Under a 2012 law designed to keep the company from leaving the state, Sears was required to maintain at least 4,250 employees at its sprawling offices in Hoffman Estates and a small satellite office in Chicago. In return, the retail icon received tax breaks worth an estimated $275 million.
But as the company fired hundreds of employees in the years leading up to its 2018 bankruptcy, Sears grew increasingly concerned about maintaining the tax breaks, according to interviews and internal corporate documents.
Company officials began counting baristas, fast-food workers and janitors who worked at Sears headquarters but weren’t employed by the company, records show.
Sears’ counting methods have raised doubts about the legitimacy of millions of dollars in property tax rebates that the company received from Hoffman Estates. A local school district has filed a lawsuit against Sears for $43 million, charging it overcounted the number of employees and collected public money that it should not have received.
The disputed tallies also reveal uneven enforcement by state and local officials, who allowed tax dollars to flow to Sears while ignoring signs — including substantial annual losses, store closures and public notices of mass layoffs — that the fading retail giant was struggling to maintain the required head count.
Politicians who helped draft the tax deals said they were designed to save thousands of well-paying corporate jobs at Sears. Contractors, landscapers and temporary employees deployed to work at Sears-owned properties were never meant to help the company qualify for tax breaks.
“The intention was to include, or count, jobs of Sears employees and staff,” said state Rep. Fred Crespo, a Democrat from Hoffman Estates, who drafted the legislation to extend Sears’ tax breaks and once served on the village board. […]
To obtain the [$150 million over 10 years] state tax credits, Sears filed yearly reports with the economic development agency to show the company had maintained more than the 4,250-employee benchmark.
The economic development agency had the ability to review the count or conduct on-site visits. But when ProPublica and the Daily Herald asked the agency for evidence of its monitoring of Sears since the agreement began, the department provided a single, four-page audit, paid for by Sears and dated May 2015. The audit found that 25 employees randomly selected by Sears were listed on the company’s payrolls. But it also warned that the findings were not “an opinion on compliance.”
There is no other indication the agency tried to determine if Sears was holding up its end of the deal, even as it annually disbursed approximately $15 million in tax credits. […]
In June 2017, Sears eliminated 375 more corporate jobs. Now, there was little question. Sears was at least 215 employees short of its minimum head count for eligibility for the state credits — a fact acknowledged by Howard Riefs, a Sears spokesman at the time.
That month, state officials decided to suspend Sears’ tax credits, refusing to provide nearly $15 million in payroll tax rebates that the company believed it was owed. Sears fought back, threatening to file a lawsuit. The two sides settled in December 2017, splitting the difference. Sears got tax credits for 2016 but agreed not to ask for any more for 2017. Sears is no longer receiving the credits.
Meanwhile, Sears told Hoffman Estates a different story.
- Fav Human - Monday, May 18, 20 @ 11:31 am:
In 1989 it looked like a good deal, and it was reasonable to think that.
In 2012 it was MUCH less reasonable to think so.
This will be the poster child to show why school districts should NOT be consolidated.
If those taxes had been going to schools that Hoffman estates residents used, it would likely have been a much different deal.
Or if you consolidate, give the school district a veto over TIFs….
- downstate dem - Monday, May 18, 20 @ 11:31 am:
“Company officials began counting baristas, fast-food workers and janitors who worked at Sears headquarters but weren’t employed by the company”
Hello IDES? Seems like a good reason to audit whether Sears failed to report those folks as employees AND didn’t pay the requisite contributions.
- NotRich - Monday, May 18, 20 @ 11:34 am:
First of many more of these horror stories.. pandemic recession in Illinois will mess up many of these older deals..
- Blue Dog Dem - Monday, May 18, 20 @ 11:38 am:
If only Sears would bring back their catalogue, I think they could pull this out.
- Ares - Monday, May 18, 20 @ 11:44 am:
Time to boycott ‘em and their post-bankruptcy successors until every penny is repaid. Anybody minding the store on the EDGE grants?
- City Zen - Monday, May 18, 20 @ 11:46 am:
Eddie Lampert: The grift that keeps on grifting.
- Nagidam - Monday, May 18, 20 @ 11:48 am:
Let’s all go back in time and remember how the sausage is made in Springfield. The bill that gave Sears this tax credit was negotiated with School District D300 in agreement. The language also included help for the Chicago Mercantile Exchange and an expansion of the Earned Income Tax Credit among the highlights. The agreed language at the end had to be split into two bills as the Republicans did not want to vote for the Earned Income Tax Credit expansion but did want to vote for the business bailout language.
- Anon - Monday, May 18, 20 @ 11:51 am:
I was involved in the negotiation of rebates with car dealers and others years ago as a local elected official. It is tough - take a board with members who rarely have dealt with anything larger than purchasing their home and ask them to negotiate with pros is a losing game for many. The threat presented to my board on many occasions was, if you don’t want it, we will build/relocate in the neighboring village.
There were several meetings involving various household name firms where after the slick presentations it came down to, “we want to do business with you, but village X is offering Y, what can you do for us?”
Recall the Amazon headquarters 2 competition and the promises made. As stated above, let’s see what other deals shake out over the next few months.
- Candy Dogood - Monday, May 18, 20 @ 11:56 am:
Those communications with Hoffman Estate make this look like a pretty decent case of fraud by deceit. I understand the need for the civil litigation, but someone really needs to gear up a criminal investigation.
Since Sears was publicly traded, securing these tax credits by lying about it — and failing to disclose to shareholders that they no longer qualified for the tax credits would likewise potentially be securities fraud by inflating the share price to the public.
Some folks need to go to prison for a long, long time.
Yeah, it’s disappointing that the DCEO categorically failed to meet it’s requirements to publish those reports — merit comp folks involved with that should be categorically fired, but some folks at Sears need to be trying to convince a jury of their peers (though perhaps not folks living in the communities they were stealing from) that they shouldn’t go to prison for using fraud to secure tens of millions of dollars in public monies.
- Scott Cross for President - Monday, May 18, 20 @ 11:59 am:
Great local journalism. And it’s timely as we start to unfreeze business and engage local governments.
Hats off to David Bernstein and ProPublica here.
- Ares - Monday, May 18, 20 @ 12:03 pm:
If Sears lied on its submittals, the affected govt agencies or public interest groups should object in the bankruptcy proceedings, and demand that bankruptcy discharge be denied.
- Mr. K. - Monday, May 18, 20 @ 12:04 pm:
What a fantastic article! I read this earlier this morning when I first got notified about it.
This is a midwestern, ‘True Detective’ in the making. I mean, there’s so much here — and it’s so complex.
And ultimately, it’s pretty darn sad.
- Back to the Future - Monday, May 18, 20 @ 12:07 pm:
Agree to the comment on this being great journalism. We are really lucky in Illinois to have so many good journalists.
As to looking at the deal at the time it was made, it was a bad deal for Illinois citizens then and it is a mismanaged, unregulated bad deal now.
- Ares - Monday, May 18, 20 @ 12:14 pm:
Is is fair for the “good government” crowd and civic commentators to call for public pension cuts, and overlook the above?
- Anyone Remember - Monday, May 18, 20 @ 12:29 pm:
Who was the lobbyist for the Sears deal?
- Sox Fan - Monday, May 18, 20 @ 12:39 pm:
=Time to boycott ‘em and their post-bankruptcy successors until every penny is repaid. Anybody minding the store on the EDGE grants?=
If there was a boycott of Sears, would anyone even notice? I’ve been boycotting for at least 15 years
- Froganon - Monday, May 18, 20 @ 2:03 pm:
I can’t find the article but D-300 taxpayers have endured multiple tax increases to make up for our losses from Sears’s tax breaks. We tried again a few years ago when Hoffman Estates extended them. Sears got a multi-million dollar tax break for a vacant land at the intersection of 3 major higways systems that would have exploded in value regardless. The rest of us footed the bill with higher property taxes and/or reduced levels of service in our communities and schools. Another sweet corporate deal at the expense of working class communities. AARRRGGGHH - banned punctuation
- Da Big Bad Wolf - Tuesday, May 19, 20 @ 7:11 am:
Sears got the TIF money through blackmail, why is anyone shocked they cheated too?
It seems they found a sharp lawyer who looked at the contract and saw it didn’t explicitly say full time Sears employees, even if that was the intention. Sears went to a lot of trouble to rent space to businesses that would use a lot of employees. And they challenged a lawsuit with another lawsuit. So I think they believe they have the upper hand (legally at least).
It’s too bad that sharp lawyer didn’t have a sister or brother to be Sears CEO. Instead poor Sears got Eddie Lampert..