Bill seeks to end state competition in corporate subsidies

Sen. Villivalam, Rep. Morgan join national movement to form ‘interstate compact’

By Ted Cox

Two state legislators opened the General Assembly session this week by introducing a new bill designed to end the “rush to the bottom” in states trying to outdo each other in attracting corporations with taxpayer-funded subsidies.

Sen. Ram Villivalam of Chicago and Rep. Bob Morgan of Deerfield announced in Springfield on Tuesday that they’d be joining “a national bipartisan campaign to phase out corporate giveaways by establishing an interstate compact,” according to a news release, in which states pledge not to try to outdo each other in offering tax breaks and subsidies to corporations.

The Corporate Giveaways Compact, introduced Tuesday by Villivalam as Senate Bill 2502, would enter Illinois in a Phase Out Corporate Giveaways Interstate Compact, “in which each member state agrees not to offer or provide any company-specific tax incentive or company-specific grant” to entice a corporation, factory, office, or real-estate development to move to that state.

“The legislation would bring each state into a formal agreement with other states to phase out corporate giveaways through two main provisions,” the release stated. “First, member states agree to end the practice of offering tax breaks to a facility located in another member state as an inducement for the company to move. Second, member states participate in a national board of appointees to discuss and propose enhancements to the existing agreement for future consideration by each state.”

The national, bipartisan movement is organized around the endtaxgiveaways.org website and sets out to “liberate states from participating in tax-payer funded subsidy battles by having states join together and refuse to provide companies with tax breaks or other incentives, as in the case of the Amazon HQ2 bidding war,” according to the news release.

Similar legislation has already been introduced in New York, Hawaii, Maryland, Florida, Iowa, Illinois, West Virginia, and New Hampshire.

“Corporate giveaways are one of the least effective uses of taxpayer dollars for job creation because companies too frequently take tax incentives to choose locations that they would have chosen anyway,” Villivalam said. “So instead of creating additional jobs, they simply deplete a community’s tax base instead, which often affects communities who can least afford it. This legislation is a good first step in phasing giveaways out and in creating a level playing field for all employers.”

“While our state budget is already starved by excess tax breaks, we want to build support over time and appeal to our colleagues who don’t wish to unilaterally disarm in the giveaway game,” Morgan added. “This is a reasonable go-slow approach, and can help us refocus our state budget on priorities such as education and human services funding.”

The bill specifically excludes workforce-development grants that train employees, company-specific tax incentives or grants from local governments, and specified company-specific tax incentives or grants for companies already within the state.

Amazon irritated politicians and taxpayers across the nation with its bidding war pitting designated “candidate cities” against each other as a potential new home for the internet sales firm’s second headquarters. Chicago was one of many cities trying to lure the company with a package of tax breaks, subsidies, and real estate. Amazon ultimately settled on splitting its second headquarters between New York City and Arlington, Va., but pulled out of the New York end of the deal when citizens raised issues over whether the city’s extensive subsidy package was worth it.

A study released last fall called into question whether subsidies pass muster on a cost-benefit analysis, and it focused on the new Foxconn factory just across Illinois’s northern border in Wisconsin. The study found that such subsidies act as a drag on economic development and actually encourage businesses to be less efficient.