Law360 - March 16, 2017 | original article

By Hannah Meisel

Three possible plans for keeping businesses in Illinois with tax credits emerged Thursday in the state's General Assembly, as an earlier program that doled out more than 800 such credits is set to expire by the end of April.

Illinois' current EDGE tax credit — short for Economic Development for a Growing Economy — is set to expire next month after a last-minute extension at the beginning of the year gave it a few more months to live. EDGE was originally adopted in 1999, and the state has approved more than 800 tax credits through 2015, according to the state's Department of Commerce and Economic Opportunity.

EDGE has been used in a few high-profile cases in recent years, including a successful bid to keep soy giant Archer Daniels-Midland's global headquarters in Illinois and a failed try at keeping the former OfficeMax headquarters in the state after it was acquired by Florida-based Office Depot.

But EDGE has also drawn criticism, as lawmakers from both parties have alleged the program enables businesses to threaten to leave the state if they aren't offered the tax credits they want. Though the administration of Gov. Bruce Rauner has altered the EDGE program to reward businesses for creating new jobs instead of giving tax incentives for keeping existing jobs, a bipartisan consensus has emerged that the program might need a replacement.

DCEO director Sean McCarthy threw his agency's weight behind a proposal known as the THRIVE — Transforming, Helping and Reviving Illinois’ Versatile Economy — Job Creation Tax Credit Act.

"Better for Illinois taxpayers, communities and small businesses," McCarthy testified Thursday.

THRIVE is sponsored by Sen. Pamela Althoff, R-McHenry, and Sen. Melinda Bush, D-Grayslake, a bipartisan team that may help sell the new program to a deeply divided legislature in the midst of a 21-month budget impasse in Illinois. The plan would provide the state with a way to take back funds it may have given to a company that didn’t follow through on its promise to create jobs, along with capping the level of incentives at half of the profit from a new project. With EDGE, the caps are set at 100 percent of profit.

But Rep. David McSweeney, R-Barrington Hills, asked McCarthy why a program for business tax incentives are even necessary, suggesting the state abolish the corporate tax altogether.

“Why should we pick winners and losers in Illinois?" McSweeney asked. "Why not keep tax rates relatively low, look at real tax reform that could result in lower rates? Why actually get into the situation where the government is picking winners and losers? I've never understood why we're sitting here on a Thursday morning talking about legislation that will put the decision-making process into the hands of the government deciding who's going to win and lose?"

A competing plan is sponsored by Rep. Michael Zalewski, D-Chicago, who said in committee Thursday that he feels he's under "enormous pressure to get something done" on tax credits.

Zalewski's plan is supported by the Illinois Chamber of Commerce, and would cap credits at $50 million per year year statewide and limit them to five years for any given project, down from the current 10 years provided for within EDGE.

Instead of employers negotiating a cut in their income tax liability, businesses would receive a cut worth 10 percent of wages of newly hired or retained jobs. Additionally, the tax credit would be even higher if the jobs were located in high-poverty, high-unemployment communities. The credit would be made permanent, rather than having to be renewed every five years.

The third option is simply extending EDGE again, possibly with some tweaks.

Though high-ranking Democrat Rep. Barbara Flynn Currie, D-Chicago, was the one who pushed for the extension of EDGE in the beginning of the year, she said Thursday that a replacement program should be different going forward.

“If we are going to create special incentives, we want to make sure that there was a reason to do it, not just glad-handing,” she said.

Category: In The News