Cuts to cost Motorola tax credits
|In this May 6, 2011 file photo, Illinois Gov. Pat Quinn announces to Motorola employees that the Motorola Mobility Inc. corporate headquarters will stay in Libertyville, Ill. Google Inc. on Monday, Aug. 13, 2012 announced plans to cut 4,000 jobs from Motorola Mobility, with 700 coming from operations in Illinois. In Illinois it means the company will lose the tax credits it receives from the state. Earlier this year, the Illinois Legislature agreed to give Motorola Mobility more than $100 million in state tax credits if it maintained a work force of at least 2,500 in the state. (AP file photo)|
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CHAMPAIGN (AP) – Google Inc.’s plan to cut more than 700 jobs at Motorola Mobility’s operations in Illinois means the company will lose the tax credits it receives from the state, and experts say it underscores just how little the kind of perks that big companies often insist they need really matter when they’re making decisions.
The deal Illinois struck last year with Motorola Mobility Inc. promised $100 million over 10 years in tax breaks if the company kept at least 2,500 employees. It was one of the largest packages of subsidies the state had ever promised a company.
The company has so far received $18.6 million in tax credits, but the cuts announced Monday will reduce its Illinois work force to 2,256, said Illinois Department of Commerce spokeswoman Sandra Jones. Motorola Mobility will be able to apply to restart those tax breaks if it again tops 2,500 workers, she said.
The fact that the $100 million didn’t convince Google, the cellular phone-maker’s parent company, to keep those 700 jobs is a good indicator that even big incentives don’t dictate how a company behaves, University of Illinois economist Fred Giertz said.
Rather than cutting deals with individual companies, Illinois should instead make changes in its tax structure, Giertz said.
“In the long run, we’re not going to be big winners or big losers based on these targeted incentives,” he said. “The big picture is going to be painted by larger forces.”
Illinois has handed out increasingly large tax breaks to companies the past few years, often as those firms publicly threatened to move elsewhere.
Motorola Mobility’s deal was followed by more than $330 million in breaks for Sears Holding Corp. and two companies that operate Chicago financial exchanges, CME Group Inc. and CBOE Holdings Inc. Sears and the exchanges were all publicly courted by other states.
Those deals have drawn sharp criticism and questions from outside experts about whether the companies would really leave if Illinois didn’t offer them tax breaks.
Such situations, Giertz said, guarantee that the decisions to provide those breaks are based on politics rather than economics.
“They get a lot of credit,” he said of politicians who cut tax-break deals. “There are some real political benefits from targeted incentives.”
In the case of Motorola Mobility, Gov. Pat Quinn announced the Illinois deal at the company’s Libertyville headquarters in May 2011 after the company talked of potentially moving to California or Texas.
Motorola Mobility was bought earlier this year by Google and last month announced plans to move its headquarters from suburban Libertyville to Chicago. The company also then quietly broke the news to the state that layoffs were coming.
“They indicated that this global reorganization was coming and that they would likely fall below the 2,500 floor for a period of time, but they were hoping to go back up,” Jones said, adding that the company gave no indication of when it expects the potential job increase to happen.
Ron Baiman of the Center for Tax and Budget Accountability in Chicago is, like Giertz, no fan of tax-break deals negotiated company by company. At least Motorola’s deal includes a minimum number of jobs below which the state doesn’t have to pay a thing, he said.
But if Illinois is going to stay in the tax-break business, the state ought to build even tougher terms into future deals, said Baiman, the center’s director of budget and policy analysis.
“You could actually say, ‘Look, you’ve made us go through all these (hurdles). You should pay a penalty for making us spin our wheels,’” Baiman suggested.
Toughening state laws regarding incentives, though, can be difficult.
A measure sponsored earlier this year by state Rep. Jack Franks would have created a committee of experts to review tax-break deals, but it was held up in the Legislature until it was limited to a requirement that the terms of the agreements be made public once the deals are finalized. Before Quinn signed that limited measure into law, the details of such agreements had often been kept private long after they were made.
In addition to the tax breaks, Motorola Mobility was due to receive another $3.25 million in state funds for training and other purposes, but it won’t now, Jones said.
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