On January 13 Governor Rod Blagojevich announced that the state was in danger of spending $5 billion more than it takes in this year. The next day a report appeared criticizing the state for having put hundreds of millions of dollars a year into feel-good economic development programs that aren’t paying off. Taxpayers, it made clear, have been paying for giveaways to big business that produce little or no public benefit.
You might think the report’s allegations of imprudent spending would make news given that money’s so tight. But they haven’t. The Illinois Department of Commerce and Community Affairs (recently renamed the Illinois Department of Commerce and Economic Opportunity) is responsible for most of these tax breaks and subsidies. Its spokesman declined to comment on the report for this article and for an earlier story in Crain’s Chicago Business. The Tribune and Sun-Times have written nothing about it. You have to wonder: would the silence be so complete if similar allegations of waste had been made about midnight basketball, or Head Start, or diversity training for cabdrivers?”
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Should tax breaks and subsidies be ditched completely? Martire doesn’t think so. “A Better Deal” gives qualified praise to the city-state package of $95 million in subsidies for a manufacturing campus half a mile from Ford’s Torrence Avenue assembly plant on the southeast side. The report says this deal, still being negotiated, is a potential model because it’s expected to create 800 permanent new jobs in the city and because it shores up existing jobs at Ford rather than shifting them to distant suburbs. The deal may also require that some of the subsidies be repaid if fewer than 500 full-time jobs are created. “A Better Deal” favors this kind of provision–known as a refund in normal life but called a “clawback” in economic-development circles.
Because he can see ways to make the system work well for both businesses and taxpayers, Martire declines to follow the lead of many progressives and libertarians, who portray Sears and Motorola and Boeing as welfare queens. And he doesn’t bad-mouth business for seeking government handouts. “That’s their job,” he says. “It’s their business to make money. It’s our job to make sure that public resources are spent wisely.” But as “A Better Deal” shows, that job has gone largely undone for two decades.
It’s hard to say how much the tax breaks and subsidies mattered to Boeing, which at the time had annual revenues of $51 billion. After the deal was done a company official was quoted as saying, “All three cities provided what we would characterize as appropriate packages”–apparently meaning they could have been happy with a lot less. “A Better Deal” concludes that the state and city gave Boeing millions more than they needed to.
I asked Boro Reljic, vice president for government affairs at the Illinois Manufacturers’ Association, about the mission creep in these programs. He chuckled and said, “Imitation is the sincerest form of flattery. Doesn’t that just show that these programs work?” Asked whether the proliferation of TIFs and enterprise zones might instead mean that they benefit a few organized interest groups and spread the costs over everyone else, he changed the subject.
Before the law was passed, the Illinois Department of Revenue examined previous years’ corporate income tax returns and estimated that if the change were made about 7,000 companies would pay less corporate income tax than before and about 7,000 others would pay more–and that overall the state would take in about $95 million a year less. So what was Illinois supposed to get in return for $95 million a year? The answer, once again, was more jobs and a broader tax base. “I think the legislature made a rational decision, a value judgment” when it made sales the only factor in determining corporate income taxes, says the Manufacturers’ Association’s Reljic. “They want to encourage payroll and property investment here in Illinois.” The association commissioned a University of Chicago economist to study an earlier version of the tax change, which was even more generous than the one that became law. That study claimed that the change would lead businesses to generate 155,000 new manufacturing jobs here–a stupefying figure considering that right now Illinois has only around 884,000 manufacturing jobs and the number is dropping.
