After a two-year budget impasse that saw credit downgrades, painful cuts to public education, a slowdown of state infrastructure projects and finally a tax hike, a bi-partisan majority of Illinois legislators in July finally came together on a state budget.
But before the ink was even dry, our neighbor to the north agreed to shell out $3 billion in taxpayer dollars to an electronics manufacturer promising to bring 3,000 jobs to Wisconsin. Despite Illinois having billions in unpaid bills, some have called for our state to chip in on this “deal.” Others have called for our state to consider reviving lapsed subsidies or creating new ones in order to lure companies here.
But is that really a wise use of taxpayer dollars?
To answer this question, the Illinois Economic Policy Institute this month released a four-part series analyzing the recent history and impact of corporate tax subsidies in our state.
In short, we found that too often, subsidies have failed to deliver as promised.
Since 1985, Illinois has doled out at least $5 billion in state and local tax incentives to private corporations. Nearly 20 percent of these funds went to three companies that ultimately laid off workers or closed down operations.
Overall, the data shows that Illinois’ distribution of subsidies tends to shortchange our state’s most under-served communities.
For example, the affluent village of Hoffman Estates has received more than $520 million in state and local subsidies from since 1985 — or almost $10,000 per resident. By contrast, the City of Chicago,where one in five residents live in poverty, has received just $337 million, or $124 per resident.
Conventional wisdom is that these programs create or save jobs. This was the chief selling point of the recent $7 million Carrier deal that has so far saved 300 fewer jobs than promised in Indiana, with the company recently acknowledging that its planned investments in plant automation are likely to result in even more layoffs.
But our findings demonstrate that in this respect, subsidies are generally outperformed by other types of public investments. In Illinois, state taxpayers have spent an inflation-adjusted average of $288.5 million every year on subsidies since 2000. Based on industry-standard economic modeling, this created or saved an average of 1,700 jobs per year. By contrast, commensurate investments in K-12 education, higher education, infrastructure or tax credits for working families would have generated between 2,500 and 6,100 jobs per year.
In other words, if creating jobs is the primary economic goal, corporate tax subsidies are not the best answer. Broad-based investments in people and in infrastructure are far more effective.
Another argument we often hear is that corporate tax giveaways are needed to improve our state’s economic competitiveness.
Here again, the evidence points to more efficient solutions.
For example, instead of subsidizing individual corporations, tax dollars are better used to help eliminate budget deficits and prevent the erosion of investor confidence. Additionally, surveys consistently show that employers prioritize things like having a stable supply of educated workers, a safe place to do business, and modern infrastructure that can connect them to consumers and suppliers when determining where to locate operations.
Yet in Wisconsin, the Legislature has cut annual funding to the University of Wisconsin System by $250 million while awarding subsidies of the same size to a company that Bloomberg recently revealed has a history of failing to hold up its end of the bargain. This is like stepping over a dollar to save a dime.
Across the midwest, job creation and economic growth are vital pursuits. But so is risk management.
If taxpayers are being asked to shoulder some of the costs, they are entitled to protections that give them the best possible return on their investment. Corporate subsidies should include more uniform accountability and enforcement reforms across all incentive programs. They also should include specific job creation standards and development objectives that target communities where the need is greatest.
Above all, the data shows that corporate tax subsidies are by no means the only option in making Illinois a good place to do business. And they certainly are not the most cost-effective economic development tool in the toolbox.
Frank Manzo IV is policy director of the Illinois Economic Policy Institute. Mary Craighead is a transportation policy analyst at the Illinois Economic Policy Institute. To read their latest research on the cost and impact of economic development subsidies in Illinois, go to www.illinoisepi.org.
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