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Illinois lawmakers put freeze on tax breaks, scrutinize business climate

by Laura Tomaka ~ April 2014 ~ Stateline Midwest »
A series of high-profile requests by companies wanting special tax breaks from Illinois in order to stay in the state have raised questions about whether the state’s business incentive programs actually result in job and economic growth.
So many questions have emerged, in fact, that lawmakers have agreed not to grant any tax breaks until hearings are held to evaluate the state’s tax environment and the effectiveness of business incentives.
“It’s clear to me that the policies that we are using now aren’t working,” says Rep. Jack Franks, who is helping lead a newly formed Illinois House working group that is doing the evaluation.
Illinois has the second-highest unemployment rate in the nation, 8.7 percent, and is ranked at the bottom of U.S. states for estimated job growth (see map).
Lawmakers are also in the midst of debating a scheduled income-tax rollback, as well as the future of the state’s corporate income tax — currently at 7 percent, plus a 2.5 percent tax on profits from in-state sales.
Illinois gives more than $1 billion in various corporate tax breaks each year.
With the agreed-upon moratorium in the House, no special incentives, which require legislative approval, are likely to get a hearing. The state’s main tax credit program used to keep businesses in the state — Economic Development for a Growing Economy (EDGE) — provides a credit against corporate income taxes to companies that make capital investments and create a minimum number of jobs in the state. Companies can still apply for and receive EDGE credits, but with the evaluation, some major reforms could be coming.
“The focus has not been on the creation of jobs, but rather on the retention of jobs,” Franks says, “which is very difficult to evaluate because [of the question], would a company have changed behavior but for the incentives that we have been giving?
“There has to be a better mechanism. The first thing I want to do is put in some metrics to evaluate incentive programs [to learn] whether they work in their current form, and then try to find [the ones] that have validity and leverage those so the taxpayers get a better return.”
Franks also wants to hear about best practices from other states. One idea, for example, is to use “closing funds,” under which businesses closing a deal with the state receive cash grants.
But he also hopes the working group helps lead to a more complete vision of how to make the state a better place to do business.
“Maybe we should be putting our money not to the incentive programs,” he says, “but perhaps to our human capital and providing these companies with the best-educated and [most-]talented workforce.”
The escalating competition among states to “steal” businesses, he adds, is unproductive.
“Might we be better pursuing a compact with our other Midwestern states and say that we’re not going to poach each other’s companies, but work regionally to try to bring more to everybody’s profits?” he asks.

 

Article written by Laura Tomaka, staff liaison to the Midwestern Legislative Conference Economic Development Committee. The committee's co-chairs are Michigan Rep. Eileen Kowall and Nebraska Sen. Heath Mello.