Sunday, June 26, 2011

The Source of Corporate Welfare or Why Governor Quinn Stinks!

Pictured Above: Governor Quinn consulting with his economic advisor.

When Governor Quinn made Illinois even less attractive to businesses, by substantially raising taxes, predictably more employers started moving out. Rather than address this issue by making across the board tax and regulatory reform, that equally apply to all employers, Quinn offered $100 million in selective subsidies (i.e. corporate welfare) to Motorola and will presumably do so when other major firms threaten to leave. Even companies that do not intend on relocating will be able to leverage the state. Fundamentally, this means that the tax burden will be shifted towards companies and individuals who are not politically connected. Truly Governor Quinn you stink!

$100 million keeps Motorola Mobility in Illinois

Illinois boosts tax incentives in 10-year deal to keep smartphone company in Libertyville

May 06, 2011

By Kathy Bergen and Wailin Wong, Tribune reporters

Gov. Pat Quinn put up more than $100 million in financial incentives to persuade smartphone company Motorola Mobility to keep its corporate headquarters in Libertyville — the largest package he has offered a company to date and a signal of how badly the state wants to hold on to high-tech jobs

To persuade the maker of mobile devices and cable TV set-top boxes to stay, rather than move to California or Texas, state lawmakers sweetened terms of its tax-credit incentive program as it has for automakers, including Mitsubishi, and truck- and engine-manufacturers, including Navistar International Corp.

Navistar landed a $64.7 million package last year to keep its headquarters in Illinois, the second-largest deal during Quinn's tenure.

The Illinois packages are among a rash of retention deals cropping up nationwide as the economic malaise keeps unemployment at painful levels.

Motorola Mobility's tax-credit package comes in at $10 million annually over the next 10 years, assuming it meets job retention and investment goals. The company also will receive $1.25 million in job-training funds and a $3 million large-business development grant to assist with capital expenses.

The deal, announced Friday, breaks down to about $34,750 for each of the 3,000 jobs Motorola Mobility has agreed to retain, considerably more than the $15,000 to $20,000 per job that is more typical when the state awards tax credits to keep or attract businesses.

"These are higher skilled, higher paying jobs than most projects," said a spokeswoman for the state's Department of Commerce and Economic Opportunity.

Motorola Mobility, one of two companies that previously formed Motorola Inc., pledged to spend more than $500 million on research and development over the next three years, essentially what the company already had planned to spend.

But there is potential to grow that amount, some of which might have gone elsewhere if Motorola Mobility had relocated, Chief Executive Sanjay Jha said.
The company's decision was announced amid much fanfare at Motorola Mobility Holdings Inc.'s Libertyville offices. Employees and senior executives wore red T-shirts emblazoned with "Motorola Mobility Illinois" and packed an auditorium to see Quinn sign the legislation enhancing its tax-credit package.

"We don't want folks to leave," Quinn said. "We want them to stay and grow with great companies like Motorola."

The legislation Quinn signed also applies to some companies in the cable TV, wireless telecommunications and computing fields, as well as to makers of inner tubes and tires. The latter could indicate other deals may be in the works.

Laurence Msall, president of the Civic Federation, a tax policy group, called the deal a prudent investment for the fiscally struggling state. "The best way for the state to stabilize its finances is to grow its economic strength," he said.

As to the richness of the deal, economic development expert George Ranney said, "Yeah, it's a concern, but these are pretty good jobs." Ranney is president of Metropolis Strategies, a business-backed policy organization.

Other economic development experts took issue with the package.
Typically, the Economic Development for a Growing Economy, or EDGE, tax-credit program allows companies to use the credits against their state corporate income tax liability. But many companies pay no such taxes, partly due to difficult economic times and partly because an earlier revision in the tax structure slashed bills for multinational corporations.

Motorola Mobility's federal and state income tax liability represented less than 1 percent of its revenue in 2010, and it had no liability in 2009, according to estimates in company filings.

Under the legislation signed by Quinn on Friday, the company now has the option to use the credits against withheld employee income tax liability. In essence, the company can retain state employee income tax withholdings, said Warren Ribley, director of the Illinois Department of Commerce and Economic Opportunity.

Greg LeRoy, executive director of Good Jobs First, a nonprofit that researches economic development subsidies, called the diversion of personal income tax revenue "an insidious recent development." About a dozen states have some form of it, and a couple more are debating the issue, he said.It is "like companies grabbing into employees' pockets," said LeRoy, adding that it also represents a new encroachment into state revenue streams.

"Shame on Motorola and other companies for asking for such big subsidies when they know governments are strapped," he said.

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