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States increasing use of tax incentives to lure business

by Laura Tomaka ~ February 2012 ~ Stateline Midwest »
Last year, Sears Holdings Corp. announced that, with state and local incentives set to expire in 2012, the company would consider moving out of Illinois, where it has been based since 1887. The result was a flurry of states, including New Jersey, Ohio, North Carolina, South Carolina, Texas and Georgia, expressing interest in landing the retail giant.
Two Midwestern states — Illinois and Ohio — became the most serious contenders and waged an intense incentives war. Ohio offered the company a reported $400 million in incentives to move there. In the end, Sears decided to stay in suburban Chicago, with the state and local governments offering a package that will provide $125 million in property tax breaks and $150 million in state income tax credits.
The same day Sears announced it would stay in Illinois, the parent company of the Chicago Mercantile Exchange followed suit after being offered incentives in the same legislation (SB 397). CME Holdings had been wooed by neighboring Indiana. It is estimated that the Sears and CME deals will cost the state $263 million in fiscal year 2013 and $325 million in FY 2014.
Stories like these, of intense competition for jobs and businesses, are being played out across state lines and within states — and these bidding wars almost inevitably require the use of tax incentives.
According to The Council of State Governments’ third edition of “State Business Incentives: Trends and Options for the Future,” there has been an increase in the number of states offering various types of incentives over the past three decades.
For example, in 1977, at least 28 states offered tax breaks or credits to businesses for equipment and machinery, goods in transit, manufacturers’ inventories, raw materials in manufacturing and job creation. By 2008, the number of states offering such incentives had grown to 44. Likewise, 21 states offered a corporate income tax exemption in 1977, with the number rising to 41 by 2008.
In addition to providing an inventory of and trends in businesses incentives offered by states, the report includes information on state oversight and accountability — how states try to ensure that these taxpayer dollars are being used wisely.
The third edition also discusses two other areas: international economic development and the green/clean economy. Nearly half of the states responding to a CSG survey indicated that they provide grants to small businesses as part of their export assistance portfolios. Every state offers at least two types of incentives for renewable energy.

 

Article written by Laura Tomaka, CSG Midwest staff liaison to the Midwestern Legislative Conference Economic Development Committee. The committee’s co-chairs are Rep. Ted Celeste of Ohio and Sen. Mike Vehle of South Dakota.