Since 1985, state and local governments in Illinois have doled out at least $5 billion in economic development subsidies. In particular, three companies have received over $900 million from Illinois taxpayers: Sears, Mitsubishi Motors, and Motorola. In these three cases, employment eventually fell and plants even closed despite the massive amounts of money provided.
This post is the first in a four-part series on the costs of business subsidy programs by the Illinois Economic Policy Institute (ILEPI).
Full Report: Subsidizing the Few: An Introduction to Economic Development Subsidies in Illinois
The use of subsidies in the State of Illinois came about as a method to lure companies away from other states and promote a positive image of Illinois. The late 1970s brought about stiff competition between states to attract large manufacturing projects and led to the expansion of state and local economic development programs.
Most notably are the deals that Good Jobs First – a national policy resource center and leader in economic development subsidy research – define as “megadeals.” A megadeal is an economic development package made up of state and local incentives that total more than $50 million. Since 1985, eight megadeals, totaling over $1.2 billion, have been made in Illinois. Sears, Mitsubishi Motors, and Motorola have received the largest single subsidies in the State of Illinois, in addition to their parent companies receiving the most money from public subsidies over time. Most egregiously, Sears has received 43 percent of total megadeal subsidy money ($532 million) and 10 percent of the over $5 billion of total state and local subsidies issued in Illinois since 1985.
Sears initially received $242 million in 1989 as an incentive to stay in Illinois after threatening to vacate their headquarters at the Sears Tower in downtown Chicago. The company ultimately decided to relocate to suburban Hoffman Estates, and despite receiving significant funds to retain existing jobs, the retailer did not reach the number of pre-move headquarters jobs until 1998. Sears again threated to leave the state in 2011 and was offered $275 million to remain in their Hoffman Estates headquarters; however, two months following the deal, Sears laid off 100 employees from its headquarters, and has continued this trend in recent years.
Mitsubishi was offered $249 million in 1985 to locate their auto assembly plant in Bloomington-Normal. While the plant was successful in surpassing the number of projected assembly jobs, peaking at 4,000 in 1995, it severely lacked in related supplier jobs, with less than half that were originally projected coming to fruition. The plant ultimately struggled to remain sustainable and again sought more subsidies from the state in both 2013 and 2014. They were awarded $600,000 under an Employee Training Investment Program in 2013 and $3.66 million under Illinois’ EDGE Tax Credit program in 2014. Despite these subsidies, the Bloomington-Normal Mitsubishi plant closed in 2016 at a loss of thousands of jobs for the region.
Similar to the deals Sears received, Motorola Mobility was offered almost $118 million in 2011 to retain its headquarters in Libertyville. Soon after receiving the subsidy, Motorola Mobility announced plans to move to Chicago. While this move kept jobs in Illinois, the company soon faced layoffs after being bought by Lenovo. The company moved 2,000 employees into its Chicago office in 2014, yet cut 500 a year later. The company announced in September 2016 another round of layoffs was forthcoming in the near future.
As Illinois and local governments continue to face budget shortfalls, officials must carefully consider the benefits of economic development subsidies, particularly “megadeals” that stem from statewide competition in the name of job creation and retention. The recent deal awarded to Foxconn in southwest Wisconsin is the perfect example of such a deal, and Illinois taxpayers can be thankful that $3 billion of their hard-earned money will not be supporting this private corporation with a mixed record of success.
As stated by the Federal Reserve Bank of Minneapolis, “while states spend billions of dollars competing with one another to retain and attract businesses, they struggle to provide such public goods as schools and libraries, police and fire protection, and the roads, bridges and parks that are critical to the success of any community.” Arguments can be made for small-scale subsidies and those that aid low-income and high unemployment areas, yet it is crucial to understand who they are really benefitting: a private corporation that may soon lay off employees or the local community?