Tag Archives: tax breaks

Experts suggest Illinois has no chance of landing Boeing plant

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The State of Illinois may be putting on a hopeful face but experts suggest Illinois has little to no chance of enticing Boeing to open a new plant in the state:

But Richard Aboulafia, a longtime aircraft industry analyst, is among industry watchers who don’t believe Illinois has a chance.

“Zero, zilch, nada. Worst (possible location) I’ve heard yet, apologies to Illinois,” he said.

The state, he said, has almost no aerospace production or workforce with industry experience and has a heavy, strong union presence unlikely to appeal to Boeing as it goes through tense labor negotiations in Washington.

Illinois is also short on several requirements Boeing wants any new home to provide, aerospace industry consultant Scott Hamilton of Leeham Co. said…

Those requirements include a site adjacent to a “major international airport,” one with a runway at least 9,000 feet long, according to a copy of the company’s site selection criteria obtained by The Associated Press…

The area around O’Hare has almost no available land, said Brent Pollina, vice president of Pollina Corporate Real Estate in suburban Chicago.

Boeing also wants 300-400 acres of land “at no cost, or very low cost,” and buildings totaling several million square feet under the same or similar terms.

Without offering details, the company says it would like its corporate income tax, property tax and other taxes to be “significantly reduced.”

While Boeing is asking a lot (leading to a very good question of how much states or local governments should give up to entice companies), it doesn’t sound like Illinois has much to offer for this new plant. In a global age, the headquarters of Boeing may be in Chicago but that doesn’t mean a new plant has to be anywhere near it.

This offer to Boeing should also lead to broader conversations about what Illinois does offer, not including tax breaks and financial deals, compared to other states. Chicago and the surrounding region is likely the biggest asset with a global city (particularly financially), plenty of educated employees, other important companies and organizations, and a central location in the United States with the necessary transportation infrastructure (airports, railroads, highways, and water access). Illinois has lots of space outside the Chicago area and some rich farmland. The whole state is centrally located and has access both to the Great Lakes and the Mississippi River. But, is Illinois perceived as good for business? How do its assets line up with those of other states?

Unintended consequences: when property values decline, seniors with frozen property taxes pay more

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Programs that freeze the property taxes of older homeowners may reduce their taxes for a long time – unless property values decline and seniors end up paying more:

The state’s Senior Citizens’ Assessment Freeze Exemption works by capping participating homeowners’ property assessments. So even if the property’s value rises each year, a participating homeowner is taxed only at the level when the “freeze” was put into effect. In better times for real estate, participating homeowners in some suburban townships averaged as much as $38,000 reductions on their assessments, which would have reduced their property tax bills by hundreds of dollars. But instead of just losing out on the revenue, governments shift the tax burden onto property owners who don’t qualify for the freeze.

The law was intended to prevent fixed-income seniors from being taxed out of their homes since, to qualify, participating homeowners have to earn less than $55,000 a year.

“But nobody thought property values would decline,” said state Rep. David Harris, an Arlington Heights Republican who sits on the House property tax subcommittee. “Now, the issue is huge.”

Here’s why. If property values drop below the frozen level, there is no longer any benefit to the participating homeowner because he or she is taxed at that lower level.

That wouldn’t be a problem if the value dropped for only that homeowner. But when the value drops for everybody and the tax levies for all government bodies stay the same, or more likely increase, tax rates have to increase to meet the levies governments are allowed to collect.

The most important thing to me in this story: nobody assumed property values might drop. In other words, legislators and those receiving the tax help didn’t think about this possibility. So now they are stuck trying to scramble to find a fix.

While there are certainly other reasons contributing to the financial troubles of the last seven years or so, I wonder how much ignoring this simple idea – property values could decline for a while and not bounce back – contributed to the larger issues.

Atlanta Braves bucking the baseball trend by moving to the suburbs

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While the new baseball stadiums of recent decades tend to be located in urban neighborhoods, the Atlanta Braves made an announcement that they are moving 15 miles outside of the city:

On Monday, team president John Schuerholz and two other executives told reporters that the franchise will build a new stadium in Cobb County, roughly 15 miles away from Turner Field, and begin playing there in 2017, after their current lease expires, with construction to start in mid-2014.

That’s a shock, in that the Braves have only been playing in Turner Field — which was built for the 1996 Summer Olympics — since 1997. Such a move will make it the first of the 24 major league ballparks to open since 1989 to be replaced, and buck the trend of teams returning to urban centers. The proposed park is in the suburbs and closer to the geographic center of the team’s ticket-buying fan base, a much higher percentage of which happens to be white. US Census figures from 2010 put Fulton County at 44.5 percent white and 44.1 percent black, while Cobb County is 62.2 percent white and 25.0 percent black…

So instead of sinking $350 million into fixes to modernize Turner, the Braves are spending $200 million for a new park, with much of that cost likely to be covered by the development of the surrounding area and the sale of naming rights. Notably, Turner is one of just eight venues that doesn’t have such a deal in place. According to a New York Times piece from July, the Atlanta Hawks get $12 million a year for the naming rights to their venue, currently known as Philips Arena. The largest baseball deal is that of the Mets for Citi Field ($21 million per year), though the dropoff from that figure to the second-largest, Houston’s Minute Maid Park ($7.4 million), is steep.

The new venue is at the intersection of Interstates 75 and 285, said to be a major traffic snarl, “the place so congested we Cobb Countians know to avoid if at all possible,” as the Journal-Constitution‘s Mark Bradley described it. The county has resisted the expansion of the Metropolitan Atlanta Rapid Transit Authority (MARTA) into its domain since its inception in 1971, so it’s not served by light rail, and while the team claims “significantly increased access to the site” via Home of the Braves, it offers no specifics on the matter.

While this goes against ballpark trends, it also fits some other trends:

1. Suburban expansion in Sunbelt cities. Many of the new ballparks have been built in Northern cities, Rustbelt places where downtown development is needed. Think Camden Yards in Baltimore or Jacobs Field in Cleveland or PNC Park in Pittsburgh. In other words, Sunbelt cities have different settlement patterns including beltway highways around the city and not that dense of an urban core to begin. Turner Field wasn’t exactly in an urban neighborhood and other reports suggested it would have been quite difficult to expand parking and nearby amenities.

2. Matching ballparks with nearby development projects that can also bring in money. A baseball team can be profitable but developing nearby real estate can be even more profitable. For example, look at the deals suburbs tried to make with the Cubs earlier this year: you can have land and access to transportation and we would be more than happy to develop land around your ballpark. And the Cubs are trying to do this with Wrigley Field as well by developing nearby properties into a hotel to increase their revenue streams.

3. It sounds like Cobb County is giving the Braves a good deal by financing some of the project. This is a longer trend: companies, sports or otherwise, moving to where they can get a good tax deal. This has happened with urban ballparks – cities have financed parts of those stadiums because they can’t afford to let the team out of the city. In this particular case, it sounds like the Braves thought they got a better suburban deal whereas other cities have pushed harder to keep teams with incentives.

I suspect this is a more isolated case of ballpark construction in the suburbs.

When big corporations keep approaching Illinois about tax breaks

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ADM and other large companies in Illinois keep pushing the state to offer more tax breaks:

The company has called Decatur home for more than four decades but said it needs to relocate to make international travel and employee recruitment easier. ADM hasn’t said where its new headquarters will be, but Chicago is the preferred location for an operation that would employ about 100 people, according to knowledgeable sources. The company has said it would also create a technology center at its headquarters site that would employ an additional 100…

The ADM tax package is one of several bills introduced Friday that would give breaks to specific companies or industries. The bills seem likely to reignite the debate over targeted breaks that swirled in 2011 when the General Assembly gave tax relief to CME Group Inc. and Sears Holdings Corp. Both companies had threatened to exit the state…

The proposal also would let the company retain state income tax withholdings that employees would have paid the state. Motorola Mobility, Navistar International Corp. and Ford Motor Co. have received the same tax break to retain jobs…

Separately, two other companies are in line to receive tax incentives. Swiss insurance company Zurich plans to build its new North American headquarters in Schaumburg, where it employs about 2,500 people who would shift to the new facility.

More on the story from yesterday’s paper:

ADM, which said last week it is searching for a new corporate headquarters, wants $1.2 million a year for the next 15 to 20 years, company representatives told a State House Revenue and Finance Committee at a hearing in Chicago on Tuesday…

If lawmakers approve the bill, ADM would join a select number of companies that can retain their employees’ income tax withholdings. That group includes Motorola Mobility, Sears Holdings Corp., Navistar International Corp. and Ford Motor Co.

To get there, companies have lobbied lawmakers to amended the language of the state’s Economic Development for a Growing Economy tax credit program, or EDGE.

The print version also noted that about two-thirds of Illinois companies don’t pay corporate income taxes.

Such requests put politicians in a difficult position – which I suspect is one reason businesses make such requests. The politicians quoted in the stories sound fairly negative about the tax breaks; they think the companies are simply asking to avoid taxes they could afford to pay. At the same time, politicians don’t want to be the ones who are viewed as anti-business (which is related to being anti-growth or anti-jobs) and the ones who let big name companies get away. If other states or localities are offering better tax breaks, they have to compete with tax breaks or highlight other advantages (an educated workforce, access to a global city – Chicago, clusters of other nearby corporations and services, etc.). It can then become a race to the bottom as governments undercut each other to attract corporations which are then less valuable.

Texas governor not the only one after Illinois businesses; also Florida, Wisconsin

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The Texas Governor campaigned for Illinois businesses and he spoke earlier this week at a conference. But, he is not alone – other states also want Illinois businesses:

Perry is not the only governor out to siphon commerce this week. Wisconsin’s Scott Walker on Tuesday attended the same Chicago conference, touting his state’s business environment and standing as a bioscience leader. A day earlier, Florida’s Rick Scott sent a “Wish you were here” letter to Illinois business owners, noting that his state is “nipping at the heels of Texas every day” as a place to do business and pointing out that “Illinois’ formula of more taxing and spending ISN’T WORKING.” (Never let it be said Scott is undercapitalized.)…

Perry isn’t just selling Texas in a state weighed down by budget crises and the lack of political will to make the tough choices that solutions will require. He is on a trip financed by a public-private partnership to sell the concepts of lower taxes, less government interference, “a legal system that doesn’t allow for oversuing,” lower workers comp rates…

In this, pitting one state against another is good, Perry argued, in “the same way that it’s good for the White Sox and the Cubbies to compete against each other. If you don’t have competition, you’re not going to get pushed out of your comfort zone. That’s the simplest form I can put it in. I think our Founding Fathers understood that you had these laboratories of innovation and the ones that were good at it would be successful.”

Perry ignores one area of competition present in the Chicago area: between cities and suburbs. There have been numerous discussions in recent years about the tax breaks offered in different communities (here is an example in Hoffman Estates) or Chicago attracting headquarters and businesses back to the city and whether this harms the suburbs. Granted, all of these communities have to deal with the issues and regulations of the State of Illinois. But, it appears a number of businesses have still found places they like including in the Loop, Schaumburg, Northbrook, Deerfield, Naperville, Oak Brook, and other places. Between these localities, businesses can look for favorable settings and take advantages of the peculiarities of each place.

There was also one issue that highlighted a possible problem in Texas that may have been highlighted by a recent tragedy:

Take a good look at how close the fertilizer factory that blew up last week was to a middle school and nursing home in West, Texas, and decide for yourself whether you endorse Texas’ stance on zoning (“We respect local control,” Perry said) or think the state should intervene. Laissez faire isn’t always the way to go.

I assumed Illinois provided for local control over zoning as well…though I’m not sure what happens when it comes to potentially dangerous fertilizer plants.

Facebook to build $1.5 billion data center in…Iowa

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In looking at the geographic dispersion of major data or server centers, it looks like Iowa is pretty popular:

Facebook is building a 1.4-million-square-foot data center on the outskirts of Des Moines, Iowa, according to a local report.

With a price tag estimated at $1.5 billion, the massive facility would join the data centers Facebook has already built in Prineville, Oregon and Forest City, North Carolina, as well as a third under construction in Luleå, Sweden…

Like Oregon and North Carolina, Iowa has become a hotbed for internet data centers. Google runs a facility in Council Bluffs, Iowa, while Microsoft operates a data center in West Des Moines. Facebook’s facility is set for Altoona, a small town north-east of Des Moines.

Companies such as Facebook are attracted to such places in part because local governments provide tax breaks for these enormous computing facilities. According to local reports, Facebook has asked for additional tax credits for using wind power to help the new facility.

It appears tax breaks win again. But, the Des Moines Register also noted some other enticing features of the area:

Iowa has been competing fiercely with Nebraska for the data center, code named Catapult…

City officials and leaders of the companies say Altoona is prime real estate for data farms because it meets all of their primary needs:

• Access to an extensive interstate fiber optic cable system, already installed within the city and running along Interstate Highway 80.

• Proximity to adequate power and water utilities. (A large MidAmerican substation is less than half a mile from the 200-acre site.)

• Open and affordable land with low natural disaster risks. (Coastal cities often face the threat of hurricanes and earthquakes.)

• Transportation access near the crossroads of interstate highways 80 and 35 and U.S. Highway 65.

What would happen if Iowa were to pull these tax breaks? What about having an educated workforce – it looks like Des Moines has a decent share of the “creative class” as measured by Richard Florida.

It would be interesting to put this is a larger Midwestern context. Would these tech companies consider the Chicago area, with or without the tax breaks? How about Ann Arbor or Madison? Are other places even competing for data centers – and if not, why not?

Does Motorola Mobility moving to Chicago weaken the suburbs?

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With the news this past week that Motorola Mobility will be moving from Libertyville to downtown Chicago, a question arose: is Chicago’s gain the suburbs’ loss? Here is part of the discussion:

Rather than a zero-sum game of moving jobs from the suburbs to Chicago, Motorola Mobility’s planned relocation from Libertyville to the Merchandise Mart next year has many upsides. For one it’s another step for the city toward its goal of being a tech hub. That will not only give the company access to a coveted savvy urban workforce but also help Chicago stand out in the increasingly competitive global economy.

“The marketplace for knowledge-based industries favors dense, urban areas — it’s a global phenomenon,” said urban affairs specialit Frank Beal.

“This is not a choice between the city and the suburbs,” added University of Chicago economics professor Austan Goolsbee, “it is between Chicago and some other metro area.”

Goolsbee is correct if one takes a metropolitan view: it doesn’t really matter to the Chicago area if the headquarters is in the Loop or Huntley as long as the jobs, tax revenues, and prestige stay in the region. Yet, this is not so clear from a local perspective: Libertyville loses 3,000 local jobs and Chicago gains them. The mayor of Libertyville is disappointed:

The mayor of north suburban Libertyville says he’s disappointed Motorola Mobility has decided to move its corporate headquarters to downtown Chicago…

The mayor of Libertyville, Terry Weppler, said there are no hard feelings against Emanuel.

“I’ll put our community up against Chicago any day, you know, for any type of amenity whatsoever,” he said…

He said his next plans involve brainstorming what could fill Motorola’s giant corporate campus once it empties out.

I’m not sure Libertyville would win that battle of amenities. And it is clear that Chicago leaders are pretty happy.

But this may be part of a larger trend of large companies seeking out the more exciting and younger life of big cities:

The move brings jobs downtown — part of a reversal of fortune in which the city is now snatching corporations from suburbia. And as a result, a building type with a future that once seemed rock solid now appears under threat. United Airlines vacated its 66-acre Elk Grove Township headquarters — it even has tennis courts — for downtown Chicago beginning in 2007. The campus, designed by SOM, won three different American Institute of Architects awards since its completion in 1968.

The United Airlines campus is for sale. And it isn’t alone. On any given week, the internet and the back pages of trade journals are filled with “for sale” ads for suburban office parks and headquarters. It wasn’t always this way. Much like suburban shopping malls, these corporate utopias — air conditioned, new, private and safe — were once very much the hottest thing around. From the 1960s through the end of the 20th century, corporations — Motorola, Sara Lee, and more — left Chicago for a new life in the ‘burbs.

But now things are changing. Corporations are downsizing and the new generation of workers does not want to toil in the suburbs. A story last week in the Boston Globe discusses how young workers in the tech and creative fields prefer working in cities and getting to work by public transit.
This would fit with recent data suggesting younger adults are not as interested in the suburban life of the Baby Boomers. But it could take some time for suburban communities to figure out what to do with these large office complexes (see an earlier post about the fight in Hoffman Estates about tax breaks for the incomplete Sears complex) , particularly in a down economy where many shopping malls and lifestyle centers are having difficulty.

Of course, the tax breaks to stay in Illinois are still intact with the move:

But Mobility executives pledged a year before the Google takeover to keep Mobility’s well-paying engineering, finance, marketing, design and executive jobs in Illinois so Mobility could benefit from statewide tax credits worth more than $100 million over a 10-year period.

Gov. Pat Quinn said at a news conference in Deerfield that he gave Google “permission” to move from Libertyville to downtown Chicago, since that was the location Google preferred.

Pat Quinn has to provide his permission?

In the end, I would say that moves such as these are not necessarily bad but they could have negative consequences for the community that large corporation is leaving. Just as the big cities of America were hurt by the move of corporations to suburban office parks after World War II, there are negative consequences for suburbs when the move is made in reverse. It will be interesting to see how these moves add to or re-energize urban life. For example, one could look at how many of the Motorola Mobility employees will move to the city after their job moves there. Similarly, is there a way to quantify how much better Motorola Mobility will do once it is located in the city rather than suburbs?

In trying to preserve open space in New Jersey, the land falls into the hands of the wealthy

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Here is an interesting argument from a northern New Jersey columnist: the state’s effort to conserve open space by offering a tax break for farmland has left most of the open farmland in the hands of the wealthy.

It’s in the New Jersey Constitution, has been since 1963. Farmland is assessed for property taxes at its agricultural value, not its development value. To qualify, the property has to be at least five acres. Subsequent laws require that it generate at least $500 a year in agricultural revenue.

The goal was and is to preserve some of New Jersey’s diminishing stock of open land before it is all turned into condos and McMansions.

The program is working. But open land costs so much that the people who can afford to buy it tend to be well-to-do. This is unfair, critics say, because it enables rich people to surround themselves with open space and views while real, dirt-under-the-fingernails farmers are forced out of state…

Unsurprisingly, some owners of such New Jersey properties are megabucks celebrities. The rock star Jon Bon Jovi owns seven farm acres in historic Middletown, near the shore in Monmouth County, on which he paid $104 in taxes in 2010. Steve Forbes, magazine publisher, paid $2,005 in taxes in 2009 on 450 acres in Bedminster, in the Somerset Hills.

And here are former Gov. Christine Todd Whitman and her husband, John, who own 167 acres in Tewksbury, in Hunterdon County, on which they paid $1,521 in taxes in 2010, and 65 acres in Bedminster, on which they paid $173.

This sounds like a situation of unintended consequences: the law was intended to keep farmland open in the midst of suburban development but because of rising land prices plus tax breaks, the wealthy benefit.

Of course, there are other ways to conserve open space in the face of development. Contrast the approach in New Jersey versus the actions of the DuPage County Forest Preserve. After World War II, the Forest Preserve was very aggressive in grabbing open land, particularly land around waterways. If I am remembering correctly, by the late 1960s the Forest Preserve had over 15,000 acres in a rapidly expanding county that grew from almost 155,000 people in 1950 to nearly 492,000 in 1970 to over 904,000 in 2000. This didn’t come without a cost: the Forest Preserve had to find money to fund these purchases and there were complaints about rising local taxes plus the debt taken on in bonds. Additionally, the Forest Preserve ended up in several tussles over land with municipalities as both the County and suburbs wanted to control land before it disappeared. Today, there are still complaints about the Forest Preserve as the over 25,000 acres are maintained with taxpayer dollars. At the same time, there are a number of very nice sites and the land, unlike farmland, is open for everyone to use.

So if it came down to providing tax breaks  for the farms of wealthy landowners or having facilities that are taxpayer supported but also available to all, which would you choose? Presumably there are other options to choose from as well?

Migration after a “millionaire’s tax”

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A number of states are considering raising taxes for wealthy residents and some have argued that such taxes push wealthy people to move to another state. Here is a brief summary of some research on what happened in New Jersey after a millionaire’s tax was implemented in 2004:

A 2004 “millionaire’s tax” in New Jersey had little effect on migration, according to a study by Stanford University sociologist Cristobal Young and Princeton University sociologist Charles Varner published this year in the National Tax Journal. Moving from California to escape taxes is even more difficult.

“Many people in New Jersey could move 30 or 40 miles and find themselves in lower-tax Connecticut or Pennsylvania,” Young said in an email. “If you are in the Bay Area, it is a 500- to 700-mile move to competing urban areas such as Las Vegas or Phoenix. That is a tough move – you will be starting a new life.”

The New Jersey Department of the Treasury issued its own research in October that countered the Young-Varner study. The department is led by an appointee of Republican Gov. Chris Christie, a vocal opponent of a new “millionaire’s tax.”

In a state with 8.7 million residents, the department said that all tax increases – not just those on the wealthy – resulted in 20,000 fewer taxpayers.

So it sounds like both research studies could be right? Though I haven’t read either study, the loss of 20,000 taxpayers from New Jersey doesn’t sound like much. Additionally, there are a lot of reasons people could move and taxes are just one part of the larger business climate and cultural setting. Without clear trends in the data or interviews or surveys with people who leave, it would be hard to know that taxes were what pushed people out of the state.

The argument that it might be more difficult to move out of California because of greater geographic isolation is intriguing. I would think that distance matters less than other characteristics that draw people to California such as the weather and exciting cities. If geographic isolation is a key factor, we would see more movement in metropolitan areas that straddle states, such as New York City or Chicago where residents who want to protest or move because of taxes could live over the border in Indiana or Wisconsin and still be part of the region.

When states consider higher taxes for millionaires, why haven’t more millionaires acted like corporations who then threaten to leave and force tax breaks? Would it be too easy to vilify individual wealthy residents?

In the end, I wonder about the validity of arguments that people move solely in response to tax rates.

Higher taxes might push companies to leave but not necessarily wealthy residents?

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Many municipalities and states are looking for ways to raise additional tax revenue and this has led to conflict with companies that either have had or want tax breaks to stay where they are (a prominent Illinois example here). But we could also consider whether higher tax rates prompt wealthier residents to move elsewhere. Some evidence from New York City suggests this did not happen:

According to the Census Bureau’s latest American Community Survey, the average household income of those who left the state in 2010 was $44,739. The average for those who came was $55,419 — the largest differential in at least five years…

A separate analysis of census data found that the number of households making more than $250,000 who lived in New York a year earlier but left peaked in 2004 and has generally declined since 2007. About 14,000 households in 2009 and the about the same number in 2010 reported having left New York within the past year, the lowest numbers in that category since 2003.

That analysis did not take into account inflation, and could reflect lower migration rates in general across the country.

As this short piece suggests, we may not want to run and apply this to all wealthy residents in the United States. Additionally, if this can be done with American Community Survey data for New York City, why not do it with other areas of the country in order to make comparisons? Then we could find out whether this data is more reflective of New York City and its relative wealth and importance as a finance and cultural center than of larger trends about wealthy people.

I do wonder about the value of using short-term migration data to prove points about new legislation and revised taxes. People could move for a lot of reasons beyond just one change and I don’t think the ACS data tells us why people move. This could be a clever way to examine a “natural experiment” but there needs to be care taken in interpreting the results.