Wednesday, May 11, 2011

Illinois can't bribe every company that wants to leave

Last week Illinois paid a $100 million bribe to keep Motorola from leaving the state.
Gov. Pat Quinn proferred more than $100 million in financial incentives to convince Motorola Mobility Holdings Inc. to keep its corporate headquarters in Libertyville, touting the deal as essential to preventing a move to a high-tech hub in California or Texas.

To woo the longtime maker of mobile devices and cable TV set-top boxes, state lawmakers sweetened the terms of its tax-credit program, just as it has done in the past for automakers and truck- and engine-manufacturers.

Typically, the Economic Development for a Growing Economy (EDGE) tax-credit program allows companies to use the credits against their corporate income tax liability. But many companies already pay no state corporate income taxes, partly due to difficult economic times and partly because of an earlier revision in the tax structure that slashed bills for multinational corporations.

Under legislation signed by Quinn on Friday at Motorola Mobility's Libertyville offices, the company now has the option to use the credits against withheld employee income tax liability instead. In essence, the company can retain state employee income tax withholdings, Warren Ribley, director of the Illinois Department of Commerce and Economic Opportunity, told reporters on Friday.

The EDGE credits in Motorola Mobility's package are estimated at more than $10 million annually over the next 10 years. The company will also receive job training funds and a large business development grant to assist with capital expenses.

The company will also be eligible for other benefits, since it has been designated as a "high-impact business."

In exchange, Motorola Mobility has agreed to keep the approximately 3,000 jobs at its Libertyville headquarters and spend about $600 million in research and development locally over the next three years.
Sweet. For Motorola.

As soon as I read that, I figured that other major corporations would be playing the same game to get benefits from the Illinois government. Once it's clear that there are millions of dollars of bribes out there to keep them in Illinois, why wouldn't any CEO try to get the best deal possible for his or her company?

And sure enough, Sears, one of Illinois's largest employers, now is demanding similar benefits or they'll move.
Since Illinois Governor Pat Quinn signed a controversial income tax hike into law, several big businesses with headquarters in the state have publicly considered leaving. On Monday, Gov. Quinn told reporters he was working to keep Sears Holdings Corp. from flying the coop.

According to Crain's Chicago Business, Sears has been in talks with North Carolina, Texas, Tennessee and New Jersey about leaving the Hoffman Estates-based headquarters after their state and local tax incentives expire in 2012.

"We do owe it to our associates and shareholders to consider options and alternatives and intend to be very thoughtful and thorough in our deliberations," a Sears spokesman said in a statement. "It is still very early in the process."

Sears Roebuck and Co. moved into the Hoffman Estates offices after leaving its home in Chicago's Sears Tower (now Willis Tower) 22 years ago. It was reportedly set to open up shop in North Carolina, when Illinois offered them $100 million in state infrastructure money to stay.
Gee, don't you hate it when corporations won't stay bribed?

The loss of Sears could be devastating
for the local economy.
Besides the loss of roughly 15,000 jobs, a Sears move out of state would lead to the loss of millions in tax revenue, according to the impact study Sears commissioned from Gruen Gruen & Associates and the Regional Economics Applications Laboratory.

“Annual tax revenues to the state of Illinois will decline by $130.7 million,” the study said. “Annual tax revenues to the Chicago region will decline by $112.4 million.”
And Illinois's high income tax policies are leading other corporations such as Jimmy Johns to consider leaving.

Yes, economic choices by a state have consequences. And when those unintended consequences start kicking in, there just won't be enough bribe money to go around.
(h/t Show-Me Daily)