Cities caught in tax break conundrum

SPRINGFIELD — A tax break package could mean new jobs for Illinois’ cities still reeling from the financial fallout of the Great Recession, or it could cost them a collective $55 million drop in tax revenue by 2014.

By Andrew Thomason

SPRINGFIELD — A tax break package could mean new jobs for Illinois’ cities still reeling from the financial fallout of the Great Recession, or it could cost them a collective $55 million drop in tax revenue by 2014.

The Legislature is working on a tax incentive package to give the business community a booster shot after it was bruised by the Great Recession and a 47-percent business income tax hike in January. The package also includes a tripling of the earned income tax credit, a tax break for low-income families.

If that plan fails to create more jobs, however, the state would lose $848 million in tax revenue, 6 percent, or $55 million, of which would have gone to local municipalities, cities like Alton in southwestern Illinois.

Alton has eliminated 60 positions in its municipal government through attrition in an effort to avoid raising taxes and creating a deficit, Mayor Tom Hoechst said.

“We’re down to a bare-bones staff. Somebody calls in sick and everything gets delayed,” Hoechst said. “I know (lawmakers have) got problems and they’re not easily solved. I don’t envy (lawmakers) but I’ve got the same problems and I don’t have anyone to push them off to.”

The original tax incentive package, sponsored by state Sen. President John Cullerton, D-Chicago, started out as a means to keep the CME Group, which operates the Chicago Board of Trade and the Chicago Mercantile Exchange, in the state. The CME Group accounted for $105 million in income tax revenue for the state last year, and said it had offers from other states enticing CME Group to move that it was considering.

That plan soon ballooned to include a $150-million tax break for Sears Corp., research and development tax credits for businesses and a tripling of the earned income tax credit, a tax break for low-income families, all in an effort to round up legislators’ votes and Gov. Pat Quinn’s support.

Supporters of the tax breaks said that in theory, the tax breaks would create more jobs by fostering a business-friendly economic environment. The more jobs, the more income tax the state collects.

The unemployment rate in Illinois has almost doubled since December 2007, rising from 5.5 percent to the current rate of 10 percent. Nationally, the rate has gone from 5.1 percent to 9.1 percent during the same period.

But incentives like tax breaks don’t always work to keep businesses in the state, something cities such as Hoechst and Alton know too well.

Last November, about 1,000 jobs that paid around $28 per hour left Illinois, when Winchester Ammunition, a subsidiary of Olin Co., moved its center fire ammunition manufacturing line from Alton to Mississippi.

Marcylen Love, a spokeswoman for Illinois’ Department of Commerce and Economic Opportunity, said the state offered Olin an “extremely aggressive” incentive package. She wouldn’t offer specifics. Love added that Quinn went as far as meeting with Olin’s CEO, Joseph Rupp, but in the end, Olin moved its production line.

Olin could not be reached for comment, but Rupp acknowledged the generosity of the state’s offer in a written statement announcing the production line’s move.

In the end, the high cost of labor weighed heaviest on Olin’s decision, Rupp said.

“Unfortunately, without the labor costs savings  … the state incentives alone would not have allowed us to remain competitive for the long-term at our current location in Illinois,” Rupp said in the statement.

Quincy, like Alton, is a border community with Missouri. Mayor John Spring said he’s opinion is torn when it comes the tax breaks offered by the state to businesses.

He cites Doyle Equipment Manufacturing, a farm machinery company in Quincy. Doyle plans to move all of its production across the river to Missouri by next summer, taking with it all 92 jobs it has in Quincy. If the tax breaks become reality, it could persuade Doyle to keep building products in Illinois.

But, other factors like workers compensation payments and unemployment insurance are cheaper in Missouri, and if Doyle moves, Quincy will lose those jobs and Doyle would lose the money from Illinois’ tax breaks.

“There are risks certainly involved here. If it does work and many of these manufacturers get the break that will allow them to create more jobs, we come out a winner,” Spring said. “If by some chance that doesn’t happen, it’s hard to say. We’ll be scrambling to balance our budget.”

Spring said Quincy has cut $4 million from its budget during the past two years to deal with less tax revenue. Quincy has made the cuts instead of raising taxes to avoid running a deficit.

Calls to Doyle were not returned.

The Illinois House Revenue Committee met Wednesday to discuss the proposed tax breaks, and will meet again Friday. The General Assembly will return Nov. 29 for a one-day extension of its fall session, during which some form of a tax break package could resurface.

Cities have seen the Legislature cut into tax revenue by using money from the personal property replacement tax, a state income tax levied against businesses then distributed to municipalities, to fund the state’s 44 regional offices of education for one year.

Lawmakers’ action came after Quinn vetoed $13 million from the state budget originally designated to pay the officials holding the offices.

“It’s the wrong time to be taking anything away from the cities,” Hoechst said. “We’re hanging on, and every little bit helps, and every little bit they take away hurts.”