New Orleans Pelicans get millions in incentives for creating ‘quality jobs’ for NBA players

The New Orleans Pelicans receive a $3.65 million cash rebate every year from Louisiana — more than any other company — by counting its professional basketball players’ positions as newly-created direct jobs under the state’s Quality Jobs program, an economic incentive that’s supposed to encourage companies to create well-paid, full-time jobs for residents.  

In 2020, the Pelicans reported creating a total of 183 jobs with salaries averaging $608 per hour, according to documents from the Louisiana Economic Development agency received through a public records request. The wage rate is so high because it includes NBA players’ salaries in the Pelicans’ average wage.

The basketball franchise is an outlier among the companies receiving quality jobs rebates from the state. The company paying the next-highest hourly wage is Brown & Root Industrial Services with a rate of $68 per hour.  

The Louisiana Legislature established the Quality Jobs program in 1995 as a way to attract businesses. Under the program, the state provides between a 4% to 6% annual payroll rebate based on the total wages of newly-created jobs. The jobs must pay a salary of at least $18 per hour to qualify for the 4% rebate and at least $21 per hour to qualify for the 6% rebate.

Paying a higher average salary leads to a larger rebate for companies participating in the program, which explains why the Pelicans tax break is so generous. Most other companies in Louisiana don’t have multiple employees making millions of dollars in a single year. 

Louisiana’s only NBA franchise, which is owned by Louisiana’s wealthiest resident, Gayle Benson, has been receiving between $2.8 million and $3.65 million in annual payroll rebates since 2004 — back when the team was called the Hornets. 

Attracting an NBA team

For their part, the Pelicans have merely taken advantage of an opportunity the state provided the team years ago. 

Normally, the Quality Jobs incentive is available only to businesses from certain industries or businesses that have mostly out-of-state sales. The eligible industries include bioscience, manufacturing, software, clean energy technology, food technology, advanced materials, headquarters of multi-state businesses, aircraft MROs (maintenance, repair and overhaul), or oil and gas field service. 

As a NBA franchise, the Pelicans don’t fit any of those industry descriptions, but the state offered up the Quality Jobs incentive during its negotiations to bring the team to Louisiana in 2002. Pelicans spokesman Greg Bensel said the state included the 5% payroll rebate from the Quality Jobs program as a provision in its lease agreement with the team.

The Louisiana Legislature has amended the program many times over the years. In 2002 — the same year the state was trying to lure the basketball franchise to New Orleans — lawmakers passed a bill that allowed the team to qualify for the program. 

“When the Hornets were looking to relocate to New Orleans, one of the incentives that was offered to them by the state was this program,” Bensel said. “As part of their agreement to relocate to Louisiana, the Hornets were approved by the state to participate in this program.”

But the team’s participation has some lawmakers questioning the program’s return on investment.

State Sen. Jay Morris, a West Monroe Republican who sits on the Senate Revenue and Fiscal Affairs Committee, said he has generally supported the Quality Jobs incentive but was surprised to learn how the Pelicans have used it. 

“I didn’t know about that specific thing,” Morris said. “I am kind of shocked, though in general I’ve been supportive of the Quality Jobs program….because it requires we receive something in exchange for it — jobs — rather than some of the programs that give exemptions without requiring that anything be given in return for the subsidy.”

Questions raised about the program

The state lost a total of $140 million in revenue to 123 companies through the Quality Jobs Program, according to the Louisiana Department of Revenue’s tax incentives budget for the 2019-2020 fiscal year. Exactly what Louisiana is getting in return is more difficult to determine.

Proponents of Louisiana’s Quality Jobs program and other tax breaks say they are needed to attract businesses and create jobs, but opponents describe them as “corporate welfare” and argue the money would be better spent on improving roads, schools, child care, storm protection, healthcare and other infrastructure. 

State Rep. Barry Ivey, R-Central, said that Louisiana is giving more money to those 123 companies than to the state’s community colleges, where people could learn new job skills. 

“Instead of just giving money to a company, we could invest in our people,” Ivey said. “That’s what’s weird — we don’t invest in our people. We invest in companies, but we don’t invest in our people. We need to elevate our people.” 

Ivey said one of the main gripes he has with the Quality Jobs program and other business incentives is that they bypass the government’s system of checks and balances because the money isn’t tracked in the state budget bills. 

Other systems of government, such as the education and transportation departments, are funded through appropriations — meaning state legislators meet and vote every year on how much money to give to those departments. The Legislature doesn’t vote on how much money to give up or return through business tax breaks — and there are no caps on some of the tax incentives. 

In 2002, state lawmakers decided to no longer require that Louisiana Economic Development demonstrate a positive net benefit to the state for each company receiving the quality jobs tax break. The Louisiana Legislative Auditor cited this and other problems with the program in a report released just before the COVID-19 pandemic in 2020. 

According to that audit, since the program’s inception through 2018, the state gave $822.6 million to companies that collectively created 26,980 jobs. That averages out to a cost of $30,489 for every one job created, but it’s unknown how long those jobs lasted or how many of those jobs would have been created without the rebate.

The state auditors found that Louisiana Economic Development did not always notify the Department of Revenue when a company did not meet the job creation requirements. As a result, the state gave more than half a million dollars to six companies that either didn’t create the required number of jobs or failed to submit the documentation to show they created the jobs. 

Also, Louisiana Economic Development reports only estimates of newly-created jobs rather than the actual numbers. State auditors found that these estimates exceeded actual job-creation numbers by 113%. “As a result, this may lead the legislature and public to believe the program has a greater impact than it actually does,” the auditors wrote.  

That audit, however, has received little attention because it came out right before the coronavirus pandemic reached Louisiana in March 2020. Ivey hopes more lawmakers will have a chance to read it before the next legislative session begins next April, and it appears some are starting to pay attention. The Louisiana Tax Institute, a board of lawmakers, academics and other professionals who work to form new tax policy, is meeting Thursday to discuss the audit. 

Pelicans spokesman Greg Bensel’s full statement:

“The LED quality jobs program was established to provide companies with an incentive to either expand (creating new jobs) or relocate to Louisiana.  When the Hornets were looking to relocate to New Orleans one of the incentives that was offered to them by the State was this program.  As part of their agreement to relocate to Louisiana  the Hornets were approved by the State to participate in this program. This incentive was a provision of their lease agreement with the state. 

“The LED quality jobs program provides a 5% tax credit based on the total salary of the number of new jobs created.  In the case of the Hornets it was capped at 5% of the total payroll since the payroll included the salary of the players.  When the Hornets moved to New Orleans their 5% credit was less than the cap of $3.65 million.  Over time as player salaries increased we ultimately reached the cap of $3.65 million.  When Tom Benson purchased the team the lease was extended with the same terms, including the LED quality jobs program.  The high hourly rate is being driven by the player salaries but it was capped well before Tom Benson bought the team at the $3.65 million.”

“We go through an annual review process each year by outside auditors (KPMG) with the state to validate these numbers and get their approval for the quality jobs credit.”