About five years ago, John B. Sanfilippo & Son Inc., the producer of Fisher nuts and trail mixes, agreed to build a headquarters and state-of-the-art processing facility in Elgin rather than head out of state.
In exchange for $5 million in state tax breaks over 10 years, the company promised to retain 930 employees, hire 25 more and spend $80 million on the 90-acre complex. Politicians posed with shovels for groundbreaking photos, and then-Gov. Rod Blagojevich ballyhooed the state's role in helping the firm expand its operations in Illinois.
But so far, the state has not had to deliver the corporate income tax breaks for the company, which started out in a Chicago storefront in 1922 and now sells more than $560 million worth of nuts each year.
In 2006, 2007 and 2008, Sanfilippo couldn't reap the benefits of any tax credits because it didn't have any corporate income taxes to pay. And in 2009 and 2010, when the company did have taxable income, it outsourced too much of its workforce to meet the employment standards in the 2005 agreement. It hopes to meet the goal this year.
Welcome to the murky waters of Illinois' cornerstone corporate incentive program aimed at retaining and creating jobs, known as Economic Development for a Growing Economy, or EDGE. Launched in 1999 by former Gov. George Ryan to keep up with neighboring states, the program has been credited with clinching more than 450 projects statewide. The program has lured or kept in state such marquee companies as Boeing Co., Navistar International Corp., Groupon Inc. and Mitsubishi Motors Corp.
But a Tribune examination of annual reporting during the program's first nine years shows companies failed to qualify for credits 52 percent of the time. While in some cases companies qualified in some years but not others, two-fifths of the projects the state has tracked through 2008 never qualified for credits. The congratulatory fanfare and political theater often present at the unveiling of these projects obscures the all-too-real possibility that projects have an almost equal chance of getting derailed, failing to hit promised job targets or not needing the tax credits as they do of proceeding as planned.
Determining the leading cause of failure is nearly impossible. Companies are not required to tell the state why they failed to qualify for credits.
But the fact that so many companies have left money on the table, for whatever reason, raises questions about how effectively the EDGE program functions as a tool to create and retain jobs.
"If so many companies are leaving so much money on the table, the incentives are not incentives, they are subsidies," said Greg LeRoy, executive director of Good Jobs First, a nonprofit that researches economic-development subsidies. "The fact that so many applied, got them and didn't need them reinforces that conclusion."
When more than a dozen companies were approached by the Tribune about projects that did not qualify for credits, some declined to comment and others provided only limited explanations.
R.R. Donnelley & Sons Co., for instance, acknowledged that it didn't meet the "necessary conditions" to receive tax credits on a 2001 printing plant expansion in Mattoon in central Illinois. But it declined to explain why. The project had been expected to create 100 jobs, according to an industry publication.
A source familiar with the development said the company was never able to hit that job target.
Last year the state provided Donnelley with another incentive package, worth nearly $3 million, for a project in St. Charles.
The program's mixed track record comes as the state is desperately trying to jump-start its economy: Unemployment is hovering around 9 percent, neighboring states are trying to poach Illinois businesses in the wake of tax hikes here, and Illinois is struggling to shed its reputation as a fiscal disaster.
In recent years, the EDGE credit has reduced the state's corporate income tax revenues by about $25 million annually, with the state giving out $280.5 million in credits in the decade ended Dec. 31, 2009. The state was unable say how much tax relief had been promised but went unclaimed during that time.
But the ball keeps rolling: Gov. Pat Quinn in his first two years in office pledged a total of $330 million in tax credits over 10 years to nearly 100 projects.
"EDGE tax credits have been an essential part of the public/private partnerships that have brought jobs and growth to Illinois," Quinn said in a written statement. "These credits have encouraged companies like Mitsubishi, Chrysler and Navistar to grow in Illinois, creating and retaining thousands of jobs for working families across our state. Last year, Illinois was fourth in the nation in job creation."
The state's top economic development official, Warren Ribley, sees unclaimed credits as good news for taxpayers. When companies make their promised investments but don't reach their employment targets, the state gets some job growth without forfeiting revenue, though often there are other forms of public assistance associated with the projects.
In its efforts to compete with other states, Illinois would be "much further behind the eight ball if we didn't have the EDGE tax credit," said Ribley, director of the state's Department of Commerce and Economic Opportunity, which in the past decade approved 73 percent of the EDGE applications it received.
Relying on anecdotal information, Ribley asserted that companies most often don't apply for the credits because they had no corporate income tax liability to offset.
But a spot check of EDGE-supported projects that failed to qualify for tax credits suggests the program falls short of job-creation goals with some regularity. The absence of a reporting requirement makes it difficult to pinpoint what derailed particular projects, unless companies or local officials choose to talk about it.
Some companies provided straightforward answers. Plans by the former Bank One to expand insurance operations in Elgin were abandoned after it merged with JPMorgan Chase & Co. in 2004, and the new management ultimately sold the insurance business.
And Sanfilippo said it initially used temporary workers as a way to gauge their skill level. Now, the company is trying to convert those workers into in-house employees, said Mike Valentine, its chief financial officer.
"We've had too much turnover to nail it down," he said, "but we're probably going to make some pretty good progress this year. Hopefully, we can take (the EDGE credit) for 2011."
In other instances, companies gave minimal responses or ignored requests for information altogether. U.S. Cellular Corp. has had tax-credit assistance on several projects that moved forward as planned, but it failed to get tax credits on two 2003 projects. Asked about those, the company said only that "for business reasons, (it) chose not to pursue the credits."
WMS Industries Inc. declined to comment on why it had not used credits after expanding its corporate and manufacturing headquarters in Waukegan. The company had promised to create 175 jobs and retain 515 in two years.
A spokesman for Caterpillar Inc. said a subsidiary, Caterpillar Logistics Services, has been eligible for credits for two years for creating 83 jobs doing work for Bombardier Aerospace in Des Plaines but "simply did not apply (for the credits) before the deadline. … (It's) not more complicated than that."
Other companies say the details have faded over time.
"I don't remember the specifics; I don't recall the EDGE program," said Ronald Lavin, former chief operating officer at Arrow Financial Services, a Niles debt collection agency whose 2003 plans to expand with state assistance never materialized.
Even among projects in which companies hit their employment targets most years, the result doesn't always last. Maytag Corp. and shipping supply firm Uline Inc. each received tax credits for Illinois projects, but they ended up moving some operations to other states or countries. Maytag didn't use most of its credits, according to Whirlpool Corp., which bought the company in 2006.
To be sure, some companies did not take their EDGE tax credits because they had no corporate tax liability, as Ribley suggests. The recession, of course, has erased some companies' profits, but a phased-in policy change also has eased the liability for multinational corporations to the point that many don't pay any state income tax.
That meant that the EDGE program isn't of any use to them. So the state's auto manufacturers as well as truck- and engine-maker Navistar sought and won special legislation permitting them to get tax breaks from another source.
They now have the option to use credits against withheld employee income taxes. Not only will they pay no corporate income tax, but they will keep a portion of their employees' income taxes, rather than sending them to the state.
In one of its largest recent incentive awards, the state came up with a $64.7 million package to keep Navistar from taking its headquarters out of state.
Navistar pushed for its special tax-break change because it had net operating losses from previous years that it could use to erase future corporate income tax liability, said spokesman Don Sharp.
The company plans to invest $205 million in Illinois, establishing a new headquarters and research center in Lisle, adding engine testing in Melrose Park and opening a parts facility near Joliet. It expects to maintain an Illinois payroll of about 3,000.
"The EDGE credit was absolutely critical to moving to Lisle," Sharp said. "Without that tool, Illinois is not competitive with other states." The package translates to more than $21,500 per job saved or added.
But some observers, including a panel of legislators, have raised questions about the effectiveness of the popular program.
Tax incentives "do not appear to be a cost-efficient way of producing jobs, according to academic studies, and are usually not a primary factor in business location decision-making," a 2009 legislative review found. The report then equivocates, noting other studies suggest incentives sometimes can swing deals.
At the very least, the fact that more than half the companies in the EDGE program fail to qualify for their credits warrants an analysis to determine why, said Pam McDonough, who built the EDGE program as the state's top economic development official in the late 1990s.
"When we created it, it was the best thing since sliced bread, but a lot of things in the economy have changed," said McDonough, who now leads the Alliance for Illinois Manufacturing. She later added, "You always need to keep evaluating programs to see if there's a better way or better model."Copyright © 2015, The Baltimore Sun