In classic examples of Catch-22 and how legislation really gets passed, the Illinois General Assembly finally passed business incentive legislation designed to keep the CME Group and Sears Holdings from leaving Illinois yesterday. The Catch-22 part is that the entire job creation and retention package will cost Illinois hundreds of millions of dollars in lost tax revenue. But, the state realistically cannot afford to lose the jobs, payroll taxes and economic impact if those companies left. The insight into the legislative process comes from having to add a number of other carrots to the stew to make the core legislation palatable for a variety of constituencies to ensure its passage.
On face value, the impact of losing the CME Group and/or Sears Holdings would seem to be enough for either to get their own, unencumbered, legislation passed. The CME Group has essentially been in Chicago for 163 years, employs 2,500 and is estimated to have been on the hook to pay as much as 6 percent of the total of Illinois income taxes received this year. Sears Holdings is headquartered in Hoffman Estates, was once housed in what is now known as the Willis Tower after it threatened to leave Illinois in 1992 and employs 6,100. To be frank, Illinois was about to lose a company that helped make Chicago a global finance center and another company that is an American icon.
Those jobs, prestige and tax dollars weren’t enough for the General Assembly and the Governor to forge what could have been a CME Group Deal, a Sears Deal or even a CME Group/Sears Deal. To get legislation passed in Illinois, various constituencies must be sated. In this case, because both companies are in the Chicago metropolitan area, there needed to be a sweetener to secure downstate votes. Also, because both companies are large, something was needed to help small businesses. Finally, from a political standpoint, a host of other items needed to be added so various politicos could take credit for pushing them through so they could brag to the folks in their districts about what they did for them.
So, when the smoke finally cleared, this is what was added to ensure that Governor Pat Quinn would sign SB 397:
- Champion Labs will receive a $3.5 million over 10 years EDGE tax credit to hire new employees at its Albion facility and for office relocation in Lake Forest;
- The state research and development credit was extended through January 1, 2016 and also allow companies using that credit to use it against any future tax liabilities for up to five years;
- The investment tax credit and the sales tax exemptions, credits and deductions for agri-fuels, such as gasohol, were extended from December 31, 2013 to December 31, 2018;
- A Tax Tribunal Board was created to address tax liability protests, independent from the Illinois Department of Revenue;
- The net operating loss deduction was reinstated and capped at $100,000 per year.
- The state inheritance tax exemption was doubled from $2 million to $4 million;
- A live theater tax credit for pre-Broadway and long-run shows was created; and
- The automatic sunset provisions were removed from the TECH-PREP Credit, Affordable Housing Donation Credit, Ex-Felon Jobs Credit, Veteran Jobs Credit, River Edge Zone Credit, Historic Preservation in River Edge Redevelopment Zone Credit, Replacement Tax Investment Credit and Angel Investment Credit programs which were set to expire between now and 2013.
One would think that losing more than 6 percent of your total income tax revenue and more than 10,000 direct and indirect jobs would be enough for a financially struggling state to pass business retention legislation and not fall even more in debt. It doesn’t work that way in Illinois though.
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