Posts Tagged ‘Illinois’

The Apoplectic States of America

December 18, 2013


At the risk of sounding like newscaster Howard Beale in the movie Network, when he instructs his viewers to go to their windows and yell out: “I’m mad as hell and I’m not going to take this anymore!” the state of economic development in America today is positively apoplectic.

I don’t say this flippantly, and I’m not saying this just because we here at Good Jobs First swim every day in reports of job subsidies gone awry. I think it’s objectively true that the ruinous economic war among the states is boiling over. Here’s my evidence:

The number of deals for which states and cities can compete remains very depressed, so those elite companies that can move lots of capital and jobs—or threaten to move—are taking it to the bank. That’s why the number of big-ticket “megadeals” has surged since 2008. The corporate rich are getting richer—on subsidies. That’s why Boeing can get 22 states to rapidly assemble bids for its third public auction in 10 years. That’s why “job blackmail” for eight and nine figures at a pop is rampant in states like Ohio and New Jersey and Illinois.

Deal supply is down and demand for deals is up (i.e., anxious politicians). Put those curves together and the price soars: you get megadeals averaging $456,000 per job. Does anyone seriously believe taxpayers can ever break even on such gold-plated giveaways?

Never before has a governor made interstate job piracy a partisan sport. But there goes Texas Gov. Rick Perry doing it six times since February and pledging to continue. And there sit the National Governors Association—and all the regional governors’ associations—mute and MIA.

Never before has there been a concerted effort by a group of business leaders in a multi-state metro area to forge a two-state cease-fire. But since April 2011, seventeen business leaders in the Kansas City metro area have tenaciously yelled publicly at and negotiated privately with Missouri Gov. Jay Nixon and Kansas Gov. Sam Brownback to fix the abuse of job subsidies that has already wasted more than a quarter-billion dollars on short-distance corporate relocations.

Jobs have become so politicized that some governors have chosen to create captive non-profit corporations —“public-private partnerships”—and privatize critical economic development functions, loading their boards with campaign contributors and creating structures that often evade basic safeguards such as open records laws, audits, and salary caps.

Then last week began a remarkable series of events in Illinois. The state’s House, thwarting the Senate, refused to approve subsidy packages to three companies including Archer Daniels Midland (ADM), the agribusiness giant with $90 billion in sales that wanted $30 million to keep its headquarters in the Prairie State. The stunning turndown spoke to enormous public anger over past job blackmail packages to Sears, CME, Motorola Mobility, Navistar International, and many others—given away while the state substantially raised its personal and corporate income tax rates, and also cut public employee pensions.

Then came the Howard Beale moment: Illinois House Speaker Michael Madigan, who has been Speaker for 28 years, and who holds enormous power that he exercises with great caution and restraint, put out a scorching statement:

We must resist the temptation to cave to corporate officials’ demands every time they impose a deadline for payment in exchange for remaining in Illinois, and end the case-by-case system of introducing and debating legislation whenever a corporation is looking for free money from Illinois taxpayers. This practice creates an unsettling and worrisome appearance of some new kind of corporate pay-to-play, which should be troubling to other business leaders and their shareholders, public officials and Illinois taxpayers. …Presently, four Illinois corporations are seeking… tax breaks or incentives. If their requests are approved by the Legislature, these corporations would, collectively, see their tax burdens decrease by approximately $67 million. The companies requesting these taxpayer-funded breaks currently pay little to no corporate income tax to the state, contributing little or nothing to help fund the very services from which they benefit significantly. Meanwhile, middle-class families continue struggling through a recession and job loss. So I find it very difficult to support tax giveaways for corporate CEOs and millionaire shareholders whose companies pay little in state taxes. I question our priorities when corporate handouts are demanded by companies that don’t pay their fair share while middle-class families and taxpayers face an increasing number of burdens. According to the 2011 census data, the per capita income for an Illinois resident is $29,376. Assuming a 5% state tax rate, more than 45,000 new individuals would need to begin paying income taxes to make up for the lost revenue… … without new revenue, these giveaways are only possible by making additional cuts to crucial programs that impact working men and women across Illinois.

What’s in your Speaker’s blog?

And now comes news this morning that ADM has decided to keep its corporate headquarters in Illinois, relocating it from Decatur to Chicago (although some tech center jobs remain in play). The state called ADM’s bluff! Howard Beale prevailed!

Buckle up for 2014; we’re heading into turbulence!

Sears: Now Come the (Penalty-Free) Headquarters Layoffs

February 20, 2012

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.