Illinois: tax incentive may be the last deal for some time

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A year ago, we addressed Illinois Gov. Bruce Rauner’s revival of the state’s Economic Development for a Growing Economy (EDGE) tax credit program, which is designed to give firms a reason to create new, full time jobs and make capital investments in the state. For example, EDGE is the tax incentive program that officials used in 2015 when they awarded incentives to ConAgra in connection with their relocation from Omaha to Chicago.

EDGE operates under Illinois’ Department of Commerce and Economic Opportunity. In its latest annual report, for 2015, the Department noted a few improvements that it and Gov. Rauner made after he took office in January 2015 to make sure that the state’s investments were fiscally responsible, and that they appropriately balanced investment with benefits. These improvements included the following:
  • Eliminating tax credits for job retention, making tax credits available only for capital investments and net new job creation;
  • Linking tax credits for job creation to statewide employee counts, not employee counts at the specific project location, to prevent companies from laying off workers at one location and still receiving tax credits; and
  • Prohibiting more than one tax credit on the same facility.

The annual report points out that the legislation that created the EDGE program expired on December 31, 2016. This makes the tax incentive deal that the state just struck with, amounting to nearly $13 million, according to Bloomberg, significant. Referring to the arrangement as a “nifty holiday gift,” Crain's Chicago Business reported that it will result in two new fulfillment centers in Aurora, Illinois, along with over 1,000 jobs there.

Aurora’s mayor gushed about Amazon’s investment, characterizing it as “unprecedented” and “monumental.” Furthermore, said he, “[i]t’s just as exciting to know Amazon’s commitment and care for the communities where they have offices and the potential partnerships that will be developed throughout our city. We are absolutely thrilled with Amazon’s decision to choose Aurora for its newest venture.”

However, Illinois Policy pointed out that “Amazon’s care and commitment [weren’t] free.” Aurora gave the “internet juggernaut” a $400,000 property tax abatement, on what was at one time to be 1,400 new jobs, not a mere 1,000. 

Illinois Policy has plenty of criticism for these kinds of deals, contending that 

[t]he harsh reality is that Amazon is getting bribed by state and local government in order to bring jobs to Illinoisans, who have seen manufacturing leave the state in droves. High property taxes, costly workers’ compensation laws and the lack of a balanced budget have caused companies to pack up and leave Illinois. State and local government need to enact real reforms in order to create sustained job growth, not by simply offering bribes to multi-billion dollar companies. This corrupt system not only distracts from the real problems, but also forces other taxpayers to pick up Amazon’s share of the tax burden.

Instead of giving taxpayer-funded handouts to multi-billion dollar companies like Amazon, government officials at the state and local level should focus on acting in taxpayers’ interests and making Illinois truly competitive with other Midwestern states.

The EDGE legislation has not been renewed because of what the Chicago Tribune characterized as “Illinois' special brand of political gridlock.” For this reason, the deal could be one of the last under the EDGE program until the governor and democratic lawmakers, who have been at each other’s throats and unable to even establish a proper budget, make some kind of peace. Even so, Gov. Rauner would like to keep the crux of the program and make additional changes, and therefore supports emerging legislation to that end, in order to keep neighbors like Wisconsin from poaching employers.

One new, and newly named, approach, THRIVE, short for Transforming, Helping and Reviving Illinois' Versatile Economy, would only give a 50 percent credit for the creation of qualified jobs, not 100 percent. It would also reduce the duration of the tax breaks, from 10 years, renewable in 10-year increments, to just 10 years, or 15 years in certain situations. 

Despite such vigorous opposition from some like Illinois Policy, a Crain’s editorial, citing the administration’s own figures, asserts the benefits of the more recent improvements, such that jobs now cost the state $15,338.31 per position in lost payroll taxes, versus lost payroll taxes of $69,372 per position under the previous governor. But, the editorial also reveals that income tax rate of 3.75 percent is less than the 5 percent rate under Gov. Rauner, so after factoring that in, “the ratio of corporate-to-public investment in the two administrations is fairly similar.” The administration argues that it did factor in the tax rate changes.

There is no question that is happy with the arrangement. Its vice president of North American operations told Crain’s that "[i]n just over two years, Illinois has proven itself to be an ideal location from which Amazon can continue (serving) customers.”

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