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Tax help to keep firms in Illinois may raise demands
Question of the Day
SPRINGFIELD, Ill. — Under the threat of losing thousands of jobs and two prestigious employers to other states, Illinois officials are on the verge of approving a tax-relief package meant to keep retail giant Sears and the Chicago Mercantile Exchange from leaving the state. But now they face another question: Who's next?
As state senators sent the tax package to the governor's desk Tuesday, economic-development analysts said other companies are likely to threaten to move as well unless Illinois offers them more financial goodies. More than 100 companies, including Deere & Co. and Abbott Laboratories, have incentive packages set to expire in the next three years — and may want better deals.
Businesses thinking of moving to Illinois could demand even bigger incentives or play Illinois against other states in a bidding war, analysts said.
"Once it becomes known that you're giving incentives, other companies are going to ask for them. Why wouldn't they?" said Judith Stallmann, a professor at the University of Missouri at Columbia who has studied economic development.
The tax package includes $100 million in incentives for Sears Holdings Corp. and CME Group Inc., which runs the Chicago Mercantile Exchange and the Chicago Board of Trade. A smaller financial company, CBOE Holdings Inc., also would share in the tax relief.
To help reduce anger over the aid for those companies, the package also includes roughly $120 million in more general tax breaks for all businesses and about $110 million in relief for poor and middle-class families.
The business measures passed the Senate 44-9. The cuts aimed at families passed 48-4.
Economic development experts said states often have little choice when major companies threaten to depart. Losing companies as prominent as Sears and the Chicago Mercantile Exchange can be a major blow to a state's business reputation.
"When you think of Illinois, you think of both of these companies," said Tim Monger, former executive director if the Indiana Department of Commerce and part of a real estate brokerage that works with companies on site selection. Indiana has openly advertised for Illinois-based firms fed up with taxes and regulation to consider relocating across the border.
Illinois officials, even ones who support the tax-relief package, acknowledge that more businesses are likely to come forward with their hands out. Down the road, Republicans and Democrats are likely to battle over cutting income taxes, which were increased in January, or making other changes designed to improve the state's business climate.
Analysts say generous incentive packages aren't particularly effective in creating new jobs or retaining old ones.
A paper by Ms. Stallmann notes that one study found that just 10 percent of new jobs attributed to economic incentives actually were created by the incentives. Another study found that companies often don't hire as many people as they promised when the state aid was handed out.
By Matt Kibbe
The short-term deal will assure long-term overspending
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