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* I’ve seen more than a little misinformation about the leaked letter by Caterpillar’s CEO and chairman revealing that he’s being intensely wooed out of state. I told subscribers about it this morning, but figured I should probably post some of that here since things got kinda outta hand in comments while I was gone.
First, this stuff about how the recent tax hike will cost Caterpillar $40 million comes from an ABC7 story linked in my absence…
Caterpillar also says the tax hike will cost them $40 million.
Not true. They got that number from a Wall Street Journal story…
The Illinois tax increase will cost Caterpillar’s 23,000 employees in the state about $40 million this year, said Jim Dugan, the company’s chief spokesman. Higher taxes make it harder for Caterpillar to attract and retain engineers, accountants and other employees, Mr. Dugan said. He added that Caterpillar’s corporate taxes in the state also will increase but provided no estimate on the added cost.
So, this was about personal income taxes, not corporate. As you might remember, I linked to a story several years ago about how Caterpillar had managed to avoid paying state corporate income taxes…
The Citizens for Tax Justice study found Boeing did not pay income taxes to any state during two of the three years studied, 2001 to 2003. During the two years in which Boeing did not pay state corporate income taxes, the company turned a combined profit of $3.1 billion, McIntyre said.
Other profitable Illinois-based corporations such as Caterpillar, Tribune Co., Sears and Sara Lee successfully avoided paying any state’s corporate income taxes during at least one year of the period studied by Citizens for Tax Justice.
Although tax returns for companies, as well as individuals, are private, the institute was able to determine whether companies were able to avoid state taxes by analyzing documents publicly traded companies must file with the Securities Exchange Commission.
* The Engineering News-Record took a look at the letter in a far less freaked out way than most local outlets….
“You’ve always been honest with me, and that’s why I want you to know about these letters,” [Cat CEO Doug Oberhelman] says to Quinn. “I’m not sending them to you as a threat that Caterpillar is leaving Illinois…I’d like to invest more here…but as the leader of this business, I have to do what’s right for Caterpillar.”
Oberhelman goes on to say that “the direction that this state is headed in is not favorable for business, and I’d like to work with you to change that.”
Caterpillar executives are chiefly concerned about lawmakers’ ability to balance the state budget, reduce state spending, create new workers’ compensation reform and renew a research-and-development tax credit. But so far, Cat has no plans to move.
“Again, we have not said we are looking to relocate,” Jim Dugan, Caterpillar spokesman, told ENR in an e-mail exchange. “We are looking to help Illinois to become more competitive for all businesses.” [Emphasis added.]
There are serious problems here, for sure. Workers’ comp reform talks are proceeding, but things aren’t going well, as subscribers know. The R&D tax credit Cat has will undoubtedly be renewed, as will others, especially now that the letter has been sent.
* All that being said, Cat is definitely looking elsewhere to build new plants. Here are just a few stories…
* Dec 18, 2008: Cat announces new plant in Texas - Company spokesman says plan is not related to decision to lay off Mossville workers
* January 5, 2009: Caterpillar plant, 600 jobs bound for North Little Rock
* Jul 30, 2010: Cat announces new North Carolina plant - 850,000-square-foot facility will be used for axle assemblies
* October, 2010: Caterpillar Selects Victoria, TX, For New Hydraulic Excavator Facility
It’s more than obvious that we’re losing out to other states.
* But the hyperventilating from politicians about this letter is getting to be a bit much. For instance…
Illinois Congressman Aaron Schock denounced Gov. Pat Quinn on Tuesday after Quinn dimissed the possibility of Peoria’s Caterpillar Tractor leaving the state because of high taxes.
The Peoria congressman told Don Wade and Roma that Quinn is “out of touch” and his “idiotic policies” could cost the state a Fortune 15 company.
“For the governor of the state of Illinois to scoff and laugh, that is very, very dangerous and it shows a level of naivety, that is indicative of a governor that is out of touch,” Schock said.
Quinn didn’t “scoff and laugh.” Listen for yourself…
In fact, Quinn is being presented with an award by the Caterpillar CEO next month in Peoria. The two obviously have a decent relationship, as evidenced by the “You’ve always been honest with me” comment in Oberhelman’s letter.
Also…
“I like to work with all the executives but the notion of leaving Illinois is not a good idea. We’ve had great companies like Ford, Chrysler, Navistar, and Boeing all come here with more manufacturing. They understand we have a good workforce, and if you have a government who wants to work with you, you’ll go pretty far.”
Again, no scoffing and laughing there.
* The first thing that came to my mind during my break, once the shock of seeing the blaring headlines wore off a bit, was that Gov. Quinn really needs to tone down the rhetoric and get to work on our problems and forget about everybody else’s. He’s upset about what happened in Wisconsin. Fine. We get it. But he’s running around the country like Mother Jones singing “Solidarity Forever” at the drop of a red hat. That sort of defiant, pro-union attitude won’t go over well with corporate types.
This is a centrist state, something that Quinn may not fully comprehend. He didn’t squeak by Bill Brady because he was so liberal. Quinn beat Brady because Brady was far more Right than Quinn was Left. The governor would do well to move to the center.
And while I don’t agree with Congressman Schock about the tone of Quinn’s response to the Cat letter, the governor should’ve sounded far more concerned. At least for appearance’s sake, for crying out loud. Show that you’re on it, man. Get busy. Lead.
* Also, while he’s at it, Quinn should check into this…
Modern Drop Forge Co. of southwest suburban Blue Island said Monday it expects to ship one of its two Illinois plants to Indiana, taking 250 Chicago area jobs with it. The 97-year-old company makes automotive, truck and recreational equipment parts.
“Illinois is becoming very, very unfriendly to manufacturers,” company CEO Pat Thompson told CBS 2.
Thompson cites not only the corporate income tax hike approved last year, but other state tax laws, workmen’s comp rules and prevailing wages.
“We now have just about the highest state income tax in the United States, and the overall income taxes for corporations in Illinois are amongst the highest in the free world,” he said.
Illinois has lost hundreds of thousands of manufacturing jobs in the last decade. We can’t do a whole lot about China and Mexico, but we can and should attempt to compete far better with neighboring states. Workers’ comp absolutely must be reformed, for instance.
* And speaking of neighbors…
Less than four months after losing nearly all of an $810 million grant, Wisconsin is again seeking federal high-speed rail money - this time to upgrade the existing Milwaukee-to-Chicago passenger line.
Gov. Scott Walker’s administration announced Tuesday that the state will seek at least $150 million to add equipment and facilities for Amtrak’s Hiawatha line. […]
In a bizarre twist, some of the money that Walker is now seeking originally was allocated for the Milwaukee-to-Madison route he previously turned down. That money is available because a fellow Republican governor rejected it, as well. […]
The state’s share of the cost of the maintenance building will be $12 million.
Walker earlier rejected a much larger rail project which would’ve cost the state about $4.7 million a year.
* Related…
* Caterpillar letter may trigger workers’ comp overhaul
* Cat CEO letter a wake-up call for Quinn, state
* What is Caterpillar trying to tell Illinois?: One is that the company wasn’t threatening as much as trying to send a message: Big segments of the business community think Illinois has become a terrible place to start or run a business. Two: Though we can disagree on details and solutions, we ought to listen to the message, because it contains much truth.
* Illlinois delays college construction projects
* Neb. governor tries to entice Caterpillar to move
* Wisconsin reaches out to Caterpillar
* Sen. LaHood: Caterpillar Letter is an Opportunity
posted by Rich Miller
Tuesday, Mar 29, 11 @ 2:39 pm
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Rich, did you notice the Caterpillar CEO just announced yesterday a $7 million Cat Foundation donation to Millikin as well as $4.5 million personal donation?
http://herald-review.com/news/local/article_b79efcba-59b6-11e0-8f45-001cc4c002e0.html
I doubt the timing between the letter and this are related, but it certainly won’t hurt Cat in the PR war.
Comment by hisgirlfriday Tuesday, Mar 29, 11 @ 2:52 pm
It seems like the Illinois Department of Commerce doesn’t seem to be engaged in anything other then worrying about who their new director will be. They are AWOL in all of this jobs leaving talk.
Comment by Winfrey Tuesday, Mar 29, 11 @ 3:01 pm
congrats to rick for cutting thru the hyperventilation to reveal actual pesky facts and for conveying the more gracious tone of the letter than was reported elsewhere. shows what an independent blog can do.
it makes sense for cat or any other major fortune 15 enterprise to spread their plants around. it allows them to go into a nonunion situation, or at least reduce the influence any given local has over them. it also gives them additional members of congress likely to pay attention to their needs. this was a lesson demonstrated most admirably by japanese auto companies spreading their plants around the US in the 80s.
illinois’ largest trading partner is, if i recall correctly, ohio. other midwestern states are also right in there. its a balancing act where we need to compete with them, but also cooperate with them.
Comment by Langhorne Tuesday, Mar 29, 11 @ 3:03 pm
Clearly we were losing to other states even with the very low taxes we had prior to the recent increase. I don’t think taxes are the issue here; I think the issue is the state’s approach to regulation and long-term planning. There simply is not as much predictability as there should be; compliance is onerous; you never know if this tax increase will be the last or if Illinois even has the political will to respond to a crisis.
Comment by Angry Chicagoan Tuesday, Mar 29, 11 @ 3:04 pm
you forgot to add the governor’s national fundraising duties for the democrat governors association. I’d love to know how much time he’s wasting on that.
Comment by shore Tuesday, Mar 29, 11 @ 3:17 pm
Interesting how facts don’t stand in the way of propaganda. The fantasy of high Illinois taxes is the big lie that, if repeated enough, seems to become truth regardless of facts.
Comment by D.P. Gumby Tuesday, Mar 29, 11 @ 3:22 pm
Speaking of fundraising, perhaps this is another chance for the media/ reformers and other good government sharpies to pick up their phones, place calls to CAT and ask how many dollars they shipped to Crossroads, RGA et al to be poured into campaigns like NOtaxBill’s? It is one of the great unasked of the 2010 elections.
Comment by CircularFiringSquad Tuesday, Mar 29, 11 @ 3:22 pm
Not only Mossville, but how about Decatur? Cat’s plant there isn’t what it once was. It seems a little contradictory to mention Cat layoffs and new Cat plants being built in other states and then accusing people like Schock of “hyperventilating” over the current state of affairs. If a company of Cat’s magnitude is not only building elsewhere, but is also losing the Illinois workforce (even before the tax increase), why shouldn’t elected leaders “hyperventilate” a little?
Comment by Shemp Tuesday, Mar 29, 11 @ 3:44 pm
Great post Rich.
It’s also more than taxes, it’s workers comp, medical malpractice, unemployment insurance and judicial reform. We just can’t keep adding to the cost of doing business while other states are decreasing it.
The Republican’s should also take note. We need solutions not long press releases and half baked plans to cut spending (especially since most of the cuts can’t even be done). We need workable solutions.
Comment by Ahoy Tuesday, Mar 29, 11 @ 3:45 pm
The Cat letter is tied to how DCEO requests proposals. They want you to show them that other states are interested in order to work with you.
That Walker flip is great news, and I hope he gets the full 150 million. $5 gas would have been way too much to ignore the benefits of intercity rail. I would keep the buy-in at $4.7 million. Hopefully some of these other states will see the light as well and maybe offer amended projects that they are more comfortable with.
Comment by JBilla Tuesday, Mar 29, 11 @ 3:48 pm
The MSM coverage of the CAT letter has been ignorant and pathetic. Everyone wrote the story without reading the letter to fit the hoped-for hysterical narrative. Again, the state corporate income tax means oogots to CAT.
Viewed in and of itself, Oberhelman’s letter is altogether appropriate and reasonable. It’s a corporate citizen having its say. Illinois would be nuts not to make progress on work comp and take reasonable steps to keep CAT happy here.
But the CAT “Southern strategy” is very real. The era of strikes and layoffs in the 80s was brutal. There was a well-documented and public corporate strategy to diversify offshore and in to right-to-work states. That’s a hammer they continue to hold over their UAW members here at contract time.
Comment by wordslinger Tuesday, Mar 29, 11 @ 3:48 pm
As I read Rich and everyone else and their mothers call for action on Workers Comp reform… I listen to the house’s prolonged debate on Rep. Hammond’s HB 3178 that would grant us citizens the right to pick up and keep fur-bearing mammal roadkill. You stay classy General Assembly.
I give up.
Comment by Anon Tuesday, Mar 29, 11 @ 4:00 pm
Good Lord. If Art Modell can move the Browns out of Cleveland to *Baltimore*, it should be clear that any company will move anywhere, if there’s profit to be made. And there’s *always* going to be some location where costs are lower, politicians are more pliable, workers are less demanding, and taxes are lower. Always — whether it’s Indiana, Nebraska, Alabama, Mexico, or some third-world hellhole. And every time the political winds are favorable, any CEO worth even one-tenth of his inflated paycheck will float little trial balloons about moving this factory or that headquarters, sending the local politicians scrambling for little sweeteners. But, as soon as it becomes financially feasible, and not a second before or after, that company is going to leave. And unless Illinois is willing to compete with Guatemala on wages and Singapore on worker’s rights, there’s nothing to be done about it.
Comment by lincoln's beard Tuesday, Mar 29, 11 @ 4:35 pm
==We’ve had great companies like Ford, Chrysler, Navistar, and Boeing all come here with more manufacturing.==
Boeing brought manufacturing here? I hadn’t realized that.
Also, as Mr. Miller and others have pointed out, moving production outside Illinois won’t lessen your Illinois income tax, because we tax you according to your sales to Illinois customers, which wouldn’t change merely because you move some production out of state. The law doing that was enacted a dozen years ago to encourage production to move to Illinois or stay here, and it was done with Cat’s support because it reduced Cat’s income tax. The ink wasn’t even dry on the governor’s signature when Cat announced it was building a big new plant in the south.
Comment by Pat Robertson Tuesday, Mar 29, 11 @ 4:54 pm
Yes, the spirit of the letter from Cat is conversational. And yes, there are nuanced points of view from both parties, but a few basic things are worth saying, like repeating the fact Cat paid no state income taxes on gross profits of $11 billion. And the fact Cat is doing very well based right here.
As the saying goes, Illinois has been very, very good for Cat. They are doing so well its stock price is now at 110, which is 5 times what it was ten years ago. By comparison the Dow Jones Industrial Avg is up 15% over ten years. I would happily pay taxes on a gain like that. Also, I know there are plenty of people in the areas where Cat is an employer who would happily pay state income taxes on a job with Cat. So I don’t get what Cat is saying except “more, please.”
Did Cat send a letter to the GOPs in Springfield asking them to approve a borrowing plan which refinances our real existing debts now at a stable low interest rate now, improving state stability and predictability, rather than risking some kind of major state breakdown ahead? How about a letter asking the GOP to do more to create a workable capital plan to put that Cat machinery to work on Illinois construction projects ASAP?
As for moving to another state, it reminds me of an Illinois friend who now lives in Tennessee and laughs at conservative talk of moving out of Illinois. And he is conservative himself. He is an executive who misses Illinois. He has a big house in Tenn, but few cultural outlets. He has money and lower income taxes, but lousy public schools. He has low property taxes, but uses local private schools which cost $20,000-25,000 a year, before you contribute to the schools’ capital and ongoing fundraising. He has room for get-togethers, but his friends and family are back in Illinois. What do they really enjoy most about working in Tennessee? Leaving the state on long weekends and vacations!
Give me a choice between working in states like Florida, Texas, or Tennessee, versus Illinois, I would pick Illinois every time. I understand that state government is not perfect, but I also understand that my income taxes are reasonable compared to other states and I appreciate the high quality of life we enjoy here in Illinois.
Comment by Statewide Tuesday, Mar 29, 11 @ 4:56 pm
CAT’s stock is up 500% in the last decade, while older UAW members’ wages were frozen and new workers toil at half the previous wage scales. Just the latest example of “What’s good for big business isn’t necessarily good for workers.” Corporations make great servants but damn poor masters.
Comment by Louis Howe Tuesday, Mar 29, 11 @ 4:59 pm
On the one hand, I am quite happy that the era of bizarre blindness and smug inertia that has marked Illinois government in the area of economic competition is finally ending, Governor Quinn excepted.
I am just sorry it took the house catching fire to wake people up to the danger. Now the game is to see if we can stop it from burning down.
Comment by Bubs Tuesday, Mar 29, 11 @ 5:05 pm
Instead of tossing ranci red meat to Chicago Tea Partiers on WLS, maybe Rep. Schock can represent his constituents and get together with the CAT CEO and Quinn next month in his district and discuss the real, reasonable CAT agenda, as outlined in The Engineering News Record.
It’s a business meeting, Congressman, so wear something appropriate. No puffy shirts and big purple belts like at the White House.
Comment by wordslinger Tuesday, Mar 29, 11 @ 5:11 pm
The last time I checked, Caterpillar had six manufacturing plants in Illinois, including Aurora, Decatur, Mossville, East Peoria, Pontiac and Mapleton. This is a pretty significant number for just one state. Quinn should sit down with the company executives and find out how we can work to keep the IL plants running profitably. If you google “Caterpillar” and “state assistance,” you’ll see that Cat has accepted government incentives to modernize, expand and build new plants across the country. Heck, I even found a news release, touting a $500,000 grant issued by the Blagojevich administration for workforce training at several Cat suppliers in Illinois. What’s it going to take to keep Cat executives happy? I don’t know, but I would look at equipment modernization, workforce development and infrastructure improvements, along with reasonable changes in the rules for worker’s compensation.
Comment by Going nuclear Tuesday, Mar 29, 11 @ 5:30 pm
Why do you say Brady more right than Quinn left? On every single social issue and economic issue, Quinn is down the line left. He’s a down the line liberal much as Brady is a standard issue conservative.
Comment by Bill Grady Tuesday, Mar 29, 11 @ 5:41 pm
Bill
How can you day Quinn is on the left. He supports the death penalty said so in his campaign and will veto any income tax increase above the 4% tax he proposed I remember the interview where he stated this.
Comment by Fed up Tuesday, Mar 29, 11 @ 7:37 pm
Apparently the $31 billion construction program that would utilize Cat’s machine’s wasn’t enough of a government subsidy for Big Yellow, which is reporting record profits.
Comment by anon Tuesday, Mar 29, 11 @ 7:57 pm
The reaction of people like Schock to this Cat letter really angers me. The prospect of Cat leaving the state isn’t just some abstract partisan issue to score points upon whether Quinn’s policies are “idiotic” or not.
This is a bread and butter issue affecting the livelihood of a wide swath of Aaron Schock’s constituents, including some friends and family of mine.
I wish that he could take a step back from the partisan rhetoric for a moment and calm down in his excitement about this issue giving him a chance to be interviewed on a radio show two hours outside his district, and actually consider the real life implications of this on the people he represents before publicly badmouthing his state as bad for business and essentially encouraging the Cat CEO to leave because Schock thinks that will benefit him and his party politically.
I’d also ask him to show maybe just a little civic pride here and not be so obsessed with Grover Norquist-fed anti-tax dogma to not take a second to think about the many things this state has to offer companies like Caterpillar, even if it is dominated politically by a party other than Schock’s.
What about considering the way that our tax dollars go toward investments in producing brilliant workers that are making companies like CAT and State Farm and ADM do so well? What about recognizing that Illinois’s higher taxes compared to the Southern states help fund a public university just down the road from those companies that has top five engineering, accounting and computer science programs?
Comment by hisgirlfriday Tuesday, Mar 29, 11 @ 9:55 pm
I just love reading the Illinois commenters explaining why CAT needs Illinois more than Illinois needs CAT. The most humerous are the ones that ramble on about Illinois’ cultural opportunities and other assorted things that have no merit to a company that is faced with high taxes, excessive regulations, excessive insurance and workmans compensation insurance rates and an overall liberal ran hostile business climate. Throw all the darts you want at this post, but the bottom will show the proof that Illinois has been losing corporate jobs for generations.
Comment by Slingerboy Wednesday, Mar 30, 11 @ 7:40 am
- no merit to a company that is faced with high taxes, excessive regulations, excessive insurance and workmans compensation insurance rates and an overall liberal ran hostile business climate. -
Obviously no merit. As evidenced by the overwhelming number of companies relocating to Alaska.
Comment by Small Town Liberal Wednesday, Mar 30, 11 @ 7:52 am
– Throw all the darts you want at this post, but the bottom will show the proof that Illinois has been losing corporate jobs for generations.–
Must have been tough building that privately financed Chicago skyline in an “an overall liberal ran hostile business climate.” Is that a dry heat?
Comment by wordslinger Wednesday, Mar 30, 11 @ 7:59 am
Interesting to see the non Illinois commentators, Slingerboy, ranting like an old-school Southern agribusinessman/planter about the cost of doing business with almost no regard to the benefits. Even taking such an argument at face value doesn’t hold up very well; Illinois is still generally cheaper than several neighboring states, even after our tax increase. Instead of being the bargain basement outlet store, we’re now just the discount store of the region. And what of the benefits? The transportation connection? The good public schools (Chicago’s lottery excepted for those who don’t get into a good one)? The relative ease of getting good employees? And so on? Conservatives of Slingerboy’s mentality don’t count these as benefits, and then don’t even stop to wonder why growth doesn’t magically show up after a tax cut — they just ask for more tax cuts.
As I’ve said before, the real problem with Illinois’ business climate is the predictability, or lack thereof. We have a system where regulations are prone to change for no better reason than political gimmickry and where disputes are settled by litigation with its high cost and unpredictable results rather than cooperatively. And we have a political culture in which problems (e.g. the condition of city streets and the CTA el; workmans comp litigation; state defined-benefit pensions; our antiquated sales tax system with its emphasis on goods and ignorance of services) are swept under the carpet rather than solved. Those are the things we have to change.
Comment by Angry Chicagoan Wednesday, Mar 30, 11 @ 8:48 am
Slingerboy’s IP address lists the Russian Federation as his location. lol
Comment by Rich Miller Wednesday, Mar 30, 11 @ 9:27 am
Well, they certainly have unfettered capitalism in the Russian Federation. They just skipped the whole rule of law bit. You can make as much as you want, however you want. The trick is holding on to it without getting jailed or whacked by your government.
Comment by wordslinger Wednesday, Mar 30, 11 @ 9:36 am