Lawmakers: Tax-break deals need more scrutiny
CHICAGO – Once again Illinois lawmakers are considering a list of tax breaks and other incentives to keep some companies in state and attract others – would-be deals that even many supporters say the state needs a more comprehensive method to scrutinize in the future.
The most widely publicized would give up to $24 million to an agribusiness giant, Archer Daniels Midland Company, to keep a new global headquarters in the state.
Another would give breaks to the company that emerges from the soon-to-be-completed merger of OfficeMax Inc. and Office Depot Inc., if it chooses Illinois as it headquarters rather than Florida.
Others would give perks to makers of online video games and a chemical distribution company contemplating moving its headquarters to Illinois.
Lawmakers meeting this week in the fall legislative session are typically under pressure to act. But there’s no certainty the packages would be approved if they’re called for a vote. Illinois’ troubled finances make the timing difficult and there are still some doubts about the wisdom of big deals the state has offered other companies in recent years.
Even if some of the proposed incentives are approved, some lawmakers say there’s a feeling in Springfield that a harder look is needed at how Illinois grants tax incentives and other perks.
“There are some of us, we talk about it a lot. We’d love to make it happen,” said state Rep. David Harris, an Arlington Heights Republican. “It’s not going to happen in the next two weeks, I can tell you that, but it does need to happen.”
The state’s primary tools for businesses it’s either trying to keep in Illinois or recruit to the state are so-called EDGE tax credits. Officials with the Department of Commerce and Economic Opportunity tout how the credits come with job-creation or retention requirements and provisions that require companies to give money back if those goals aren’t met.
Economists – most of whom don’t like the tax breaks – say that seldom if ever are such incentives a deciding factor in whether a company relocates. But with the difficult economy in recent years and rival states’ governors making highly publicized appeals to lure away companies and jobs, politicians find themselves in a position where it’s exceedingly difficult to say no.
Illinois’ almost $100 billion in unfunded pension liabilities, multibillion-dollar backlog in payments to service providers and 2011 temporary income tax increase make the state particularly vulnerable.
“I can see where it’s like having a gun to your head, and what are we going to do?” said Therese McGuire, a professor of management and strategy at Northwestern University’s Kellogg School of Management.
In 2011, Illinois agreed to a deal worth several hundred-million dollars for Sears Holdings Corp. and CME Group Inc., which operates the Chicago Mercantile Exchange, after both threatened to leave the state. The deal was paired with an earned income tax credit for average Illinoisans to make it more appealing.
Among the incentives deals that could come up during this week’s session in Springfield:
• Under ADM’s plan to establish a new global headquarters outside Decatur, the city will keep thousands of jobs, but 100 at the top of the company are going elsewhere. Chicago is considered a top contender among a number of interested cities, and Illinois lawmakers quickly put together a $24 million incentives package.
State Sen. Andy Manar, a Bunker Hill Democrat, last week added an amendment requiring that the company create more jobs in Decatur, a proposal the company supported. But Gov. Pat Quinn has promised to veto the ADM package unless lawmakers fix the pension crisis first.
• Officials aren’t yet discussing the exact value of the OfficeMax request, but the Naperville-based company would have to retain about 2,000 jobs and create about 200 more. Company officials plan to make a decision where to base a new headquarters by the end of the year.
• Zurich North America insurance wants a payroll tax break in exchange for relocating its Schaumburg offices to another location in Schaumburg. The company would retain 1,000 jobs, create at least 250 more and make capital investments of at least $128 million.
• Univar, a chemical distribution company based in Redmond, Wash., is seeking incentives worth $5 million to move its headquarters to Downers Grove. Univar would keep 100 jobs at its two current Illinois locations and add at least 69 jobs.
• Fred Crespo, a Hoffman Estates Democrat, is pushing incentives legislation for High Voltage Software, a video-game maker in his district. The bill would give the company tax credits it says it needs to compete with mainly Canadian competitors.
Barbara Flynn Currie of Chicago, the second-ranking Democrat in the Illinois House, has called the requests for such tax breaks the equivalent of blackmail. But she says she isn’t sure the General Assembly can do anything more ambitious to evaluate the incentives in a larger, systematic way.
“Legislating that, you can’t do,” she said. “It becomes very difficult if there are companies out there that want to use those incentives.”
But Manar believes legislation Quinn signed into law in May will provide at least a start. The law, which Manar sponsored, requires DCEO to develop an economic plan for the state by mid-2014 and update it every year, including a review of tax credits and how they’re handled.
“Clearly it’s a necessary piece,” Manar said. “I’m anxious to see how we can make it better.”