A prolonged state budget crisis that has led to public employee layoffs and the planned closing of government offices statewide hasn’t kept Illinois from extending a package of corporate tax breaks to the nation’s most valuable retailer.
First-term Republican Gov. Bruce Rauner put a hold on the corporate recruitment tool in early June amid a budget impasse that has stretched more than two months into the fiscal year.
But the state Department of Commerce and Economic Opportunity says that online retail giant Amazon — with a market value of nearly $250 billion — received the tax credits because of a previous commitment, with the state notifying the company of the award in late May.
Amazon says its new Joliet warehouse, its first in Illinois, will create 1,000 full-time jobs.
Elected leaders and business boosters call corporate tax breaks an essential tool to lure new companies and keep existing ones. For example, Sears Holding Corp. and CME Group, the parent company of the Chicago Mercantile Exchange and the Chicago Board of Trade, both threatened to leave Illinois for states with more generous perks before lawmakers cut them both deals in 2011.
Economists say such state incentives rarely make a difference in whether a company stays or goes, and a growing number of lawmakers also question the approach.
“I’m not sure why we would provide tax credits to a company that’s already made a decision to come here,” said state Rep. Jack Franks, D-Woodstock. “If they’ve already said they’re doing this, what benefit is there to the state?”
Amazon first disclosed its plans for a Chicago-area facility nine months before it publicly disclosed the Joliet location in August. Lyndsey Walters, a spokeswoman for the Department of Commerce and Economic Opportunity, said the company “was looking at many different states in which to locate.”
Amazon officials declined to discuss other potential locations outside of Illinois. The Economic Development for a Growing Economy program, or EDGE program, requires that companies seeking state support must document “active consideration of a competing location in another state.”
The value of Amazon’s tax break under EDGE is not clear. The Commerce Department denied an Associated Press request for a copy of the 10-year agreement, which has not yet been signed.
The nonprofit Center for Tax and Budget Accountability in Chicago estimates that the minimum annual value of Amazon’s tax credits $975,000, based on warehouse jobs with starting pay of $13 an hour, with some starting at nearly $15 an hour.
One state not at the bargaining table was Wisconsin, which recently agreed to provide Amazon with up to $10.3 million in tax credits in exchange for two distribution centers near Kenosha that came with the promise of 1,250 new jobs.
“The Wisconsin Economic Development Corporation was not involved in attraction efforts for the Amazon facility planned for Joliet, Illinois,” said agency spokesman Steven Michels.
While Amazon will be able offset its corporate tax bill for up to 10 years with credits for its employees’ state withholding taxes, Illinois’ budget woes means the company can’t claim state job training money or receive further tax breaks offered to “high impact” businesses.
As a candidate last year, Rauner vowed to cap EDGE credits if elected. Once in office, he eliminated a program provision that extended those incentives to companies that merely retained jobs rather than created new ones.
In 2014, the state issued $206.5 million in EDGE tax credits — a $90 million increase from the previous year. That marked a 14-year high in a program that has issued $1.12 billion worth of corporate tax credits since 2001.
Rep. David Harris is among the lawmakers from both major parties who’ve called for further scrutiny of how the state administers tax breaks. Though unfamiliar with the specifics of the Amazon offer, he suggested that Illinois has little choice when competing for sizable corporate investments.
“Certainly the state is in a difficult financial situation,” he said. “But whether we like it or not, it is a competitive environment. We’ve got to be able to be in the ballpark to talk.”
By Alan Scher Zagier and David Mercer, The Associated Press