New ILEPI series shows giveaways often don’t deliver as promised, disadvantage underserved communities, and are outperformed by investments in education and infrastructure.
Chicago: A new research series by the Illinois Economic Policy Institute (ILEPI) has found that billions of dollars in state and local tax subsidies for corporations have yielded far fewer economic benefits than comparable investments in infrastructure and education. Further, instead of being concentrated in distressed areas most in need of economic development, Illinois subsidies have largely favored affluent communities.
Though focused on the history and performance of more than $5 billion in Illinois corporate tax subsidies, ILEPI’s research comes as two neighboring states face mounting scrutiny for similar deals: including a $3 billion giveaway to lure electronics manufacturer Foxconn to Wisconsin, and a recent $7 million subsidy aimed at saving jobs at a Carrier plant in Indiana.
“The enormous strain on public budgets across the Midwest and the intensifying efforts to lure or retain employers with large tax subsidies cry out for review,” said ILEPI Policy Director Frank Manzo IV. “The fact is, taxpayers are too often not getting a good return on their investment and, absent much stricter accountability standards on the companies that receive these handouts, other spending priorities would do far more to benefit the economy and improve the region’s economic competitiveness.”
ILEPI’s series singles out tax subsidies given to three large companies—Sears, Mitsubishi and Motorola—which have received nearly 20%, or $900 million, of all state and local tax subsidies in Illinois since 1985, according to Good Jobs First.
“In all three cases, massive amounts of money were provided to companies either threatening to leave the state or locate elsewhere,” noted study co-author Mary Craighead. “And in all three cases, the investment of taxpayers ultimately resulted in the elimination of jobs. In the case of Sears, these impacts were even more devastating, since the company moved more of its operations into the suburbs– eliminating jobs that were once accessible to the state’s most disadvantaged urban communities.”
Overall, ILEPI notes that the distribution of subsidies in Illinois is not tied to population trends or socio-economic needs. For example, businesses in Hoffman Estates, a village accounting for just 0.4% of Illinois’ population, received 26% of all state corporate tax subsidies ($520 million). The southern portions of Chicago and Cook Counties—where population density, poverty, and unemployment rates are higher than state averages—have seen a disproportionately smaller share of tax subsidies than their more affluent neighbors to the north.
“The data suggests that Illinois’ state and local tax subsidy policies favor municipalities that are majority white, have poverty rates below the state’s average, and median incomes above the state average,” Craighead added. “Instead of lifting disadvantaged and underserved communities, these policies appear to be expanding social and economic inequality.”
Utilizing industry standard IMPLAN economic modeling software, ILEPI’s series also contrasts the economic impact of the inflation-adjusted $288.5 million that Illinois taxpayers have spent each year on business tax subsidies since 2000, against comparable investments in infrastructure, education, and middle-class tax relief (specifically a doubling of the state’s federal EITC match). The results of this analysis are detailed below:
“When compared to the impact of other potential investments that state and local governments could be making, it is clear that Illinois’ current business tax subsidy policies have been an inefficient economic development tool, at best,” added Manzo. “Alternatively, if Illinois had used the $288.5 million per year they are currently spending on business tax subsidies to help balance public budgets, it could have potentially avoided credit rating downgrades that have already cost taxpayers and reduced investor confidence.“
With state and local lawmakers continuing to rely on business tax subsidies as part of an overall economic development strategy, ILEPI’s analysis concludes with a detailed set of proposed reforms to improve the success and accountability of these programs for the taxpayers who finance them. These include tying receipt of subsidies to more specific job creation goals and wage and benefit standards; more consistent and uniform enforcement of accountability measures across all subsidy programs; developing a statewide comprehensive economic development strategy to help focus subsidies on communities most in need; and the reallocation of subsidy dollars into infrastructure or job training programs that improve overall economic competitiveness.
“As the state continues to grapple with over $251 billion in unfunded pension liabilities and $15 billion in overdue bills, effectively using taxpayers’ money is of the utmost importance,” Manzo and Craighead concluded. “Ultimately, we believe it is in the state’s best interest to continually evaluate its subsidy practices and promote balanced policies.”
The Illinois Economic Policy Institute (ILEPI) is a nonprofit organization which uses advanced statistics, reliable surveying techniques and the latest forecasting models to develop timely and dynamic analysis of policy issues affecting the economies of the Midwest.
Read the Executive Summary and the Four Individual Research Reports: