Gov. Bruce Rauner describes his decision last week to rein in corporate tax breaks as more effective and fair through demanding that recipient companies create jobs rather than merely preserve what they have.
But the new steps, which also include eliminating special tax breaks for big companies with clout, were met by complaints from business advocates that they will limit Illinois’ ability to compete with other states. On the flip side, longtime critics of state corporate tax breaks say Rauner’s approach doesn’t go nearly far enough.
Both camps say it’s time Illinois has a deeper discussion about how it courts businesses and jobs in a climate where the state has a serious shortfall of revenue, companies use the breaks to pit one state against another and many economists say they don’t work.
The changes would affect any new deals the Department of Commerce and Economic Opportunity makes in the state’s EDGE program, which stands for Economic Development for a Growing Economy. But Rauner says there will be no new deals before he and lawmakers agree on a long-overdue annual state budget.
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If the state can no longer reward job retention, President Todd Maisch says, he’d like talk about potentially deeper changes, “and start from scratch.”
A news release announcing the changes called them “a more fiscally-responsible approach” to agreements under the EDGE program, which has generated substantial controversy in recent years. Here’s a look at that history and Rauner’s changes:
In Illinois and elsewhere, tax breaks for companies considering a new location or a move have long been criticized by experts who believe they play little if any role in companies’ decision making.
Illinois’ breaks have drawn particular scrutiny in recent years. In 2011, then-Gov. Pat Quinn agreed to hundreds of millions of dollars in special tax breaks for Sears Holdings Corp. and CME Group when the companies threatened to leave the state.
The Chicago Tribune reported recently that in many cases companies given state tax breaks don’t create any new jobs and sometimes cut the total number of employees.
Rauner, a Republican, suspended the EDGE program after taking office. But he delivered nearly $100 million in job-based tax credits to online retailer Amazon when it opened a Joliet warehouse because he said the deal was already in the pipeline. Amazon said it would create 1,000 full-time jobs.
The special tax breaks to Sears and CME Group are at the top of the list of Rauner’s changes. According to DCEO, they won’t happen anymore because they have only been available to major companies with the clout to lobby for them.
That change is a good one, said Rep. Jack Franks, a Democrat and longtime critic of EDGE credits. “It’s so skewed to the big guys,” he said.
In addition to insisting on job creation rather than reward job retention, the new rules would require that companies add jobs relative to their total number of workers in the state instead of at just one location. Some past deals rewarded companies for adding workers in one location while they cut elsewhere.
Maisch argues that taking away the retention credits is a mistake, since other states that still do it will have an advantage.
“I do think it weakens our hands,” he said.
Rauner’s changes also prohibit multiple tax credits for the same facility. Without details, they also say the state will focus “on marketing the assets of the state, rather than leading with our incentives.”
Franks is among those who applaud that, believing those assets – and particularly Chicago and its vibrant business community and infrastructure – are actually the biggest reasons many companies move to Illinois.
“They’re relocating because we have a world-class infrastructure,” he said.
Though fond of some of the Rauner changes, Franks said they don’t address “the underlying program at all.”
He believes the EDGE program favors big companies far too heavily, something small businesses in the state frequently complain about.
“I think a better approach would be to lower the tax rates on all corporations,” Franks said.
The Illinois Chamber of Commerce wasn’t surprised by Rauner’s changes since he shared his ideas before he was elected. But Maisch said the organization wants to discuss what to do now that the EDGE program has been blunted.
“There needs to be a bipartisan consensus around what happens when (Wisconsin Gov.) Scott Walker comes to town and really does a good job of convincing an employer from, say, Lake County to come,” Maisch said. “I imagine we’ll be talking with (Rauner’s) office very quickly.”