Tax breaks could determine fate of Sears' headquarters
HOFFMAN ESTATES, Ill. -- If Sears Holdings moves its headquarters to another state, it would be catastrophic to this Chicago suburb, says Mayor William McLeod.
"Our office vacancy rate would be 59%," he says. Besides the 6,100 jobs at Sears' main offices, 9,000 ancillary jobs in the area would vanish, he says. McLeod is urging the Illinois General Assembly to approve an extension of state income tax credits and local property tax breaks to keep the retailer here.
Continuing Sears' tax breaks would be devastating, says Superintendent Michael Bregy of School District 300 in neighboring Carpentersville. The district has lost more than $100 million in local tax revenue since the original deal reduced Sears' property tax burden, he says, leading to budget cuts and high school classrooms jammed with up to 45 students.
Sears' incentives, he says, are being put "on the backs of the kids in our school district."
The issue could be decided when the General Assembly meets Tuesday. State Sen. Dan Kotowski, a Democrat, says the latest version of legislation would require the company to employ at least 4,250 people at its headquarters and repay the money if it fails to do so or leaves Illinois. The bill also would increase tax revenue to school districts and other taxing districts, he says.
"We need to do whatever we can to save jobs," Kotowski says.
The stakes are high as Illinois tries to cut its 10% unemployment rate and cope with an $11 billion budget deficit. The state has lost several employers to other states since corporate income tax rates increased Jan. 1 from 7.3% to 9.5%.
Sears spokesman Chris Brathwaite says everyone is eager "to see this come to a happy ending." The company needs the extension, he says, because when current incentives expire next year, Sears will have recouped only $75 million of the $200 million it spent on infrastructure here.
Sears "has received (relocation) proposals from nearly a third of the states," Brathwaite says. "Clearly, other states, and Illinois for that matter, see value in this company."
Incentives get second look
Some states are re-examining incentives as the unemployment crisis intensifies competition for employers, says Robin Boyle, an urban planning professor at Michigan's Wayne State University. "We're seeing a new day in terms of incentivization of business that is less generous" and gives more discretion to governments, he says. Activity elsewhere:
•Florida might ask companies that received incentives but didn't produce the promised number of jobs to reimburse the state. The state recently released details of 1,521 tax breaks and payments to companies since 1995. The incentives were supposed to generate 224,286 new jobs; 73,669 were created.
"When the people of our state are digging into their pockets to provide these tax incentives, we want to be sure they don't get ripped off," says Senate President-designate Don Gaetz, a Republican.
•The Oklahoma Legislature created a task force that's considering requiring the state auditor to examine every tax credit, from its draft stages to a year-to-year assessment after it is approved.
Legislation changing the process could be filed within 60 days, says Rep. Charles Key, a Republican who serves on the economic development committee. "When is it right for me and you and the average taxpayer to pay a larger share, which is what happens?" he asks. "It's never right and when times are tough it doesn't make any sense."
•In the past year, 15 companies that received tax credits from the state of Iowa created or saved 620 of the 904 jobs they promised, The Des Moines Register reported this month.
Indiana Commerce Secretary Daniel Hasler says incentives are just one tool that helped his state recruit more than 200 companies this year. "The tax incentives we offer are really icing on the cake," he says, and companies "receive them only after they have hired and paid a Hoosier."
Dublin, Ohio, this month approved incentives to keep Socius, a software consulting company, in the city until at least 2016. The deal requires the company to retain 23 jobs and create 13.
City Manager Marsha Grigsby says it's important not to "give too much away" when competing for employers. "The whole reason you want the companies here is for the tax base," she says.
Illinois roots
Sears was founded in 1886 and moved to Chicago in 1887. In 1989, the state gave the company incentives to discourage it from leaving Illinois. The company moved to Hoffman Estates in 1992, but its name remained on its iconic downtown skyscraper even after it vacated the building.
The Sears Tower was renamed the Willis Tower in 2009 as part of a leasing deal with Willis Group Holdings, an insurance brokerage.
Brathwaite acknowledges that company officials have visited potential headquarters sites in Texas and Ohio. They and other states "have made some great proposals," he says.
Bregy has participated in negotiations that he hopes will lead to a deal that shifts some money to school districts. If that doesn't happen, he says, "We don't know how we're going to survive."
McLeod's priority is keeping people working in this village of 51,895. "I'm dealing with reality here," he says. Sears "is by far our largest employer. … I'm looking at an enormous loss of jobs."