Lured by Louisiana, tech companies fall short of goals, raising questions about strategy - NOLA.com

More than five years ago, state and local elected officials announced with fanfare that software giant DXC Technology was opening a “digital transformation center” in downtown New Orleans.

The company promised 2,000 jobs in what Gov. John Bel Edwards billed as the state's largest-ever tech-focused economic development project.

Mayor Mitch Landrieu gushed that DXC was just the beginning. "As you've seen in other cities, once a flag is planted, it's what comes after that is incredible," he said.

But last May, Louisiana Economic Development quietly ended its incentive agreement with DXC — a package of state and local tax breaks worth as much as $18.6 million — after the company repeatedly failed to meet job and payroll benchmarks.

The Virginia-based DXC isn’t the only tech company that has fallen short of promises. A review of LED’s Mega Fund and Rapid Response programs — two economic development programs that offer companies cash incentives in return for job creation — show that at least five other national tech firms failed to meet hiring and payroll benchmarks, forcing the state to try to “claw back” incentive payments already made and, in some cases, terminate the agreements altogether.

It's hard to say how much it has all cost taxpayers. State officials say the cost is negligible, because when companies don't fulfill their pledges, the state insists on payback. But the fizzling of so many breathless announcements is a reminder that major economic development news is best taken with a healthy dose of skepticism.

Among the prominent local examples is High Voltage Studios, which makes software for the popular Fortnite video game. In June 2022, HVS agreed to end its incentive contract with the state after repeatedly failing to make even half of its required payroll, which was supposed to be $7.7 million by 2023. In fact, it never topped $1.6 million.

Gameloft, a French company that opened locally in 2014 and agreed to create up to 146 jobs, was another disappointment. It closed in 2018, after creating just 40 jobs.

And GE Capital shuttered its local offices in 2020 after missing payroll and hiring goals for at least five of the 10 years it was in operation here. It remains in a legal dispute with the state over how much money it is obligated to repay.

Incentive programs like the Mega Fund, which is used to attract large companies that promise to create at least 500 new direct jobs, and Rapid Response, which is for smaller and mid-sized companies, are typically aimed at manufacturing plants and industrial companies.

Over the past decade, two dozen or so manufacturers have inked deals with the state under the programs and, with a few exceptions, appear to be creating the jobs they promised, records show.

That’s not the case with the tech firms that were lured here under the programs, raising questions about the effectiveness of the incentives in bringing high-tech jobs.

Nurturing vs. luring

Some local tech entrepreneurs say the failures are a function of misplaced priorities. If state and city leaders spent as much time creating a skilled workforce as they do creating incentive packages for out-of-state companies, Louisiana’s tech sector would be healthier, they say.

“It is always sexy to go after a big employer who says they will employ 2,000 people,” said Courtney Williams, founder of the online learning platform Torsch. “But if we want companies to grow and stay here, we need to train workers and make changes to the education system now, from K-12 to higher ed and postgraduate."

Louisiana Economic Development Secretary Don Pierson defended the state’s record, arguing that unlike other industries, the dynamism of the tech sector means that some incentives will pay off while others don't.

“The fact that some companies fall short while others exceed their initial job projections is a natural byproduct of a dynamic and fast-growing industry,” Pierson said. “Some short-term volatility is inevitable, but the alternative — sitting out the digital revolution entirely — would create far greater risk for our state in the long term.”

While some big tech companies have been a disappointment, if not an outright flop, economic development officials point to other success stories that are still around and creating jobs. GNO Inc. President and CEO Michael Hecht said Accruent, Resilia, Excella and Turbosquid, the latter of which was acquired in 2021 for $75 million, were examples of a healthy tech sector.

For its part, LED says merely because the state had to terminate contracts or exercise claw back provisions with a handful of companies is not evidence of failed policies, but rather shows that LED demands accountability.

“From our vantage point, the big picture takeaways are that your IT business can flourish in Louisiana,” Pierson said. “And if you receive incentives, be prepared to execute your obligations or to return the funds to the state.”

State and local officials confected generous incentive packages to attract software and mobile app developers, video game companies and cyber-security firms. Deals typically included a variety of tax breaks, but could also include other perks like a new office building and upfront cash payments.

In 2015, Illinois-based gaming software developer HVS opened a New Orleans office on the 22nd floor of Place St. Charles, with a promise of creating 80 new jobs with salaries of between $50,000-$120,000 and a total payroll of $7.4 million.

In return, it received $150,000 from the state’s Rapid Response Fund and was also eligible for digital media tax credits.

But HVS had trouble creating the 10 new jobs required in the first year of the contract and continued to fall short every year thereafter. The contract was eventually terminated by mutual agreement and the company returned all $97,000 required by the state.

HVS continues to maintain an office in New Orleans, though its brightly colored desks and cubicles were empty on three recent visits. Neither company officials nor LED responded to questions about why it was unable to meet its hiring and payroll goals.

Hecht also could not speak to the specific challenges the company faced. But he says HVS’s local office continues to produce code for video game clients using local workers who, like many in the tech field, do their work remotely.

“Nobody is in their office, but they are still here, coding for Fortnite and other games,” Hecht said. “I still consider them a success.”

Paris-based Gameloft was another celebrated company that got money up front from the state to open a local coding studio in New Orleans in 2011. Among the provisions in the $1.97 million incentive package was a requirement that the company create 146 jobs by 2021.

But Gameloft’s offices on Canal Street never employed more than 40 workers. In 2018, it closed its doors for good. The state went after half the money it had paid the company, which came to $878,000. Gameloft, which has since been acquired by another gaming company, eventually repaid some $763,000, according to records provided by LED.

It is not clear why the firm did not repay the additional $115,000. LED declined to comment on specific claw-back provisions.

Unanswered questions

Other companies have not been as willing to return incentive payments. GE Capital announced it was coming to New Orleans in 2012 and received an incentive package that included $10.7 million in grants and $7 million in tax breaks. In return, the company agreed to create 300 new permanent jobs by 2015 with a payroll of $28.6 million.

The company began falling short of that goal almost immediately, forcing the state to go after the money it had already paid out. By mid-2017, the state had recouped about $530,500 from the company, according to records provided by LED.

The company closed its offices in Place St. Charles during the early weeks of the pandemic, laying off all 100 local employees.

LED spokesman Ron Thibodeaux said the state is seeking reimbursement for all outstanding funds owed for payroll shortfalls that have occurred since the inception of the deal. It's unclear how much that amounts to: LED declined to make available documents showing exactly how much GE still owes, because the matter has been turned over to an outside law firm for resolution.

GE could not be reached for comment.

Not only in New Orleans

New Orleans is not the only city in Louisiana that has had trouble retaining tech companies. EA Gaming, which opened a video game testing facility on the LSU campus in 2008 and was often touted as an exemplar of the state’s burgeoning digital media sector, recently laid off 200 employees and announced it has shifted testing of its popular Apex Legends game elsewhere.

The state had an incentive deal with EA, though it never paid the company directly, because EA failed to meet other expenditure requirements. But the state also had an incentive deal with LSU related to the EA deal. It paid the university $5 million to subsidize construction of a new building for EA and to help cover the cost of the company's lease payments, records show.

The IBM Services Center began operating in downtown Baton Rouge nearly a decade ago. The company has hit its hiring benchmarks in some years but fallen short in others, which prompted Gov. John Bel Edwards in 2017 to give it until mid-2019 to meet its goal of hiring 800 workers.

Records show the company actually exceeded its target that year and in 2020, but, since then, has failed to provide LED with data to show whether it has continued to meet its obligations.

The most recent publicly available data on the company’s job performance dates to 2021, at which time LED records show the state was “unable to determine whether IBM was meeting projections.” Since then, LED says it has received additional information from the company and is in the process of reviewing it.

LED adds that the company has voluntarily reduced its requests for reimbursement from the state by nearly $5 million over the years for falling below job requirements.

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