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 As state senators sent the tax package to the
governor's desk last week, economic development experts 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 expiring in the next three years -- and may want better
deals to keep jobs in Illinois.
Businesses thinking of moving to the state
could demand even bigger incentives or play Illinois against other
states in a bidding war, experts 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-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., would also 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. Gov. Pat Quinn supports the
package.
Economic development experts nationally said
states often have little choice when major companies threaten to
depart. Losing companies as prominent as Sears and the Chicago
Mercantile Exchange, particularly without making a bid to keep them,
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.
Illinois officials, even ones who support the
tax relief package, acknowledge that more businesses are likely to
come forward with their hands out. They say the requests will have
to be considered one by one, at least in the short term. 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 overall business climate.
An economic development and site-selection
consultant in Park Ridge said he's already hearing from businesses
that feel neglected and want state help.
"One of the unintended consequences of this
whole thing is you are going to see a lot more midsize businesses
feeling like they're getting screwed by the state," said Brent Pollina.
"They're carrying the tax burden. The state doesn't care about them
at all."
Some experts say generous incentive packages
aren't particularly effective in creating jobs or retaining old
ones.
A paper by Stallmann, from the University of
Missouri, notes one study found that only 10 percent of new jobs
that are 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.
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In the case of Illinois, CME Group isn't
promising to keep its operations in the state even if it receives the
tax cut.
Sears CEO Lou D'Ambrosio said in an email to
employees that when the bill is signed into law, the company will
"cease the review of alternative locations and remain in Illinois
where we have been located for nearly 125 years."
If Sears moved its Hoffman Estates
headquarters to another state, Illinois would lose about 6,000 jobs.
To prevent that, the tax legislation renews a credit the company has
been getting for years, guaranteeing Sears a $15 million break on
its taxes for the next decade.
Losing the CME's operations could cost
Illinois about 2,000 jobs. Lawmakers agreed to cut taxes for the
hugely profitable company by changing how much of its business is
subject to state income taxes, reflecting the fact that many of its
transactions now take place electronically and don't involve buyers
or sellers in Illinois. Now CME and CBOE will pay taxes on 27.54
percent of their revenue, not 100 percent, saving them about $85
million a year.
Opponents of the tax package said Illinois
should help all businesses by reversing the income tax increase
passed by Democrats in January.
"Once again we're picking winners and
losers," said Sen. Kyle McCarter, R-Lebanon. "These special deals
are bad public policy. Essentially, if you can't hire a big-time
lobbyist with connections, you don't get any of your money back from
the tax increase."
[Associated Press; By CHRISTOPHER
WILLS and DAVID MERCER]
Copyright 2011 The Associated Press. All rights reserved. This
material may not be published, broadcast, rewritten or
redistributed.
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