Texas Gov. Rick Perry rode into Chicago this week in an effort to lasso Illinois-based businesses and herd them to the Lone Star State.
At a press conference on Monday, Chicago Mayor Rahm Emanuel met the visit with derision. “I hope when he comes he remembers all three of his reasons,” joked the mayor, referencing Perry’s 2012 debate gaffe, in which the governor couldn’t list the three government departments he was planning to axe.
Indeed, the efforts by Perry, best known for his wildly unsuccessful 2012 presidential run, are easy to mock. An ad in Crain’s Chicago Business bankrolled by Perry’s office portrays Texas as an emergency exit door for Illinois businesses. An accompanying letter from Perry solemnly warns Illinois companies that “your situation is not unlike a burning building on the verge of collapse.”
The burning building is evidently a metaphor for not only Illinois’ major budget deficit, but also the state’s above average unionization rate, corporate income tax and fourth highest hourly minimum wage in the country, at $8.25. In contrast, Texas boasts the lowest possible minimum wage, $7.25, and ties with Mississippi for the highest proportion of workers earning the minimum.
Illinois is used to the corporate raiding efforts of Republican governors from less worker-friendly states. If efforts to lure businesses across borders constitute a “Second War Between the States,” as Business Week announced back in 1976, the Prairie State is one of the biggest battlegrounds. After Illinois passed temporary personal and corporate income tax increases in 2011, Wisconsin Gov. Scott Walker penned a Chicago Tribune op-ed urging Illinois companies to move north of the border. Indiana Gov. Mitch Daniels also chimed in after the tax increase, comparing Illinois to “the dysfunctional family down the block.”
Brooke Anderson, spokeswoman for Illinois Gov. Pat Quinn, says the “publicity stunt” from Perry is the same old “rodeo.”
Perry’s stunt, though, could have serious consequences for Illinois – in the form of juicy tax breaks down the road for Illinois corporations.
Businesses did not leave Illinois after the advances of Walker and Daniels, but Quinn and the Democratic-controlled legislature spent hundreds of millions of dollars just to be sure they stayed.
Indeed, according to a study released in January by the Washington, D.C.-based institute Good Jobs First, Illinois has some of the nation’s highest relocation subsidies. These are individual corporate tax incentives that states use to lure companies, but Illinois uses them not to attract new companies, as Perry is trying to do, but to keep current ones.
For example, the state forked over $275 million to Sears Holding Corp. in December of 2011, because Sears made noise about moving to a more favorable tax environment. Then in February of 2012, Sears gave pink slips to 100 employees at its headquarters in Hoffman Estates, layoffs that did not the violate terms of the tax break.
Perhaps the most notorious corporate handout by Illinois came when the state revised its tax code in 2011 in order to save lucrative financial exchange CME Group, Inc. about $60 – 80 million each year in taxes. Following the deal, advocacy group Stand Up! Chicago ceremoniously placed a “golden toilet” in front of CME’s Chicago headquarters.
In some instances, the mere threat of a company leaving is enough for a tax deal. The Illinois Economic Development for a Growing Economy—or EDGE—tax credit program says that Illinois companies may qualify for a tax break so long as there is “active consideration” of moving to another state and “documentation” that another state wants the company.
“Illinois is a state that is currently being pirated,” says Good Jobs First Executive Director Greg LeRoy.
Texas, meanwhile, spends more on business tax incentives than any state, as the New York Times reported on last December, even as its per-pupil education spending is abnormally low and its poverty rate is extraordinarily high.
In 2003, Perry created the Texas Enterprise Fund, essentially a pot of money the governor uses to attract new companies. Whether the fund has brought economic rewards is unclear: Perry has claimed 54,000 new jobs linked to approximately $410 million in incentives over the last eight years. But the Good Jobs First report shows that only 28,375 relocated jobs—just 0.23 percent of the 12.2 million jobs Texas had in 2003—actually materialized in that span of time, the implication being that Texas spends much too much time and money on corporate raiding.
Programs like the Enterprise Fund create a domino effect or “race to the bottom,” in the opinion of LeRoy, where a state is either a “predator” like Texas, overly focused on attracting businesses, or “prey,” like Illinois, reactively spending money to retain businesses.
State Rep. Jack Franks, a Democrat from Woodstock, who wrote a law last year enhancing disclosure of the EDGE program, says the new data “brings to light that the governor does not have a cohesive structure in terms of job retention and growth,” Franks says.
That’s a challenge when the likes of Perry, Walker, Daniels and Kasich are just around the corner.