• Illinois: Governor Revives Two Tax Credit Programs
  • December 29, 2015 | Author: David M. Kall
  • Law Firm: McDonald Hopkins LLC - Cleveland Office
  • In an effort to balance investment in the state with taxpayer benefits, Illinois Gov. Bruce Rauner has announced that he will be reviving two programs that had been suspended at the beginning of the fiscal year, which began on July 1. The first is the Economic Development for a Growing Economy (EDGE) tax credit program, and the other is the Film Tax Credit program.

    As has been widely reported over the last several months, Illinois is facing a very difficult fiscal situation and is now approaching six months without a budget in place. In July we wrote that under these circumstances, Illinois cannot spend any money on programs that require an annual appropriation, including most state programs and services, like education, Medicaid, addiction, and child care services, the senior meal program, parks, museums, and casinos.

    At the end of October, The New York Times described the situation as “the consequence of a long simmering ideological and political dispute” between the Republican governor and Democrats who control both chambers of the legislature. The paper, citing state comptroller’s figures, reported that by the end of 2015, Illinois will have about $8.5 billion in unpaid bills, partly because of the expiration of a temporary increase in income tax.

    The EDGE tax incentives are typically used to offer a special tax incentive that encourages companies to locate or expand operations in Illinois when a firm is actively considering a competing location in another state. The hope is that the incentives allow the company to reduce the costs of doing business in Illinois when compared with similar costs in other states. This is the tax incentive program that was used to lure ConAgra from Omaha to Chicago as part of its $300 million efficiency plan, which we described in October. That relocation was controversial because ConAgra’s chief executive, Sean Connolly, claimed that the move to Chicago was “strictly about company strategy” he did not consider competitive pitches or incentive offers from Omaha.

    Similarly, the Chicago Tribune criticized the EDGE program for handing out millions of dollars of tax breaks for corporations that eliminated jobs and became smaller, and for allowing companies to “reap lucrative rewards and then relocate to other states without penalty or repayment.”

    Gov. Rauner has taken what the administration characterizes as a more fiscally responsible approach to EDGE agreements by enacting certain policy changes, including the following:
    1. No longer supporting “Special EDGE” agreements that only benefit certain companies that can afford lobbyists.
    2. No longer providing tax credits for job retention, only for capital investment and net new job creation.
    3. Requiring that tax credits can only be obtained for jobs created above a baseline of all existing employees located within the state, rather than just the baseline of employees located at the specific project location. In the past, a company that signed an EDGE agreement for an expansion project in a certain location only needed to maintain a requisite number of employees at that specific facility in order to meet its requirements. Laying off employees at a different facility in the state, or even closing it, would not have impacted its ability to continue receiving taxpayer funded benefits for the facility for which it was receiving the EDGE agreement.
    4. Prohibiting more than one tax credit on the same facility. Previous administrations allowed multiple EDGE deals on jobs created at the same facility.
    5. Focusing on marketing Illinois’ assets, rather than leading with the tax incentives.
    As for the Film Services Tax Credit, it was put in place in December 2008. It is scheduled to sunset in May 2021, and will be renewable in five-year increments after that.

    The goal of the Tax Credit Act is to promote growth and job opportunities, and stimulate diversity in production hiring by attracting local vendors, union leaders, and filmmakers to the Illinois film industry. Like EDGE, this program was suspended when the new fiscal year started.

    Benefits of the Film Services Tax Credit include the following:
    1. 30 percent of the qualified Illinois Production Spending.
    2. 30 percent credit on Illinois salaries up to $100,000 per worker.
    3. Tax credit can be carried forward five years from when originally issued by Illinois Film Office.
    4. Applicants will receive an additional 15 percent tax credit on salaries of individuals making at least $1,000 in total wages that live in an economically disadvantaged area (at least 13.8 percent unemployment).
    Despite the governor’s announcement, EDGE and film tax credits for new projects will not be certified or eligible for claim until lawmakers pass a budget for fiscal year 2016.