Gov. Pat Quinn is doing something he has been condemning his counterparts in other states for doing – poaching jobs from elsewhere – at the taxpayers’ expense. Earlier this month, he issued a press release boasting of taking jobs from Ohio by getting a German company to relocate its U.S. headquarters to the Chicago area. The company was lured here with the offer of tax credits.
According to gubernatorial spokesman Dave Blanchette the state anticipates giving Rittal Corp. $624,113 in tax credits over the next decade to move its U.S. headquarters from Ohio to Schaumburg, Ill. The move involves 40 employees and the subsidy is contingent on the jobs being created, he said.
“Most economists don’t like this type of approach,” said Fred Giertz, an economics professor at the University of Illinois. “If taxes are kept at a reasonable level, then the state should be able to attract businesses without offering these incentives.”
Unfortunately, Illinois has earned a reputation for not having a hospitable business climate, said Dean Stansel, an economics professor at Florida Gulf Coast University.
“In recent years, Illinois has done some bad things like raise taxes,” he said. “The state’s reputation nationally is much like California and New York. It’s known for high taxes and high regulations, especially in the Chicago area.”
Politicians are drawn to giving out incentive money because they want to take credit for job creation, Stansel said.
“They are looking for that ‘photo op’ moment when they can say they are responsible for bringing these jobs,” he said. “The way the economy is supposed to work is businesses create jobs on their own without assistance from government. It’s what is called the ‘invisible hand’ at work. But politicians can’t take credit for that – so they offer incentives.”
And Quinn is no exception.
On Tuesday, his spokeswoman Sandra Jones issued this statement: “After Governor Quinn met with Rittal CEO Friedhelm Loh in Germany last December, the company decided to move its headquarters to Illinois where it will have better access to transportation. The move means more jobs and more investment in Illinois.”
But Illinois offered Rittal more than transportation advantages. Over the next decade, the state will likely provide $15,602 to Rittal for each of the 40 jobs it is expected to locate in Schaumburg.
“This is all about politicians wanting ribbon-cutting opportunities and to be able to take credit for bringing jobs,” said Phil Matlera, research director for Good Jobs First, a liberal Washington, D.C., think tank that specializes in tracking corporate subsidies.
He added companies have become increasingly adept at persuading government officials to provide subsidies. For example, in 2011, Rittal Corp. received $6.6 million in tax credits from Ohio to add 118 jobs and retain 537 jobs, The Columbus Dispatch reported. Rittal makes metal cabinets for information technology equipment.
Rittal will continue to manufacture in Ohio, even after it moves its U.S. headquarters to Illinois.
Another headquarters in play is for the retailer OfficeMax. Legislation is pending to offer OfficeMax $30 million to keep its corporate headquarters in Naperville, Ill. It recently merged with Office Depot, which has its headquarters in Florida.
The reality is companies build new facilities, move or stay put, based on what is in their best business interests – not incentives offered, Stansel said. But companies have burnished the perception among government officials that incentives matter in corporate decision-making, he added.
Quinn has been a vocal critic of governors from states such as Texas, New Jersey and Wisconsin for trying to “poach” jobs from Illinois. Quinn spokesman, Blanchette, said Wednesday Quinn is not doing the same thing.
“Gov. Quinn is not traveling to other states or buying ads in media in other states urging existing businesses to pack up and move to Illinois,” he said. “When he learns that businesses are interested in possibly locating to or expanding in Illinois, he actively communicates to those businesses the advantages Illinois has to offer.”
And subsidies are often among the things Illinois offers.
“These subsidy packages are free lunches for companies,” said Thomas Cafcas, a researcher for Good Jobs First. “They are not really moving the needle. They are not accomplishing that much.”
Illinois has engaged in seven deals in which individual corporations received at least $75 million in subsidies from the state:
- Diamond-Star Motors (now Mitsubishi Motors) in 1985 agreed to receive $249 million in subsidies to build an automobile assembly plant in the Bloomington, Ill., area.
- Ford Motor Co. cut a deal in 2000 where it agreed to receive $101 million for a manufacturing and supplier park in Chicago.
- Motorola Mobility (now Google) cut a deal in 2011 to receive $118 million to keep its headquarters in Schaumburg, Ill.
- Navistar International in 2010 entered a deal where it would receive $84 million for the truck company headquarters to be in Lisle, Ill.
- RJR Nabisco (now Mondelez International) entered a deal in 1993 to receive $90 million in expansion of its large industrial bakery in Chicago.
- And Sears has entered two megadeals with the state. In 1989, it entered an agreement to receive $242 million in exchange for keeping its corporate headquarters in Illinois. And in 2011, another deal was cut for the giant retailer to receive $275 million to keep its headquarters in Hoffman Estates, Ill.
Source: Good Jobs First