Sears Moves to Beijing
Paying Sears to move is a bad deal for Illinois
August 17, 1989
One of my several takes on this issue. This time I treated the relocation incentives that eased Sears, Roebuck's move from its Loop skyscraper to a new suburban office campus as an Illinois issue rather than a Chicago one, as I did in this piece for Chicago Times magazine.. Turned out it didn't look any more attractive from that perspective.
The text has been tidied up a little from the original.
I don't remember ever having been in Hoffman Estates, but then why would I? It is a nondescript suburb of Chicago, actually an incorporated subdivision. It boasts none of the improvements that distinguish other suburbs from the mass, lacking a mall, an amusement park, or an international airport. It does apparently have a nice view of the traffic jams, and lots of land that doesn't have ugly buildings on it yet.
And now Sears. In June, Sears, Roebuck & Co. announced that it would move its 5,500-employee Merchandise Group to Hoffman Estates when it vacates the Sears Tower in the Loop in 1992. Dozens of towns had vied to be chosen as the site; in addition to its considerable payroll, the group brings with it business travelers and support business worth millions a year more to a local economy. Charlotte and Dallas made advances in the hopes that Sears might choose them. That apparently spurred the vigilant watchmen at DCCA [the Illinois Department of Commerce and Community Affairs] to redouble their efforts to see that Illinois did not have such a plum snatched from it by some Sunbelter.
Perhaps you recall the terms of the incentive package that persuaded Sears to stay. The state will spend $61 million, mainly to expand nearby roads. Such improvement should give Sears a badly needed edge in its retail wars with the likes of WalMart, since its executives will be able to linger at their desks for several minutes longer and still make their tee times.
The state also will pick up some job training costs. Hundreds of Sears' loyal clerical and other support staff are not to make the move to Hoffman Estates. The town is thirty miles from the Loop, too far to commute to and too expensive to move to. (One employee complained that Hoffman Estates might as well be in Beijing; since the el doesn't go there, either.) Many of these workers are African American, and some of them angrily alleged that Sears had, by its move, adopted the same approach to anti-discrimination laws that other U.S. firms have adopted toward child labor and worker's comp and job safety laws when they move their factories to the Third World.
The real incentive was not a grant of money but of real estate. The state agreed to set up a tax increment financing district in Hoffman Estates that would finance the bonds needed to buy for Sears 786 acres of prime development property. Sears will use 200 acres of the site for its new group headquarters and develop the rest, which eventually could be worth as much as $1 billion. It was not immediately clear how giving Sears a leg up as a developer would improve the performance of its stumbling merchandise operations, but the boys and girls at DCCA wouldn't all drive BMWs if they weren't smarter than the rest of us. In any event, the real estate deal was the nicest profit the Merchandise Group has shown since the lawn mower market went soft.
Considered solely as an artifact, the deal the state struck for Sears is a nice piece of work. For one thing, the costs of it are substantially borne by Hoffman Estates taxing bodies (in foregone tax revenues) and by the local development industry (in losses to a state-subsidized competitor) rather than state taxpayers; the relatively modest direct state investment will be recouped in increased tax receipts in only a few years.
Alas, the problem with people who can be bribed by you, as any Illinois politician ought to know, is that they can be bribed by someone else too. DCCA extracted no guarantees from Sears about how long the firm will stay in Illinois, or how many jobs will stay here. Nor can one ever sure how the costs of such deals are computed. Responding to the recent audit of his agency, DCCA director Jay Hedges—reminds you of Dennis the Menace as trained at Harvard Business, don't you think?—said in effect that the state's investment in the Diamond-Star Motor plant in Normal was inflated to give Lee Iacocca something to brag about. I would suspect that DCCA did not calculate the cost in unemployment compensation for the workers Sears leaves behind, or of the ozone pollution that will result from the shift of so many commuting trips from public transit to cars. But even such a consummate egoist as Mr. Thompson would not want to brag how he had taken himself to the cleaners.
DCCA's misdemeanors on behalf of Sears were not fiscal but philosophical. Especially egregious was the state's extension of tax increment financing authority, which previously had been used only in economically blighted areas. The legislature hurried to rewrite its TIF statute to include Sears-style relocations in suburbs like Hoffman Estates, which is disadvantaged only by the standards of its booming neighbors, since unlike them it does not yet boast its own Fortune 500 outpost.
Economically, the case for helping Sears at all is dubious. True, if Sears left Illinois it would devastate the country club economy of the western suburbs of Chicago; a Republican governor would join Greenpeace before he'd let that happen. But Sears is an aging, perhaps even a doomed company. More than one critic in the business press suggested that the money Chicago was willing to spend to keep Sears (the city had offered 220 acres it owns at O'Hare Airport) would be better spent helping start-up firms or expanding existing ones. The only way the competitive advantage of Illinois is improved by helping Sears move to the suburbs is that it makes possible a quicker recovery of the men's ready-to-war apparel industry in the event that the Loop is targeted in a nuclear war.
As he has done many times in his too-long career, Governor Thompson did some astute politicking in a dubious cause. General Assembly cooperation was essential. On the face of it, the Sears deal would seem as savory to a lawmaker as a dead dog in August. Clem Balanoff, a representative from Chicago's southeast side, where unemployment runs 20 percent now that the steel mills have shut down, denounced the Sears package as "welfare for the wealthy." But Democratic legislators voted with Republicans anyway, as a result of the quid pro quo reached by Thompson and Richie Daley. Votes for the TIF rewrite were made in return for the governor's support for money to expand McCormick Place, to fix up Navy Pier, and to plan for a much-needed Loop trolley system. Making downtown Chicago safe for conventioneers, tourists, and big owners will stimulate the creation of thousands of jobs for Balanoff's steel workers as busboys, doormen, and strolling violinists.
Of course, the big steel companies, like Sears today, were themselves bloated and lazy after having grown rich off a captive market during a boom they thought would last forever The problem with subsidies to Sears is not that they aren't extended to other firms, but that they were extended to Sears. State aid to keep jobs will always a poor investment when the need is to create jobs. Until the governor's deal-makers figure that out, the rest of us may take what satisfaction we can from the fact that Illinois is able to accommodate at least some of its homeless. ●
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