Illinois

Tax incentive evaluation ratings

Tax Incentive Evaluation Ratings: Illinois

Rating: Trailing

Key points:

  • Illinois is trailing other states because it has not adopted a plan for regular evaluation of tax incentives.
  • An Illinois law that requires many income tax credits, exemptions, and deductions to expire every five years could be a starting point for establishing regular reviews of the programs.
  • The staff of the state’s Commission of Government Forecasting and Accountability could potentially evaluate incentives effectively.

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In recent years, severe state budget challenges have formed the backdrop for discussions of incentives in Illinois. In 2015, Governor Bruce Rauner (R) suspended new approvals for companies to participate in the Economic Development for a Growing Economy (EDGE) tax credit, one of the state’s largest business incentives, citing the state’s budget deficit.a (EDGE has since been reinstated.b)

The same year, an investigation by the Chicago Tribune found that state officials lacked information on whether the EDGE credit led to net job creation in the state. One problem was that the program required businesses to increase employment at specific locations to receive the credits but did not prevent them from shifting jobs from other areas of the state to do so.c Policymakers recognized these shortcomings and began requiring companies to increase their statewide employment to qualify, but the state has not yet implemented a regular evaluation process that could identify similar flaws in incentive programs before they become serious problems.d

Illinois could potentially build on a long-standing state law that requires any income tax credit, exemption, or deduction created since 1994 to expire every five years unless lawmakers choose to change the date or exempt it from the requirement.e In other states, such as Oregon, these “sunsets” have led to incentive improvements when used in tandem with evaluations. The sunsets provide an impetus for lawmakers to review incentives and determine whether they should be extended, modified, or allowed to expire, while the evaluations offer objective analysis to help inform those choices.Without evaluations to help guide their decisions, however, Illinois lawmakers approved a blanket extension of tax credits, exemptions, and deductions that were scheduled to expire in 2011, 2012, and 2013 rather than reviewing them individually in detail.g

If Illinois were to begin regularly evaluating the effectiveness of its incentives, the staff of the state’s Commission on Government Forecasting and Accountability (COGFA) could potentially perform the analysis. The commission is a bipartisan organization overseen by members of each legislative chamber. It is charged with conducting research and providing information to lawmakers on a variety of economic issues affecting the state.h COGFA has published an overview of Illinois tax incentives and presented its findings to the Legislature in the past but has not studied the effectiveness of individual programs.i

Endnotes

  1. Illinois Office of the Governor, “Administration Initiates Management Steps to Prepare for Madigan-Cullerton Budget,” news release, June 2, 2015, http://www4.illinois.gov/PressReleases/ShowPressRelease.cfm?SubjectID=3&RecNum=13115&SubjectID=3&RecNum=13115.
  2. Illinois Department of Commerce and Economic Opportunity, “Administration Takes Step Forward on Job Creation Tax Credits,” Nov. 10, 2015, https://www.illinois.gov/dceo/Media/PressReleases/Pages/ PR20151110.aspx; Illinois Department of Commerce and Economic Opportunity, “Illinois Department of Commerce Announces New EDGE Agreements,” news release, Nov. 24, 2015, https://www.illinois.gov/dceo/Media/PressReleases/Pages/ PR20151124.aspx.
  3. Michael J. Berens and Ray Long, “Illinois Businesses Get Lucrative EDGE Tax Breaks, Fall Short of Job Goals,” Chicago Tribune, Oct. 2, 2015, http://www.chicagotribune.com/news/watchdog/ct-illinois-corporate-tax-breaks-met-20151002-story.html.
  4. Illinois Department of Commerce and Economic Opportunity, “Administration Takes Step Forward.”
  5. 35 Illinois Comp. Stat. 5/250, http://ilga.gov/legislation/ilcs/ilcs4.asp? DocName=003500050HArt.+2&ActID=577&ChapterID=8&SeqStart=3000000 &SeqEnd=3100000.
  6. The Pew Charitable Trusts, “Tax Incentive Programs: Evaluate Today, Improve Tomorrow” (January 2015), 8–9, http://www.pewtrusts.org/~/media/assets/2015/01/ statetaxincentivesbriefjanuary2015.pdf.
  7. 35 Illinois Comp. Stat. 5/250.
  8. Illinois Commission on Government Forecasting and Accountability, “Commission Profile,” accessed Feb. 1, 2017, http://cgfa.ilga.gov/CommissionProfile.aspx.
  9. Illinois Commission on Government Forecasting and Accountability, “Illinois Tax Incentives” (January 2014), http://cgfa.ilga.gov/Upload/ 2014JANUARYILLINOISTAXINCENTIVESUpdated012914.pdf.
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Improving Tax Incentives for Jobs and Growth

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Tax incentives—including credits, exemptions, and deductions—are one of the primary tools that states use to try to create jobs, attract new businesses, and strengthen their economies. Incentives are also major budget commitments, collectively costing states billions of dollars a year. Given this importance, policymakers across the country increasingly are demanding high-quality information on the results of tax incentives.