Illinois Economic Development Subsidies: Creating Opportunity for the Poor, or Paying for Poor Jobs?

by Jeff McCourt

Illinois spends about $2 billion a year on economic development, much of it justified with rhetoric about job creation and poverty reduction. But beneath the sheep’s clothing, there lies a different story.

Like other states, Illinois subsidizes companies in the name of jobs more than 30 different ways: property tax abatements, property tax diversions called tax increment financing, or TIF, corporate income tax credits including the Economic Development for a Growing Economy (EDGE) program, sales and utility tax exemptions, enterprise zones, tax-free loans and loan guarantees, training grants, land write-downs, and infrastructure aid. The state also provides targeted subsidies such as grants for large business relocation, research and development credits, and an arcane loophole for manufacturers called Single Sales Factor, or SSF.

Yet a growing body of evidence indicates that this massive spending at best is ineffective in reducing poverty and at worst diverts badly needed resources away from public education and other services that really would help families escape poverty. For example, last month Good Jobs First released our analysis of recently disclosed data on 2004 Illinois subsidy deals, covering 25,278 jobs at 90 companies. It revealed that state agencies had frequently subsidized low-wage jobs that would not support a bare-bones budget for a family of four.

Using annual income standards developed by Wider Opportunities for Women, we found that about 60 percent of the subsidized jobs were slated to pay less than is needed for family self-sufficiency in urban areas ($38,000) and rural areas ($34,000).

More than a third of the jobs (35 percent) were to pay below $27,040 annually, just twice the state minimum wage. Some (3.6 percent) paid less than $20,000 yearly, little more than the 2004 federal poverty line of $19,307 for a family of four.

This indifference to job quality is aggravated by state-subsidized sprawl that helps relocate jobs away from cities and older suburbs. This support often comes from programs originally created to help poor neighborhoods that have been perverted to boost already affluent areas. Straying from Good Intentions, Good Jobs First’s 2003 study, found that Illinois and other states had allowed enterprise zones and TIF, once restricted to areas with high rates of poverty, unemployment, or genuine physical blight, to be used in areas with none of these problems.

For example, TIF—a device by which property taxes are diverted for years to subsidize redevelopment in small TIF districts—has been used in the wealthy Chicago suburb of Lake Forest, a place so “blighted” it also has a Ferrari dealership! In a joint 2003 report, four community-based groups criticized Chicago’s TIF districts for failing to create new service-sector jobs, shuffling jobs between Chicago neighborhoods, making housing less affordable, and failing to track whether jobs had been filled by TIF district residents.

Well-off Illinois suburbs that exploit these “antipoverty” programs are not even required to make the resulting jobs accessible to people who need them. Illinois is typical in this respect; Good Jobs First’s 2003 report Missing the Bus found that not one of the 50 states’ more than 1,500 subsidy programs required urban-subsidized companies to locate jobs near public transportation (within a quarter-mile or a half-mile). With Latino and African American households far more likely than white families not to own a car, the discriminatory bias of these programs could not be clearer.

Costly but ineffective tax breaks such as SSF compound the ineffectiveness of existing Illinois business subsidy policy. SSF, which began to be phased in 1999, changed the formula for determining how much of the income of a multistate company may be taxed in Illinois. SSF backers claimed that the resulting tax windfall would attract new factory investment to Illinois and generate 155,000 new manufacturing jobs within three years. Instead Illinois lost 188,000 manufacturing jobs by the end of 2004 and $462 million in revenue. Already hit hard by Illinois’s regressive state tax system, Illinois’s working poor also suffer from service and program cuts resulting from such revenue losses.

This situation can be changed. In 2003 citizen and labor advocates won a comprehensive law requiring annual disclosure of job creation or retention and wage data by subsidized companies—the data we analyzed in our February report. This law could be amended to include data on health care coverage that might partly offset lower wages. It could also be amended to establish reasonable wage standards—for example, by barring subsidies to corporate projects where more than 10 percent of the workers would be eligible for Medicaid. 

Illinois can adopt proposed location-efficiency legislation to encourage subsidized companies to locate jobs at transit-accessible sites and thereby create job opportunities for low-wage workers and prod exclusionary suburbs to allow more transit routes. (Such legislation passed the Illinois House in 2005 and is being reconsidered in 2006.) Reforming corporate tax breaks and subsidies so that they really reduce poverty and racial disparities will help both Illinois citizens and the Illinois economy.

The full February report, Subsidizing Low-Wage Jobs: An Analysis of the First Economic Development Deals Disclosed Under Illinois’ New Accountability Law, can be accessed at www.goodjobsfirst.org/illinois/index.cfm.

Good Jobs First is a nonprofit, nonpartisan resource center promoting corporate and government accountability in economic development. Its Illinois project is a partnership with the Center for Tax and Budget Accountability. Jeff McCourt is Project Director of  Good Jobs First/Illinois.