the Legislature have little choice. Neither wants to
be known for losing Hollywood on the Bayou. Or the Saints. Or
the chicken growers. Or . . . who's next?