Tag Archives: tax breaks

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.