Illinois Senate votes to revive EDGE business tax credit program

Illinois Senate votes to revive EDGE business tax credit program

House Bill 162 would bring back Illinois’ Economic Development for a Growing Economy tax credit program.

Illinois lawmakers have voted to bring back the controversial and costly Economic Development for a Growing Economy, or EDGE, tax credit program. House Bill 162 would revive the business tax credit program, giving it a new expiration date of June 30, 2022, in addition to a slew of new rules concerning the size of tax credits awarded EDGE applicants. And unfortunately for taxpayers, HB 162 has passed both chambers of the Illinois General Assembly.

EDGE expired April 30, 2017, and since then, the state has not been able to sign any new deals under the program. EDGE was Illinois’ main incentives program, and its purpose was to lure companies to the Land of Lincoln in order to create jobs. However, there is little evidence that EDGE accomplished these objectives. In addition to being ineffective, EDGE was also expensive and unfair to Illinois businesses not selected for deals.

HB 162 contains several new provisions for EDGE, including capping credit awards at the lesser of 50 percent of the incremental income tax attributable to new employees plus 10 percent of the training costs for new employees, or 100 percent of the incremental income tax attributable to new employees at an EDGE applicant’s project In certain situations, an applicant that hires the required number of new employees can also get increased tax credits for retaining employees. The bill allows for more generous tax credits for projects in underserved areas.

The bill received broad support from both sides of the aisle, passing the Illinois House of Representatives on a vote of 102-5. Only four House Republicans and one Democrat voted against the bill: state Reps. David McSweeney, R-Barrington Hills; Tom Morrison, R-Palatine; Jeanne Ives, R-Wheaton; Allen Skillicorn, R-East Dundee; and Scott Drury, D-Highwood.

On Aug. 13, HB 162 passed the Illinois Senate without a single “no” vote, with 56 votes in favor. State Sen. Jim Oberweis, R-Sugar Grove, voted “present.” The EDGE bill now waits to be sent to the governor’s desk to be signed into law.

From EDGE’s start in 2001 until its initial expiration in December 2016, the Illinois Department of Commerce and Economic Opportunity, or DCEO, issued more than $1.4 billion worth of EDGE tax credits in 859 signed EDGE agreements. DCEO has stated that EDGE created 37,122 jobs over that time period. But that’s little consolation considering Illinois’ overall jobs situation.

Illinois still has more than 183,000 fewer people employed than during the state’s employed-worker peak in November 2007. From June 2016 to June 2017, Illinois’ jobs growth was 40 percent slower than the national average, and slower than all of Illinois’ bordering states. Illinois also has some of the worst personal income growth in the nation, ranking 45th in the country and only growing 0.6 percent in the first quarter of 2017.

Even worse, it took nearly 17 years for Illinois to surpass its September 2000 jobs peak: This happened in February 2017, about 16 years after the DCEO started issuing EDGE credits.

Although many states have similar tax credit and incentives programs like EDGE, there is little evidence that these programs actually spur growth. On the contrary, tax incentives programs often eat up valuable revenues, and do not get much bang for taxpayers’ buck. A 2017 report by the W.E. Upjohn Institute for Employment Research shows that state and local business incentives programs for export-base industries cost the U.S. $45 billion in 2015; the study’s author stated that preliminary research does not reveal a significant correlation with a state’s current or past unemployment or income levels, or with future economic growth.

A CityLab analysis of the Upjohn study noted that many state programs keep giving out incentives to companies that haven’t reached jobs projections, continuing these failed programs in perpetuity. The CityLab article also said incentives programs typically have very little to do with the economic condition of any given state, but rather, it’s a matter of state politics and past practices.

EDGE serves a handful of special interests at the expense of the state’s entire tax base. Instead of handing out tax breaks to the few, lawmakers should focus on passing reforms that will help jobs growth across the board.

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