When Illinois Governor Pat Quinn pushed a personal and corporate income tax increase through the state legislature last winter, he did so at the cost of political capital and personal popularity. It was worth it, he argued, to nudge the state away from the brink of fiscal insolvency.
One result he probably didn't bank on: being held hostage by some of the state's largest corporations.
Sears Holdings, the fifth-largest company headquartered in Illinois, is whispering that it may move its corporate HQ out of state, taking with it its significant employment capacity, because of the state's newly hiked tax rates.
That makes four of the state's 31 Fortune 500 companies to play this game of chicken with the state of Illinois in recent months. Each time, Governor Quinn has swerved.
Most notable among the deals brokered by Quinn is the recent one with Motorola Mobility. The company publicly stated that it was considering packing up and moving its operations to California. Quinn was quick to rush in with a very generous deal for the company: $110 million in taxpayer dollars, not for any innovation or expansion, but simply to stay put.
And as the Chicago Tribune reported this weekend, the company isn't even obligated to maintain its workforce. Of its around 3,200 Illinois employees, it only needs to keep 2,500 to receive the tax credit, meaning it could initiate significant layoffs and still get a handout.
Then there was Caterpillar. CEO Doug Oberhelman leaked a letter to the press stating that he felt the climate in Illinois wasn't business-friendly, and that other states had been recruiting his company to move. Again, Quinn plunged in, and within days the two were holding a back-slapping press conference, with the governor promising more infrastructure investment to improve CAT's business.
Even before the tax hike, the state gave a $64.7 million break to Navistar for the generous act of not going anywhere. U.S. Cellular and Continental Tire have won similar, if smaller, handouts.
Sears, meanwhile, is no stranger to sweet tax deals. Twenty years ago, the public helped finance its move from the Sears Tower in downtown Chicago to a new suburban development. As the Chicago News Cooperative reports, that hasn't exactly turned into a boom town:
The state laid out $60 million in tax breaks so Sears would remain in the Chicago area after abandoning its namesake building downtown. Sears has been mired in mediocrity ever since, its sales and profits shrinking, and the Prairie Stone development has done worse than that.
Prairie Stone remains mostly prairie: a few office buildings, a bankrupt shopping center and an empty-seats arena that Hoffman Estates had to seize control of in a turnaround effort. There are wide-open spaces where offices, retail and other new properties were supposed to sprout. So much for the transformative power of a big tax giveaway.
There's also the question of just how serious these companies are in their threats of leaving. It's very expensive, after all, to pack up and go elsewhere, and many of the companies -- Caterpillar not least among them -- have strong ties to the communities where they're headquartered.
Still, it doesn't seem like that's a question Quinn has much interest in asking. "We're already talking to Sears" about tax incentives, Quinn said in audio posted on the Capitol Fax blog. "It's a negotiating, bargaining process."
Illinois, it seems, is bargaining from a position of considerable weakness.
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