Want to fix Illinois’ economic development agency? Put it out to pasture
For more than a decade, Illinois has been giving select businesses many millions of dollars more in tax credits than the law allows.
Illinois’ economy is sputtering. And it’s not because the state’s economic development agency isn’t doing its job. In fact, it’s partly because the agency exists in the first place.
For years, Illinois’ economic development agency, the Department of Commerce and Economic Opportunity, or DCEO, has thrown hundreds of millions of dollars at the biggest companies in the state, leaving taxpayers with the bill and small-business owners struggling to succeed on an unequal playing field.
The growth-through-giveaway approach has failed miserably – Illinois has 56,000 fewer people working since the DCEO’s biggest program got started in 2001. And privatizing the agency – as state lawmakers are now suggesting – won’t make it work.
A new proposal from state politicians, House Bill 574, would privatize much of the DCEO’s responsibilities, creating a public-private partnership entity called the Illinois Business and Economic Development Corp. This entity would “focus on business development, small and minority-owned business incubation, trade and investment, tourism and film.”
But whenever the state gives big businesses grants or tax credits, the money has to come from somewhere: namely, taxpayers and other businesses.
The DCEO’s model has already proven a simple truth: Healthy economic growth doesn’t come from selective government handouts. If you measure the DCEO based on results, it has failed miserably. The largest DCEO tax-credit program is the Economic Development for a Growing Economy, or EDGE, tax credit, which began in 2001. The entire purpose of the EDGE tax credit is to incentivize businesses to expand and create new payroll jobs in Illinois. But after more than 13 years and nearly $1 billion in EDGE tax credits, the state is actually down 186,500 payroll jobs, a stunning record of failure.
What’s worse, for more than a decade, Illinois has been giving select businesses many millions of dollars more in tax credits than the law allows. The EDGE program is intended for companies seeking to expand and hire more workers in Illinois; not to help companies maintain existing workers.
But the DCEO has been giving tax credits to companies that simply retain employees. The Liberty Justice Center has filed a lawsuit, Jenner v. DCEO, which seeks to stop this illegal practice. The lawsuit alleges it’s possible that as much as half of the nearly $1 billion in EDGE tax credits approved over the life of the program violated the limits established in the law.
Not only is the DCEO handing out illegal subsidies, but politicians also make use of it to curry favor and create the illusion of jobs growth.
Former Gov. Pat Quinn did just that in October 2014, one month before he was up for re-election. That month alone, Quinn authorized $37.4 million in major grants to four big companies and two influential incubators.
Failed economic stimulus and rampant abuse of tax dollars always come into play when government gets into the business of picking winners and losers.
Knowing the DCEO is broken might make it tempting for politicians to create a public-private partnership to carry out similar functions. But public-private partnerships like the proposed Illinois Business and Economic Development Corp. won’t solve these fundamental problems.
In fact, privatizing could help shield the group from the same scrutiny that brought the DCEO’s usefulness into question in the first place. Transparency requirements, such as Freedom of Information Act requests and open records reporting, often do not apply in the case of public-private partnerships, leaving taxpayers in the dark on how their money is spent.
For example, Jobs Ohio, a similar program, has been plagued with a lack of transparency because the “public-private” hybrid structure allows it to be considered a private organization. The program regularly subsidized donors to Gov. John Kasich and his legislative allies, and Jobs Ohio ran ad campaigns to trumpet its economic success – not unlike how Quinn used Illinois’ DCEO.
The DCEO has been a mess – but in attempting to fix one problem, the state shouldn’t create new ones. Illinois shouldn’t have to bribe big businesses to set up and invest here.
Subsidizing legacy businesses misses the point of what actually drives jobs growth: Kauffman Foundation research shows that job creation is driven by younger firms in their first five years. Nationwide, businesses with fewer than fifty employees represent95 percent of all U.S. companies.
Politicians should embrace economic reforms that make the state a place to which employers want to flock. That includes keeping the tax burden low, eliminating unnecessary red tape and reforming out-of-control workers’ compensation costs.
Illinois needs a lot less DCEO favoritism, and a lot more real economic reform.