How competitive is Louisiana? News is mixed bag

The National Association of Manufacturers (NAM), in conjunction with the Association of Washington Business, publishes an annual “Competitiveness Redbook” that uses a compilation of key economic indicators to measure how states’ business climates stack up. The “Redbook” is an offshoot of a major study NAM conducted in 2003 that showed how the structural costs imposed by governments on manufacturers threaten their ability to compete.

There is good news and bad news for Louisiana in the study.

When it comes to manufacturing, it is obvious that Louisiana should move heaven and earth to attract and maintain manufacturing jobs. Our state ranks second in the nation in wages on an hourly basis ($20.64) and value added per worker hour ($323.44).

Louisiana leads the nation in investment per employee in manufacturing ($31,125). Manufacturing is obviously providing a sound base of high wages and strong investment in the overall economy in Louisiana. Incentives to increase it should be targeted, and impediments that impact it should be removed.

Two of the major drawbacks to competitiveness in Louisiana appear to be in the areas of taxation and utility costs.

In the category of business taxes as a share of all state and local taxes, Louisiana ranks sixth highest, with a total of 60.6 percent of all of the taxes paid for by business, compared to a national average of 44.9 percent. Conversely, Louisiana ranks 31st in total state and local taxes per capita ($3,173). Louisiana’s reputation for keeping individual taxes low by keeping business taxes high continues. One of the major taxation imbalances continues to be in the property tax.

The “Redbook” compares property taxes in the largest city of each state, first being worst and 50th being best. For residences, Louisiana ranks 41st in effective tax rates on property (0.92 percent). For commercial property, Louisiana ranks 19th with an effective tax rate of 2.42 percent. Industrial property ranks 6th with an effective tax rate of 2.48 percent.

Electricity costs also hinder business competitiveness in Louisiana. Louisiana’s index of electricity costs is 114.5, with 100 being the national average for a ranking of 16th highest.

Some steps have already been taken that should ultimately help Louisiana’s competitiveness ranking.

The state sales tax on manufacturing machinery and equipment will be fully phased out by July 1, 2009. Louisiana’s franchise tax on corporate debt is also being phased out and should be totally removed within the next three years. Likewise, the current state sales tax of 3.3 percent on business utilities will be totally removed by July 1, 2009. Those taxes are not collected by most other states. Removing them will give Louisiana more of a level playing field but not a competitive advantage over other states.

The manufacturing base of Louisiana is centered in industries such as petroleum refining, chemicals and petrochemicals, forest products, seafood processing, and durable goods. Each job that we create in these and other areas of manufacturing has a significant positive multiplier effect in our state’s economy.

Each of these jobs that we lose has a corresponding negative impact. The advantages Louisiana has, compared to other states, center upon a fair wage structure and generally low land and rental costs.

The “Competitiveness Redbook” gives a decent road map of what Louisiana needs to do to be more successful in expanding and maintaining manufacturing jobs. A major part of that equation is to compete more effectively in the areas of utility costs and taxation, particularly in the inequities that exist in property taxation in our state.