Chicago Tribune investigation on state tax incentive deals with corporations
The Chicago Tribune is known for important and pathbreaking investigative reporting projects on local and state issues (demolition of historic properties, aldermanic involvement in property development approvals, red light cameras).
They have just completed and published an investigation ("Illinois businesses get lucrative EDGE tax breaks, fall short of job goals") of the $1 billion worth of the tax incentive deals made since the 1999 commencement of the Illinois EDGE fund. From the article:
In the first comprehensive analysis of 783 EDGE agreements, the Chicago Tribune found that two of every three businesses that completed the incentive program failed to maintain the number of employees they agreed to retain or hire.It's pretty damning. Many of the agreements don't require an increase in the workforce, merely maintaining existing numbers, and each business site is treated independently for calculation purposes, so that a corporation could overall reduce employment while still receiving incentives.
State officials can't say how many jobs have been created through the job program; nor can they say how many jobs EDGE companies have eliminated. The Tribune, however, found that 79 current or former EDGE recipients have reported eliminating 23,369 jobs through layoffs and closures since entering the program. ...
the Tribune's analysis suggests that tax credits often do little to help companies expand or create sustainable jobs. A pattern of deals emerges in which businesses lobbied for maximum rewards and minimum requirements — and the state said yes.
Separately, Crain's Chicago Business has an op-ed ("State subsidies are wasted on ConAgra") criticizing the recent agreement to provide tax incentives to ConAgra to move its headquarters to Chicago from Omaha ("Experts say ConAgra's move to Chicago is about tapping young, hip talent pool," Omaha World-Herald; "ConAgra to Cut 1,500 Jobs, Move Headquarters to Chicago," Wall Street Journal).
The piece makes the point that many corporations, including large corporations like Boeing, have moved to the city without incentives. From the article:
Chicago no longer needs to bribe companies to come here. Our bona fides as a corporate headquarters were confirmed when Boeing came from Seattle in 2001. Waves of headquarters have followed, drawn by Chicago's global transportation connections, talented workforce, world-class universities and rich cultural amenities. ADM, Motorola Solutions, ThyssenKrupp and Mead Johnson decided to move here without a dime of taxpayer money.While I am not against tax incentive programs and funding to stoke needed developments and projects, it's vital that a strong lens/framework be developed and employed for the evaluation of potential deals, and for ensuring the deals bring significant economic and other returns to the government authorities providing the incentives.
“We've learned not to run where the incentives are or where there is the lowest tax rate,” ThyssenKrupp North America CEO Torsten Gessner said when Chicago beat 20 rivals for the German manufacturer's North American headquarters. “We need the overall picture."
Tax incentive financing districts can be problematic too because typically, special funding districts such as schools and parks also lose funding as part of the deal and over time, significant revenues are lost. All the more reason to ensure that a careful consideration is made.
Then there are the deals for sports teams and stadiums and arenas and film and television incentive programs.
I was impressed by an article ("'Nashville' gets $10M incentive deal to film locally") in the Nashville Tennessean on the Nashville tv show, which distinguished between "local employment effects" vs. the payroll for the shows regular cast, and the impact on local tourism.
I recently discussed ("A new requirement for local governments to disclose tax abatements a step forward, but weak and minimal") the new Government Accountability Standards Board rule for disclosing tax incentive deals. But the rule is very gross, and won't provide the kind of detailed information, business by business, deal by deal, compiled by the Chicago Tribune in their investigation. The CT was forced to create its own data set using multiple sources in order to compile a master list and an accounting of each deal.
The CT investigation demonstrates the need for a much stronger GASB rule on compilation and disclosure of tax incentive deals by local governments on an annual and running basis.