As I foreshadowed on January 5, despite a huge subsidy package enacted by the state of Illinois in December, Sears Holdings Corp. has already announced layoffs at its headquarters in the Chicago suburb of Hoffman Estates. Last week, the retailer announced that 100 HQ staff will be laid off.
This after the chain announced on December 27—just 11 days after the subsidies were signed into law—that it will close as many as 120 stores nationwide.
That December deal, valued at up to $275 million, came after Sears threatened to relocate in headquarters to another state. Its predecessor company, Sears, Roebuck & Co., played the same “job blackmail” game in 1989. The $168 million, 23-year deal it won then was soon to expire when Sears Holdings announced it might again be footloose.
Everything about these two episodes demonstrates what is wrong with economic development in America today. The 1989 subsidy package paid Sears to abandon its famous Tower in Chicago’s transit-rich Loop and relocate 29 miles northwest to an area which then did not even have a transit bus line—one of the most egregious cases of state-sponsored sprawl in U.S. history.
To enable the subsidy, the state had to pervert its tax increment financing (TIF) law to allow “greenfield TIFs,” a tax-revenue problem that plagues the state today, as TIF diverts more than $1.2 billion from public services a year.
Some Chicagoans saw the 1989 exurban flight as symptomatic of Sears losing touch with its historically urban customer base, and little has happened since to contradict that idea. Now controlled by a hedge fund manager, Sears has been losing market share for years, and analysts have noted that it is reinvesting far less in its stores that it is taking in depreciation charges (not to mention costly stock buybacks).
Neither the 1989 nor the 2011 subsidy packages are structured to specifically address the company’s decline. Worse, the 2011 package reportedly allows Sears to shrink by another 1,750 jobs: with 6,000 remaining HQ employees, the deal allows the company to keep collecting the tax breaks as long as 4,250 employees remain.
Like I wrote in a blog last August: when an ailing company asks for a tax break, the wisdom of the plant-closings movement tells us: tax avoidance can be one form of corporate disinvestment, another early warning sign of job loss. Put another way: if a company doesn’t see a future in the community or the state, why should it keep investing in the schools or roads or universities? The alarm bells are loud and clear.
For better or worse, Illinois and Sears are stuck with each other. So what should state leaders do? Most are trying to make light of the Sears layoff news, emphasizing the jobs that remain. But taxpayers would be far better served if public officials said to the company: we demand that you use the subsidies we are giving you to vigorously reinvest in your stores, hire more executives with retail expertise, stabilize your market share and secure Illinois jobs.
With their 1,750-job layoff loophole, Illinois politicians don’t have the formal authority of fine print. But they do have a whole lot of angry taxpayers who would rally behind such a position.