New Orleans’ Industrial Development Board (IDB) has not been a good steward of the city’s fiscal resources because of its lack of formal and transparent policies and procedures that would have held fund recipients more accountable to the IDB’s stated requirements for PILOT projects, according to a new report by the New Orleans Office of the Inspector General.
Inspector General Ed Michel suggested that the city has potentially lost hundreds of high-paying jobs and millions of dollars in taxes because of the IDB’s sloppy operating procedures during an almost four-year period. “Transparent policies and procedures will reduce opportunities for fraud, waste, and abuse while ensuring the efficient administration of the PILOT program and full stewardship of the City’s tax dollars,” said Michel in a prepared statement.
The report also indicated that IDB must regularly evaluate the PILOT program to assess its effectiveness. Since 1973, the IDB has funded over 100 projects through bonds and PILOTS, representing nearly $2 billion of capital investment.
PILOTS – payments in lieu of taxes – are an economic incentive program through which developers are provided a tax break for a fixed number of years. In exchange, developers create new jobs, retain existing ones, and revitalize underutilized or blighted sites. Some developers and public officials view PILOT subsidies as “free money,” according to a recent letter sent to city council leaders from the Bureau of Governmental Research (BGR).
Over the years, the IDB- a non-profit public corporation whose members are nominated by Mayor Cantrell and the New Orleans City Council – has approved dozens of PILOTS for housing and other economic development projects, including Five O Fore, controversial golf entertainment project currently under construction at 3800 Howard Avenue.
Although the IDB’s trusted consultant reviewing Five O Fore’s application to the agency did not recommend that a complete PILOT be offered then, the IDB special counsel from Adams & Reese pushed board members to grant preliminary approval. IDB member Steven Kennedy, a developer and planner, made the motion to support Five O Fore which Ernest Gethers, a retired city economic development official, seconded. The vote was unanimous.
IDB member Dr. Eric Jones, who has since raised numerous questions about Five O Fore, was not present at that meeting, nor was lawyer Kea Sherman who had resigned from the board and is being replaced by Currita Waddy. Separate attorneys from the Adams and Reese firm are thought to represent Five O Fore on other legal matters, which some consider a conflict of interest.
Five O Fore is required to present quarterly reports to the IDB. In their last presentation, a Five O Fore representative freely admitted that the company’s local hiring goals had not been met during construction but pledged to exceed local hiring goals during the operational phase. The primary contractor for the Five O Fore project is not a Louisiana-based company and might have brought in out-of-state employees, especially for senior positions. Several subcontractors, including Frischhertz Electric, are Louisiana-based and should not have had problems meeting local hiring goals.
By not meeting these goals during construction, local workers lost the opportunity to fill high-paying construction jobs, better support their families, and further contribute to the local economy. During the project’s operational phase, many more jobs will be lower-paying service industry positions that may not provide similar wages and advancement possibilities.
BGR made several recommendations to the City Council regarding strengthening the IDB’s internal operations. Those suggestions include that IDB adopt firm eligibility criteria, rely on expert analysis of developer requests, follow a transparent and consistent subsidy approval process, institute clear compliance measures, and provide for program-wide oversight.
