Sears files for bankruptcy despite decades of Illinois tax breaks

Sears files for bankruptcy despite decades of Illinois tax breaks

Sears, a long-time beneficiary of Illinois tax credit programs, has filed for Chapter 11 bankruptcy.

Sears filed for Chapter 11 bankruptcy on Oct. 14, one day ahead of a deadline for a $134 million debt payment.

Sears Holdings Corp., which owns Sears and Kmart, has also announced plans to close 142 stores by the end of the year, according to CBS Chicago. This comes on top of 46 closings already scheduled for the year.

Beyond evolving retail trends, declining sales and other operational challenges, the company’s pension obligations were another major factor that spurred the Hoffman Estates-based company’s bankruptcy. Sears CEO Edward Lampert had stated that the company has “contributed $4.5 billion to its pension plans” since 2005, according to the Chicago Tribune. Those costs “significantly impacted” the company, Lampert said.

Through decades of tax breaks, Illinois and the village of Hoffman Estates have poured millions of dollars into the ailing retailer. Despite those carve-outs, the company has suffered years of mass layoffs and store closures.

The company’s tax benefits stretch back to 1989, when Sears reached a deal that involved moving its headquarters to Hoffman Estates from downtown Chicago. Under that deal, Hoffman Estates recognized the area surrounding the company’s new location as an “Economic Development Area,” or EDA, delivering Sears a lucrative tax break under the condition that it retained 2,000 jobs.

When Sears threatened to move its headquarters out of Illinois in 2011, former Gov. Pat Quinn signed a law allowing Hoffman Estates to extend the company’s EDA status for another 15 years, with the requirement that the company retain 4,250 jobs.

The same year, the company received tax breaks from the state under its Economic Development for a Growing Economy, or EDGE, program. This deal made the retailer eligible for $15 million in annual tax breaks, hinging on similar workforce requirements as the Hoffman Estates deal. In exchange for $160 million in infrastructure investments, the company received around $20 million in tax credits in 2016 under the EDGE deal.

Sears’ workforce fell below the required minimum when the company laid off 400 workers in June 2017, disqualifying the retailer from EDGE tax breaks. Sears continued to qualify for Hoffman Estates’ EDA agreement, however.

Special incentives programs and tax breaks for large companies will not grow Illinois’ economy, as Sears’ bankruptcy filing demonstrates. And it isn’t just Sears: In September, Takeda Pharmaceuticals – one of the state’s top tax credit recipients – shuttered its 1,000-employee headquarters in Deerfield.

Instead of picking winners and losers, state lawmakers must pursue reforms that create a business-friendly environment and organically encourage job growth in Illinois.

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