Illinois Tax Breaks Could Trigger Demand For More

Published December 13, 2011 10:18PM (EST)

SPRINGFIELD, Ill. (AP) — Under the threat of losing thousands of jobs to other states, Illinois officials are on the verge of approving a tax-relief package meant to keep Sears and the Chicago Mercantile Exchange from leaving. Now they face another question: Who's next?

As state senators sent the tax package to the governor's desk Tuesday, 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.

Businesses thinking of moving to Illinois 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.

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, 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.

A 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."

Experts say generous incentive packages aren't particularly effective in creating new 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.

In the case of Illinois, CME Group isn't promising to keep its operations in the state even if receives the tax cut. Sears wouldn't directly answer the question either.


The bills are SB397, SB400.



Mercer reported from Champaign, Ill.

By Salon Staff

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