With the economy the way it is, just about every state in the country is frantically scrambling to keep their local corporations from leaving or attracting new jobs by doling out huge government incentives.
Illinois, of course, is a special case, which means it’ll probably cost us lots more to keep and attract jobs than just about any other state.
Our years-long political civil war between former Gov. Rod Blagojevich and House Speaker Mike Madigan during the worst international economic crisis since the Great Depression saddled the state with migraines for years to come. No problems were solved or even addressed while everything was collapsing around them during their fight to the death. By the time Blagojevich was finally arrested, impeached and removed from office, the state found itself with a $9 billion hole in its budget.
Blagojevich’s criminal reputation and our horrific financial problems have made us a national laughingstock. The recent income tax hike passed by the General Assembly and signed into law by Gov. Pat Quinn prompted other governors to openly deride us and publicly (and privately) goad our employers into leaving.
Our extremely high workers’ compensation costs (2nd in the nation) were treated to a nasty media spotlight with the uncovering of a workers’ compensation scandal at a state prison. Hundreds of state workers filed for and received big workers’ comp checks because, they claimed, turning heavy cell-door keys gave them carpal tunnel syndrome. Even worse, the state didn’t attempt to find out if most of those workers had filed valid complaints. The howls of derisive laughter could be heard far and wide.
We’re such a popular punching bag that Missouri actually appealed a lawsuit all the way up to the United States Supreme Court to insist that protecting some of its farmland in a federally designated Mississippi River flood zone was infinitely more important than the 80-year-old Army Corps of Engineers plan to save Illinois towns along the river from drowning. The delay caused by that lawsuit may have resulted in the severe flooding of at least one southern Illinois town.
So, when Motorola Mobility said it might move away, it got $100 million in state tax credits. Gov. Pat Quinn claimed afterward that the company had to pledge to invest $500 million in research and development, but that investment was apparently the company’s plan all along, no matter where it went.
Groupon, the fastest growing company in America last year, barely had to glance at other states and got $3.5 million in pledged tax credits from Gov. Quinn.
Caterpillar’s CEO sent a letter to the governor revealing that the company was being recruited to move to another state. That caused the entire establishment to suffer a collective nervous breakdown, and the media, of course, had a field day. Never mind that the CEO later said he had no intention of moving and wanted to work to make his state a better place to do business. The media’s theme was firmly established, so it was just too easy to just write stories and columns about Illinois’ impending doom.
The latest threat to move elsewhere is from Sears.
Twenty-one years ago the company was loaded up with millions in state and local tax incentives to stay in Illinois. But those incentives are expiring next year and the struggling, aging behemoth has its hand out yet again.
If Illinois doesn’t pay up, Sears could move its headquarters away, taking 6,000 direct jobs with it and costing us thousands more jobs via suppliers, contractors and businesses which rely on Sears employees for their livelihoods. The economic and tax implications would be huge. So, since it would cost far more to let Sears leave than to keep it around, expect a juicy deal to be put on the table.
Face it, we’ve made our own bed here and now we’re being held hostage and there’s almost nothing we can do about it except to try to cut the best deals possible.
It’s distasteful as all get-out, but we’re basically left with no good choices. And the more deals we cut, the more deals we’ll have to cut. Until we can overcome our serious, long-standing problems, we’re at their mercy — and corporate CEOs are not generally known to have an abundance of that human quality.
- Angry Republican - Monday, May 16, 11 @ 6:23 am:
I think this Far Side cartoon pretty much sums up the situation in IL: http://s606.photobucket.com/albums/tt141/Smashdaddy_album/?action=view¤t=Far-Side-Damned-if-You-Do-Dont_2.jpg&mediafilter=images
- wordslinger - Monday, May 16, 11 @ 7:57 am:
It’s the way of the world. You have 50 governors, and who knows how many local economic development, that want to cut ribbons “creating” jobs with incentives. Illinois is not unique.
- Cincinnatus - Monday, May 16, 11 @ 8:42 am:
Rich said,
“Illinois, of course, is a special case…”
Is this because we elected one boob, or have an unbroken history of doing so?
- Meanderthal - Monday, May 16, 11 @ 9:16 am:
In a WSJ editorial today, they commend Wisconsin for rising in the rankings of states to do business in as compiled in a CEO Magazine survey. The same editorial says Illinois has slipped 40 spots in 5 years and that we are in a “death spiral”.
- Leroy - Monday, May 16, 11 @ 9:18 am:
This will continue to happen until Illinois calls one of their bluffs.
Illinois is a great place to do business. Did you know Illinois was recently ranked in the top 10 states to do business in ‘Site Selection Magazine’?
Illinois has one of the lowest tax burdens of any state in the union. It also has the lowest number of state workers with respect to the state population.
Most of these companies looking for a handout should be paying a premium to be located in Illinois. What are their other choices? Wisconsin? Indiana? We all know the trouble THOSE states are in…
Call their bluffs. Now.
- JustaJoe - Monday, May 16, 11 @ 9:22 am:
Excellent points. However, to say there are no options but to continue with more of the same doesn’t sit well. A shift of thinking is needed, and it won’t be easy. Instead of feeding a business environment that will demand more and more government give-aways, the state needs to change the game and create a business climate that builds its own incentives. Why raise corporate taxes and then give businesses hand-outs? Doesn’t that just hurt the small businesses who don’t have the size and clout to get the same? Lower taxes, improved distribution infrastructure, reasonable workers comp, good and affordable housing & schools, etc. are all things that our layers of government CAN control that do not create the hostage situation.
Rich speaks of the laughable workers comp situation…I will bet that at the root of the state prison example is the long term lack of support for state corrections middle managers trying to hold the line on abuses and then seeing them finally just saying “yes” to everything….such things are a political problem and they can be fixed….without paying hostage bribes. Springfield needs to look at root causes and have the will and long-term outlook to address those root causes rather than succumb to “Stockholm Syndrome” thinking.
- JustaJoe - Monday, May 16, 11 @ 9:31 am:
“Illinois …. also has the lowest number of state workers with respect to the state population.”
I have seen this claim before…but the pols have touted a misleading stat focusing on “headcount”…it’s largely meaningless…armies of higher-cost consultants and contractors are being used to do the work previously done by state workers. I have yet to see a comparison that reflects work done and total labor costs.
- Plutocrat03 - Monday, May 16, 11 @ 9:52 am:
Each assistance package should include an assessment after 5 years is dollars and cents. The hyperbole of how much the assistance packages were to help the State should be balanced by a report of whether those giveaways were justified.
For example, I don’t see how the Boeing deal has even started to pay back the Illinois taxpayer outside the headlines starting with “Another delay has hit Chicago based Boeing………”
- Logic not emotion - Monday, May 16, 11 @ 9:56 am:
I realize the bigs could leave; but… In essence, aren’t the smaller businesses and individuals actually having to pay more as a result of the incentives for the bigs? Wouldn’t it be a better long term policy to address the work comp and other issues so that Illinois is a business friendly state for everyone - not just those getting big incentives?
- Truth Seeker - Monday, May 16, 11 @ 10:22 am:
It is certainly disheartening to witness the reports or our decline. It only makes us less attractive to business, and to future and current residents. Even retirement publications are suggesting Illinois, because of our fiscal condition, is a bad state in which to retire. Who is to blame and what is the solution are both good questions.
- 42nd Ward - Monday, May 16, 11 @ 11:13 am:
I keep looking for it, but I don’t see the political courage in Illinois to make dramatic changes, from any government or the voters. So we lurch along down the slope. So as ye sow . . .
- Edge of the 14th Ward - Monday, May 16, 11 @ 11:19 am:
Here’s an idea: instead of giving $100 million in tax credits to one large corporation, spread it around to many small businesses, particularly start-ups. It might just work, as evidenced by the 2005 White Sox (yes, the White Sox). After the 2004 season, the Sox decided to let Magglio Ordonez walk as a free agent. Instead of investing $15 million in one superstar, they spread their money around, signing solid, affordable players like A.J. Pierzynski, Dustin Hermanson, Tadahito Iguchi, Scott Podsednik, Carl Everett, and Jermaine Dye. As well know, the Sox got a pretty spectacular return on their investment that season.
- amalia - Monday, May 16, 11 @ 12:44 pm:
yeah, but The Troubles have actual bombs.
- Cook County Commoner - Monday, May 16, 11 @ 1:18 pm:
Look at the bright side. Illinois is circling more rapidly towards the drain than any other state that decided to violate the rules of fiscal sanity. Therefore, it may be the first to start rebuilding after fiscal failure, assuming the voters have the good sense to dramatically change leadership.
- Ghost - Monday, May 16, 11 @ 2:35 pm:
If the buisness pays good salaries so that we get income tax from the jobs, employees a significant amount of people, and is investing money in new facilties, R&D etc the incentives are not a big deal, they are offset by the revenue gains from other sources.
If the business is just creating a handful of minimium wage jobs for which we will derive little if any income tax, and may end up owing the employees support and aid to offset the low salaries, and the company is not spending that much on investments, capital projects etc, then let them go or provide minimial incentives.
- Secret Square - Monday, May 16, 11 @ 3:14 pm:
“Why raise corporate taxes and then give businesses hand-outs? Doesn’t that just hurt the small businesses who don’t have the size and clout to get the same?”
My thoughts exactly. Also, what good does it do in the end if one big business that employs 2,000 people gets a huge tax break while 100 other businesses that each employ 20 people close or move due to higher taxes?
- Ghost - Monday, May 16, 11 @ 3:31 pm:
Secret Square, your mixing apples and oranges.
The overwhelming majority of small business is based on location and demand. i.e. plumbers, heatng and cooling, electiricians, builders etc. They dont move or stay for tax breaks, they locate where they think they can get customers.
If every person who mows lawns leaves for another state, the demand for people to mow lawns will draw in 20 new buisness people to replace them.
On the converse, a large companie corproate headquarters is not dependent on community demand or sales, and can be more selective on their local.
Also most small buisness tend to cots the State more then it benefits. many small business pay minimium wage. Minimum wage families drain money from the tax base, they dont add to it.
Corproations tend to have a higher percentage of professional people at higher salaries then a small buisness.
We want quality buisness development not quantiity, and we want to lure business which is not location dependent to its market.
The overhwleming majority of small buisness provides a specific service or product which is in demand in the area the buisness is located. they are demand based constructs, not tax havens.
- Liandro - Monday, May 16, 11 @ 4:30 pm:
You pretty much hit it, Rich. It’s a quandary. Call their “bluff” and some of them will actually run…it’s been happening around here with some local factories pulling out of town or closing. They pull up roots and consolidate in some other state or just give up the ghost. Give ‘em incentives, and the next guy wants a hand-out too. Corporate welfare gets even uglier than social welfare. It has far less moral value, but far more economic impact. Sigh. Both are expensive.
As for the guys up-thread asking why not invest more in small companies…because it’s hard! Small companies live and die very fast often times. They’re a risk. Big, proven companies are a better bet for economic investment. I don’t like it–I’m a small businessman–but it’s the truth.
Further, the big salaries of big companies pull in far more payroll taxes, property taxes, etc. than the little guys. And they are a bigger eyesore and space problem when they leave! Sterling/Rock Falls is the next town over from me and they can attest to that. It’s really hard to fill in the large, empty factories that were specifically built and tooled for a certain company/industry.
Plus the logistics of doling out tons of aid to little guys is much more expensive and complicated then big deals with big companies, and it would probably be harder to handle oversight. That would make for fraud–easier to rig the system. Not that the big boys aren’t doing that (take Medicare/Medicaid fraud!), but you see what I mean.
I could offer a number of easy ways to help strengthen little companies and ease the burden, but no one in Springfield will do it. Because at the end of the day, the biggest factor is we little companies don’t have any clout. Systemic changes like how paying sales tax works, how unemployment taxes works, and how tax incentives work all might make an impact for sustaining job-fueling small businesses. But we don’t have pull.
I pay taxes about 69 times a year…I guarantee I would have a second location open (another 25-30 entry level jobs, couple more full time positions) by now if my overall tax and wage burdens weren’t so high. I pay more in total municipal, county, state, and federal taxes then I make in total profit! Some of the big companies that moved in got tax incentives I would get laughed at asking about. But hey, they do business with me, so I get some of the pie if I fight for that new piece of market share.
Which brings about another reason gov’t doesn’t invest in small companies…the big ones being in town trickle down sales and money to all the little businesses in the area. In my case, I do catering for those big companies with their fat incentives.
I’ve rambled on enough. Good piece Rich.
- wordslinger - Monday, May 16, 11 @ 6:40 pm:
Liandro, I’m with you.
I’m the one who gets down on the doom-and-gloomers when they complain about “Illinois,” but the fact of the matter is that things in Chicago Metro are tough, but things are tough all over.
It’s a whole lot tougher in rural Illinois and rural America. They shouldn’t be thrown into the same pot with the metro job-pots in the rest of the country. Rural America is desperately in need of capital, in our capitalist society.
There is capital, plenty of it, for corn and bean seed, fuel, fertilizer, pesticides, etc., but it goes in and comes right back out after the crop or livestock have been taken.
There’s not a whole lot left over for the folks to spend in the communities that are absolutely necessary to support the enterprise. And it’s killing them.
There’s no mobility of the laisez-faire marketplace if you’re hunkered down on the farm feeding the world. You can’t pick up and take a better deal down the road.
You take the price and the subsidy that you can get, and what you get is pretty small beans when you’re trying to spread it around to the communities that are desperately needed to make the whole food chain work.
Because of the incredible efficiencies on the farm, it’s a confounding problem. You don’t need as many folks as you did before to do the job. But you can’t support the infrastructure of the enterprise without those people.
For Christ’s sakes, this has to stop. If you can empty the treasure box for Afghanistan, Pakistan and Iraq, and if you can crank up the printing press for AIG, Citigroup and Bank of America, you can’t cry poor mouth when it comes to the folks outside the metros.
It’s insane. America would starve without them. They can’t move. They have to stay to do the job. They need a better return on their investment and labor, in schools (broad-band connect with U of I, New Trier?), roads, water and services for the old folks.
The price you pay at the grocery store has little to do with the farmer. It’s all marketing and trucking.
If you don’t want to pay more for that, at least let them grow weed legally. They could make a nice buck off of that, and it would put some rich outlaws out of business.
- mokenavince - Monday, May 16, 11 @ 7:31 pm:
The perfect storm Ryan,Blago and Quinn. We are the laughing stock of the Midwest. All things condsidered Ryan don’t look so bad. Nobody gives a damn in Springfield. I’m fed up. No I’m mokenavince. Sorry Fed.
- Liandro - Monday, May 16, 11 @ 9:19 pm:
Wordslinger, I’ve sometimes wondered about the combined economic impact if we pulled out our money from overseas wars and militarization; big biz bailouts; tax code subsidies; a good chunk of the social and corporate welfare; and much of the “drug war”, and instead invested all that money directly into the U.S. economy. Perhaps via cutting payroll taxes on the first $40,000 in income so as to promote hiring?
That will never get translated into policy…it would empower individuals at the cost of the big powers that control policy. But I guarantee there would be a massive hiring spree across the country. I’ve never understood why we dump so much of our money overseas or tie it up in bureaucracy.
- Cincinnatus - Monday, May 16, 11 @ 10:37 pm:
Wordslinger.
While small family farms make up 90% of the total number of farms (that number has is only 2/7th the number in the thirties at its peak), they provide only about one-quater of the crop production in the U.S. 13% of farms produce no crops owing to direct government subsidies. Half of the farm production is done by 2% of the farms.
While the small farmer could sure use a hand up, the fact is that their small size makes them inherently inefficient. I would certainly support eliminating agricultural subsidies, including ethanol, but I would not reprogram the saved money to small farmers where the money would not get the same production bang for the buck. With the emerging market for free-range and organic foods, the small farm is uniquely suited to exploit that market, working in conduction with local grocery stores and restaurants.
But your premise that America would starve without the small farm is laughable and unsupported by any USDA study.
- JustaJoe - Tuesday, May 17, 11 @ 7:46 am:
Concern over the wisdom of hand-outs to big companies need not translate to advocacy of the same for smaller businesses. The main thing is that Springfield not do things that are short-sighted and self-defeating.