Question of the day
Wednesday, Oct 20, 2010 - Posted by Rich Miller
* Greg Hinz asks: “Does Groupon need state aid?“…
Chicago’s Groupon, one of the web’s fastest-growing companies ever, got a $3.5-million aid package today from the state of Illinois, land of the $13-billion budget deficit. Was this really necessary?
Both the state and the company are insisting yes. The 250 new workers to be hired at the daily dealmakers’ Chicago headquarters under the financial package announced by Gov. Pat Quinn could instead have been moved to one of the company’s other offices.
For instance, Groupon President and Chief Operating Officer Rob Solomon told reporters that in a competitive market, with other states seeking Groupon jobs, the company did consider other locales.
“We thank Gov. Quinn and the state of Illinois for putting together an incentive package that allows us to further expand our workforce,” he said.
Said Mr. Quinn, “We want to keep ‘em here. It’s a competitive environment.”
The amount of money actually is relative peanuts — and fairly routine — divided into job-training and tax credits that are offered to many employers. But with state finances this low, you have to ask.
* The Question: Despite the massive loss of jobs in Illinois, is this too far or is it prudent?
- John Bambenek - Wednesday, Oct 20, 10 @ 11:13 am:
Why not just start listing companies on eBay and make governments bid to keep/attract them?
That way we can streamline the corporate whoring.
It’s all about efficiency.
- 47th Ward - Wednesday, Oct 20, 10 @ 11:24 am:
I’m always torn over corporate handouts like this. While it’s hard to argue against keeping Groupon jobs here and helping it expand, it seems like the corporate version of extortion, “give us a handout or we’ll move.”
The first Mayor Daley once said the city should invest in its nonprofits, which are inextricably linked to the community, not businesses who will break your heart when they leave. Groupon can locate anywhere, and maybe some day will. But can you imagine Loyola leaving Chicago? Northwestern Hospital?
Generally speaking, I’d prefer we didn’t give subsidies like this and instead do a better job of improving our infrastructure and education, especially higher education. If we did a better job there and made Illinois a better place to live and do business, businesses will come to us without all of these micro-handouts.
- Just Observing - Wednesday, Oct 20, 10 @ 11:27 am:
What does an aid package really mean? Is it a loan or straight up cash? It seems to be a very non-transparent, chaotic way to attract businesses — Illinois should focus on attracting and retaining businesses by keeping business taxes and our regulatory environment competitive with other states — not handing out sweetheart deals here and there.
- KnuckleHead - Wednesday, Oct 20, 10 @ 11:28 am:
That’s a drop in the bucket compared to what he committed the state to, paying off the unions for an endorsement.
- Old Milwaukee - Wednesday, Oct 20, 10 @ 11:30 am:
Just Observing is right. Chasing one company to the next with cash is not a job growth strategy.
Keep taxes low, balance the budget, reduce the cost of doing business, repair Illinois’ image with the business community and you not have to pay off businesses so that they will stay in your state.
- Anonymous - Wednesday, Oct 20, 10 @ 11:31 am:
Hell, no.
- WRMNpolitics - Wednesday, Oct 20, 10 @ 11:32 am:
Government subsidies like this are a long standing fact of life in gaining and retaining businesses within a state or municipality. Taxpayers would be better served if there these types of subsidies were disclosed along with a cost benefit analysis which would show the “payback” period of the subsidy.
- Niles Township - Wednesday, Oct 20, 10 @ 11:33 am:
Very prudent. I just read an article about Groupon hiring more people in Silicon Valley. We need to keep these high-paying next generation jobs in IL. As most know, this is not a cash payout, but tax and training credits.
- colt 45 - Wednesday, Oct 20, 10 @ 11:35 am:
—The amount of money actually is relative peanuts —
a peanut here, a peanut there. eventually, we’re talking about real peanuts, or a circus.
- Gunner the Runner - Wednesday, Oct 20, 10 @ 11:35 am:
it will be interesting to see the conservative commenters on this blog defend brady when he starts to do the same thing. Heck, he already wants a billion dollars in tax breaks to big corporations.
consistency is a rare commodity in politics.
- Living in Oklahoma - Wednesday, Oct 20, 10 @ 11:36 am:
Hard to argue against Jobs. However, its more than a bit pathetic that Illinois has become like the geek begging for a date to the snowball dance. We have to beg plead and throw money around to get jobs to stay here. If Illinois would make themselves more attractive to business, we wouldn’t have to go to drastic measures to keep people here.
- MikeMacD - Wednesday, Oct 20, 10 @ 11:36 am:
Top line numbers like these don’t give much of a basis for judgement. They should be accompanied by an analysis that gives offsets, such as, for instance, income and sales tax revenues from the jobs, expected decreases in unemployment payments, decreases in other state aid payments, etc. It could end up being financially better, worse or a wash from the State’s perspective.
- Newsclown - Wednesday, Oct 20, 10 @ 11:36 am:
Well, isn’t this exactly the kind of “business-friendly” environment Quinn’s opponent is crying out for more of?
I get skeptical when I hear about these multi-million-dollar incentive packages, but they’re certainly nothing new, Illinois has done them for decades. The key question in my mind is, is the money a straight-out up-front grant of cash, or does the company have to WORK for it, thus giving the state something back for the investment. I mean, is it truly and incentive, versus a bribe.
In such a deal, I think incentives that help a company, say, re-tool a production line or add a warehouse or any kind of infrastructure improvements are a good investment, because it means they are going to stick around a long time and contribute to our economy. Hiring more workers is perhaps a shakier investment because that’s an easier kind of deal to go back on if the company changes their mind later. IT-based businesses have few physical needs except for good net access and cheap labor, they can up and move out of state overnight if the spreadsheets say it pays to do so. And so they are riskier to give incentives to than industrial manufacturing or logistics businesses. Incentives should have some protections on their back-end, so that a company that accepts them and then pulls out early has to pay some of the concessions back. We have a history of that in Illinois recently.
Simple tax cuts I fear mostly end up in the shareholder’s pockets and not re-invested into the business. We saw some of this during the federal bank bailout when money targeted to consumer mortgage loans wound up sitting around gathering interest for the banks without being put to the work it was intended for. So I am for putting that money into physical hardware like utilities and infrastructure and ancillary services that are of use to multiple industries and companies.
One of the canards I hear from time to time is: “It would have been better to just hand every citizen a check for x dollars”. I don’t believe that, myself. There are real multiplier effects in having the money pass thru many hands. Not as much as DCEO always boasts of, to be sure, but yes, that money is like ripples in a pond, in that an investment in one place can trigger other investments and eventually more profits, all round it.
I would love it if an independent auditor published an evaluation of those incentive packages before they were finalized and executed. That would help keep the frivolous aspects down and the revenue-promoting aspects up.
- D.P. Gumby - Wednesday, Oct 20, 10 @ 11:39 am:
Thank God all those big corporate dollars are being donated secretly to further libertarian philosophy to keep government out of business and Teabaggers are voting against government spending money saving the Economy. I can’t stand hearing about using state $$ to bribe corporations–Boeing, Ford, etc. etc. to come here, stay here, etc. and then have them crab about government “interference” in business.
- Jo - Wednesday, Oct 20, 10 @ 11:41 am:
It is a 10-year mix of tax credits and job training money, right?
It equates to about $1,000 per year per employee. Spend $1,000 to get $50,000 per year per employee on average? Plus all the profits and investment from the company stay here in Illinois?
Not outrageous.
- Bluefish - Wednesday, Oct 20, 10 @ 11:46 am:
Do the math. This is a $14,000 per worker subsidy. We won’t recoup those dollars from the income taxes they generate until they each earn at least $466,667. I assume they each won’t be making that in their first year. Let’s be honest, by the time they hit that mark, Groupon will either move on, be squeezing the state for another subsidy or be in the dustbin of Internet history.
- Objective Dem - Wednesday, Oct 20, 10 @ 11:49 am:
Unfortunately it is the way things work and holding the higher ground will result in Illinois losing jobs.
However, I think we need a law at the federal level that stops cities and states from paying direct subsidies to companies. They can spend money on infrastructure or on training workers, but not on moving expenses or other direct subsidies. This may not solve the problem completely but it will stop this idiotic inducement game.
- The Shadow - Wednesday, Oct 20, 10 @ 11:49 am:
As Alderman Burnett said at the press conferance, “250 jobs is 250 jobs.” Those are Illinois Jobs.
JUSTIFIED!
- Davey Boy Smithe - Wednesday, Oct 20, 10 @ 11:52 am:
Glad you picked up on this Rich. I read the article this morning and was trying to gauge the same question. When does it end though? Didn’t Quinn just throw $7M to US Cellular last week to ensure that they don’t move out of state?
- fed up - Wednesday, Oct 20, 10 @ 11:55 am:
Quinn gives Groupon money to keep jobs in Illinois and people question it, but when the teamsters or laborers give Quinn money to protect their lavish perks and pay at Mccormick place a deal that drives jobs away its no big deal. Businesses are going to be fleeing Illinois soon as the price of the pension time bomb and the Blago/Quinn unfunded programs come do.
- Moving to Oklahoma - Wednesday, Oct 20, 10 @ 11:59 am:
I would also like to add that perhaps one of the reasons Groupon was thinking about leaving the state with these jobs is the rent is too damn high.
- Responsa - Wednesday, Oct 20, 10 @ 12:02 pm:
In general, there is something about the picking and choosing of which companies can receive state incentives–a seemingly arbitrary selection of winners and losers–favoritism via tax dollars– that is somehow disconcerting and feels unfair.
- a fan of Cap Fax - Wednesday, Oct 20, 10 @ 12:04 pm:
Alot of voters on the West side and a great Ward organization to get them out to vote. Sounds like a smart move.
- wordslinger - Wednesday, Oct 20, 10 @ 12:06 pm:
I’m very leery of these state handouts, especially when the investment doesn’t include a fixed asset such as infrastructure improvements or production line.
It can become an expensive ribbon-cutting opportunity for politicians.
These guys could get bought up and moved tomorrow (which happens a lot with smaller companies whose main assets are brainpower) or get a better deal from Boston or New York. The state won’t be out much, then, but it’s really not economic development.
Okie, you are obsessed with the rent!
- dupage dan - Wednesday, Oct 20, 10 @ 12:09 pm:
This kind of stuff happens in all the states, I would presume. We are in competition with other states to keep/get jobs. Part of the landscape. Maybe we don’t like it due to the level of cost or the idea that it is being used to garner votes. That, too is being done in other states.
I would be concered if the amount dangled to the company was outrageous. Doesn’t seem to be here if other posters calculations are correct.
- Greg B. - Wednesday, Oct 20, 10 @ 12:10 pm:
It’s corporate welfare. End it.
- chi - Wednesday, Oct 20, 10 @ 12:10 pm:
The state and its citizens have to look at payments like this as investments. They’re not ideal but unfortunately if Illinois doesn’t give Groupon money someone else will. And so the state needs to weigh the costs with the potential benefits to the people and the economy. They won’t always be worth it, and the state’s decision makers must be held accountable when their is a bad return on the investment. The merits of a situation like this have nothing to do with how much money Groupon already makes. If they are a responsible civic citizen and the state’s analysis determines that $x given to Groupon will result in $x+1 money for our economy, then it’s worth it.
- OneMan - Wednesday, Oct 20, 10 @ 12:14 pm:
Well most of what they are looking for today is local business development folks
http://www.groupon.com/jobs
== We need to keep these high-paying next generation jobs in IL. ==
Keep in mind Groupon is not facebook, scalability (and the high end technical issues) are not likely their big challegne. I would argue they are a bit more like Craigslist, once you get the basics down it is just a matter of creating a new city version.
So I suspect that most of the Chicago jobs are not the ‘jobs of the future’.
Why, in part the higher paying technical stuff are filled to spec, that is you hire someone who can do it. You don’t hire and train up for most technical jobs so the ‘training credits’ may not help too much hiring those folks.
I would be real curious to hear what the nature of the jobs they are looking to bring to Illinois.
- Jo - Wednesday, Oct 20, 10 @ 12:15 pm:
Bluefish - you do the math. It isn’t an upfront $3.5 million check. It is a mix of credits spread out over 10 years.
Fromt the sun-times article:
“The Illinois Department of Commerce and Economic Opportunity is administering the $3.5 million investment package, which includes EDGE corporate tax income credits over 10 years based on job creation, and ETIP job training funds to enhance worker skills.”
- Ghost - Wednesday, Oct 20, 10 @ 12:24 pm:
Tully in decatur just got a 15 million package to stay in IL (by moving to hoffman etstates) but they still whacked 80 jobs.
== retaining businesses by keeping business taxes and our regulatory environment competitive with other states ===
Buisness taxes and regualtion? the majority of bisness in IL is location based following the rules of supply and demand. this whole taxes and regualtion thing is a red herring pused by welathy business owners to enrich themselves more then job creation.
The plumber, doctor, landscaper, restraunt owner, electircian, builder etc are going to open shop in any communtiy where there is a need for theservice anda lack of suppliers, or where they think they can take the work from the competition. Think sam walton. the lagest Company in the US was not based on putting its stores in location with goodtax breaks and low reglation. The stratetgy was build stores in small towns where all the other big companies thought there was not enough business. i.e. build it wherethere was a demand and no supply.
Wal-mart is now the biggest company in the US.
- Louis Howe - Wednesday, Oct 20, 10 @ 12:30 pm:
No more corporate giveways. Government should focus on providing services in the most effective and efficient manner possible, that way we all have lower taxes.
- Plutocrat03 - Wednesday, Oct 20, 10 @ 12:30 pm:
of course not.
By this logic, every company in the state should be continuously getting State aid.
Who would be left to pay taxes?
What has been the benefit of all the aid that went to Boeing when they came to Illinois? 500 HQ jobs? not a lot of taxes collected there… How about the money spent to move United from the ‘burbs to Willis Tower?
- wordslinger - Wednesday, Oct 20, 10 @ 12:34 pm:
If we’re looking to attract high-tech jobs, I’d much rather we put more money into our universities, or at least get them their money in a timely manner.
That’s how you create jobs. Case in point: Mosaic at the National Center for Supercomputing Applications at the U of I in Champaign. It was a magnet for some of the best and brightest in the tech field.
One of the Mosaic crew, Marc Andreasen, went west, but a lot of them stayed in the area and founded small tech companies. Alex Zoghlin has founded or been CTO for more than a few including Neoglyphics, Orbitz, G2Switchback and VHT.com, and has drawn many high-paying jobs to his chosen base of Chicago, without any handouts.
- shore - Wednesday, Oct 20, 10 @ 12:34 pm:
NO.
I have a lot of friends whose kids work for groupon, but it’s better for the state to use its resources and policies to establish an enviornemnt where multiple companies can grow than to put all its resources and energy into attracting one company. You never know what could happen in the market or to the company and we’re better off not doing this.
the quote on daley is interesting.
- OneMan - Wednesday, Oct 20, 10 @ 1:07 pm:
Right on wordslinger. You want more of these ‘future jobs’ improve the engineering, computer science, math and sicence programs at multiple state schools. Not just U of I. You are going to go where you can hire and attract these folks.
- Vote Quimby! - Wednesday, Oct 20, 10 @ 2:04 pm:
Business has consistently moved the risk from their side to the “public” side, from TIF to STAR. My town created a sales tax business district to “land” a Dollar General–even though most of the sales are being cannabalized from the only grocery store in town.
In Groupon’s case the cost may very well be worth it, although I would feel better about them if a 30- or 60-day “closed window” before an election was enacted.
- wordslinger - Wednesday, Oct 20, 10 @ 2:25 pm:
–My town created a sales tax business district to “land” a Dollar General–
I’d laugh, except that it makes me angry. Great idea on on the election window.
- Cincinnatus - Wednesday, Oct 20, 10 @ 2:33 pm:
Pandering Pat Strikes Again. Film at 11:00.
- Demoralized - Wednesday, Oct 20, 10 @ 2:45 pm:
The jobs come, Pat Quinn gets criticized. They go, Pat Quinn get’s criticized. You can’t have it both ways. If I’m here I do what’s necessary for the jobs. Other states do it so we have to do it to compete. That’s life.
- GetOverIt - Wednesday, Oct 20, 10 @ 2:47 pm:
Jobs or no jobs? Simple, JOBS!
- 4 percent - Wednesday, Oct 20, 10 @ 3:14 pm:
I would argue that in a Utopia, these types of tax incentives would not be needed because Illinois’ tax, legal, and regulatory structure would be incentive enough.
However, these incentives are needed to combat higher than average Work Comp costs, an expensive litigation climate, high UI taxes, and other factors that make Illinois more costly.
- Lulu - Wednesday, Oct 20, 10 @ 3:45 pm:
Once again Quinn is bribing a company with tax incentives for them to stay in Illinois. Another 3+ million for Groupons…the other day, it was $7 million for another company…then Quinn goes on TV and lies stating he created all these jobs. He should be saying, “Thank you Illinois taxpayers for allowing me to use your hard earned money to bribe more companies to stay in Illinois, and the opportunity for me to make myself look good by saying I created jobs. Quinn has no financial background. His priorities are Schools and Welfare and nothing more. He expects taxpayers to support the hoodlums and drug addicts and illegals and treats our senior citizens like garbage, yet the prisons and jails offer criminals everything at their disposal. I can’t wait to move out of Illinois after living here for 56 years!
- Angry Republican - Wednesday, Oct 20, 10 @ 3:50 pm:
Where’s my handout? It would be much more efficient for the state to just mail $50,000 checks to everyone. It’s not like we have this huge budget defecit and massive debt or anything.
- 47th Ward - Wednesday, Oct 20, 10 @ 3:54 pm:
===I can’t wait to move out of Illinois after living here for 56 years!===
Don’t let the door hit you on the way out Lulu.
- LevivotedforJudy - Wednesday, Oct 20, 10 @ 4:09 pm:
In a lot of tech circles, IL is seen as not so great a destination. Unlike other areas, our private sector venture capital firms tend to not step up to the plate in helping home grown firms. There was even one instance where a fund that mixed private funds with Illinois public money wanted to invest in non-Illinois tech companies. The Groupon deal sends a message that IL is supportive of the tech industry. Plus, the training funds are an investment in Illinois workers and to be realistic, virtually every state offers tax incentives. They are needed to get in the game. I also imagine that the individual new worker’s salaray will have a far greater economic impact than $14,000 per year. This is a good deal on many levels.
- LevivotedforJudy - Wednesday, Oct 20, 10 @ 4:16 pm:
One more point, I am missing how if you limit public sector tech investment to (1) helping universities perform R&D (2)attracting engineering and programming students and (3)doing product commercialization - where is the benefit to the state if when the companies get up to scale to hire a lot of people they move to Boston or Palo Alto and lure the new tech graduates there?
- wordslinger - Wednesday, Oct 20, 10 @ 5:15 pm:
–However, these incentives are needed to combat higher than average Work Comp costs, an expensive litigation climate, high UI taxes, and other factors that make Illinois more costly.–
Who are you kidding? That’s been the song and for 40 years, through every economic boom and bust.
They weren’t issues when all those condos and subdivisions were going up three years ago, 10 years ago, twenty years ago….
- Wensicia - Wednesday, Oct 20, 10 @ 5:25 pm:
If the state is subsidizing the jobs created with this aid package, how does the state benefit?
- Amalia - Wednesday, Oct 20, 10 @ 6:41 pm:
Groupon is a homegrown powerhouse. Why not help them to become something very well known and virtually totally based here in Chicago? There are a fair number of such interesting tech companies here and it’s high time Chicago took a bigger step up in position in the tech world. besides, I use Groupon, don’t you? anything to support their work helps my pocket book.
- Cheswick - Wednesday, Oct 20, 10 @ 7:47 pm:
If the SJ-R comment trolls are having a total tizzy over it, which they are, it must be a good.
Yeah, Wensicia, because none of those people are going to spend money or pay taxes.
- yinn - Wednesday, Oct 20, 10 @ 10:00 pm:
Rochelle is getting 250-350 new jobs but it is costing $12 million in state tax credits, mostly EDGE, even though Rochelle was the logical choice because of its infrastructure advantages and we are talking about a multi-national company that doesn’t need it.
So, yes, you do have to ask.