Illinois Tax Break Deal For CME Costs State $344 Million A Year

The State of Illinois is facing one of the worst budget problems in the country. It's billion of dollars in the hole, but losing the Chicago Mercantile Exchange, Sears and other major companies to states competing for those businesses was more than state officials there were willing to bear. A legislative deal expected to be inked next week by Illinois lawmakers will cost the state's treasury about $344 million in lost revenues according to one fiscal forecast. The tax legislation turned into a Christmas tree of sorts including:

• a doubling of the state's estate tax exemption to $4 million ($62 million)
• a doubling of the state's earned income tax credit ($110 million)
• increasing the state's personal income tax exemption by $50 ($20 million)
• CME corporate income tax break ($85 million)
• Sears payroll tax break ($15 million)
• Champion Lab payroll tax break ($3.5 million)
• Live art entertainment tax credit ($2 million)
• Other tax credits set to retire (more than $10 million)
• Research and development tax credit (more than $10 million)

This is why our tax system in this country has become completely unconstitutional in my judgment. Individuals and corporations with the lobbyists and political muscle can win special tax breaks that provide them an unfair advantage over similarly-situated individuals and businesses. The Illinois lobbyists who worked on this tax break deal will enjoy a very merry Christmas, while average working stiffs wonder how they can justify spending anything on the holidays this year given their current depressed station in life. The same game plays out in Washington every day. Increasingly, our local governments are using the local public treasuries as personal bank accounts to bankroll the private development projects of their fat cat political contributors. Our founding fathers would weep if they were alive today to see what the federal, state and local tax system has turned into in this country. It's nothing but a f_ _ _ing auction. We're on the brink, folks. Time is running out.

Illinois Lawmakers May Return Next Week To Pass CME Tax Break

Illinois State House reporter Rich Miller is reporting on his blog, Capitol Fax, that Illinois' legislative leaders are polling their members about a possible return to the State House next week to tackle tax break legislation valued at $100 million being proposed to keep CME and Sears from moving their headquarters outside of Illinois. Gov. Pat Quinn is reportedly conditioning his support for the legislation on some form of tax relief for low-income working families.

As first reported by Rich Miller at Capitol Fax over the weekend, the deal centers on breaking up the big tax-reduction package that stalled in the Legislature last month into three separate pieces.

Piece one, according to a well-connected lobbyist, would give about $100 million a year in tax breaks to CME Group Inc., CBOE Holdings Inc. and Sears, as well as extending the corporate research-and-development tax credit and reviving the corporate loss carry-forward provision.

Bill No. 2 reportedly would raise the state’s earned-income tax credit for working folks. No. 3 would raise and adjust to inflation the standard deduction on the individual income tax.

For this deal to work, all three bills have to have enough support to make it through both houses and to Gov. Pat Quinn’s office. As his spokeswoman again repeated to me today, “We’re committed to help, so long as any deal also includes tax relief for working families.”

That could be particularly difficult in the House, where some Downstate Democrats are reluctant to back an earned-income tax credit hike, and few if any Republicans are believed to support it.

Local news reports in Indiana suggest that Carmel may be vying with Indianapolis to lure CME. The IBJ's Scott Olson says Carmel may be prepared to offer tax breaks worth $150 million to attract CME. Olson quotes from a letter penned by Carmel Mayor James Brainard that redacts the name of the company involved:

Brainard's letter said the company anticipates leasing 800,000 square feet of office space for its headquarters and 425,000 square feet for its data center, with occupancy starting in 2013. To put that into perspective, the office requirements would be larger than every downtown Indianapolis office building except for Chase Tower, which has 1.1 million square feet of space.                              

“The City of Carmel welcomes the competition and believes we offer an excellent environment for [firm's name blacked out] to grow and prosper while supporting your company’s need to compete for the best possible talent available,” Brainard wrote to executives.

The fact that CME would require an office building the size of Chase Tower to accommodate its needs makes you wonder how seriously the company is about relocating to the Indianapolis area. It's hard to imagine the company would invest money in building a new office tower for a new headquarters if its motivation for moving here would be to reduce its costs. Moreover, the company wants to complete its move by 2013. If a new building must be constructed, it seems doubtful that timetable could be met. 

Ballard Meeting With CME Executives Confirmed

WISH-TV is reporting that Mayor Greg Ballard met this week with executives of the Chicago Mercantile Exchange (CME) to discuss the possibility of the global commodities exchange firm relocating its long-time headquarters in Chicago to Indianapolis. The Illinois General Assembly had been considering the enactment of special tax breaks for CME and Sears, both of whose executives have flirted with the idea of leaving Chicago in the wake of massive tax increases enacted there to deal with a multi-billion dollar structural budget deficit, during its recently adjourned fall veto session. The legislature adjourned without reaching agreement on the tax deal, although Illinois legislative leaders said there was still plenty of time to take up the issue early next year. Gov. Mitch Daniels had earlier denied rumors that Indiana officials were courting CME with an offer reportedly worth $150 million a year to the company in tax savings. Eric Halvorson has the details on Ballard's meeting with CME executives:

Indianapolis Mayor Greg Ballard was meeting with top executives with the Chicago Mercantile Exchange Friday as part of continuing discussions about bringing the CME to Indiana.

Ballard spokesman Marc Lotter tells WISH-TV that the mayor left a meeting with the U.S. Council of Mayors early so he could attend the meeting in Chicago before returning to Indianapolis.

While details of any proposal presented to CME were not made available, Lotter said the city and state have a “very compelling opportunity for them. ”

We’ve heard these rumors for some time. But, until now, we’ve talked to no local public official who was willing to discuss the matter on-the-record . . .

This would be huge for Indianapolis,” said WISH-TV financial expert Peter Dunn of Pet the Planer, “Bringing the exchange to Indy would greatly improve Indy's place in the financial industry. In addition, this would mean several high-paying jobs for Hoosiers. A move would be the ultimate coup for Indiana and Indianapolis.

Indiana is one of three states being discussed as a new home for the CME. Other supposed suitors are in the south. Back in October, the Naples News reported a prediction from Florida’s Governor Rick Scott. At that time, he said, the Chicago Mercantile Exchange is “either going to Texas or Florida” – and, if that happens, he said the CME “is going to move 2000 jobs.”

I honestly don't believe CME has any intention of relocating to Indiana. This is all gamesmanship intended to put enough pressure on Illinois officials to give them the tax breaks their hearts desire. Under the plan floated by the Illinois legislature, money the CME earns on trades with persons and entities outside Illinois would not be subject to the state's corporate income tax. CME is currently one of Illinois' largest corporate taxpayers. The reality is that, like Indiana, many corporations in Illinois pay a relatively small share of the revenues the state collects. Service industries like CME, however, usually wind up paying a disproportionate share of the corporate income taxes compared to manufacturing-based firms, which typically have generous tax breaks that significantly limit their tax liability.

Illinois Preparing Huge Tax Breaks To Keep CME From Relocating To Indiana Or Elsewhere

A Crain's Chicago Business report recently suggested that Indiana economic development officials were enticing the Chicago Mercantile Exchange with an economic development deal valued at $150 million annually to relocate to Indiana. Gov. Mitch Daniels denied such a deal had been offered to the company, but Illinois officials aren't taking anything for granted. The Illinois General Assembly is now considering the approval of huge tax breaks for CME to keep it in Chicago. From the Chicago Tribune:

Chicago's financial exchanges would see a 50 percent decrease in their Illinois corporate income tax bills under legislation introduced Monday afternoon by Senate President John Cullerton, D-Chicago.

Illinois would tax a fraction of the income generated by the Chicago Mercantile Exchange, the Chicago Board of Trade and the Chicago Board Options Exchange, all of which have threatened to move operations out of state after Illinois temporarily raised its income tax earlier this year.

The bill, which would reduce the exchanges' taxes by tens of millions of dollars, attempts to limit levies on income attributed to Illinois-based transactions and would continue to fully tax income derived from open-outcry transactions on trading floors in Chicago. But those transactions represent a small slice of business now, with most activity having migrated to electronic trading.

Under the proposal, only 27.54 percent of income stemming from electronic trading and clearing fees would be subject to Illinois' corporate income tax, compared with 100 percent now. A spokesman for Cullerton added that the legislation could change in the days ahead.

Michael Shore, a spokesman for CME Group Inc., parent of the Merc and the Board of Trade, declined to comment. But CME Executive Chairman Terrence Duffy told Bloomberg News earlier this year that his company paid $150 million to Illinois last year . . .

Daniels Calls Reported CME Deal A Complete Falsehood

Gov. Mitch Daniels is angrily denying a report by Greg Hinz of Crain's Chicago Business that his administration has offered a $150 million a year deal to CME Group to lure the company to move its headquarters from Chicago to Indiana. The Northwest Indiana Times has his reaction to Hinz's reported source on a deal from his office:

Gov. Mitch Daniels said Friday it is a "complete falsehood" that Indiana has offered $150 million in annual tax savings to bring the owner of the Chicago Mercantile Exchange over the state line.

Greg Hinz of Crain's Chicago Business reported Friday a "reliable source" got word of the $150 million offer from Daniels' office and said Dan Hasler, CEO of the Indiana Economic Development Corp., would not deny the number while refusing to discuss it.

In a Friday interview on Hammond's WJOB-AM, the Republican governor dismissed the reported offer to lure CME Group Inc. to Indiana.

"This guy, whoever he is, did not get any information from our office," Daniels said.

IEDC spokeswoman Katelyn Hancock said Indiana's commerce agency never talks about contacts with businesses until a deal is done.

"We talk to a lot of companies about growing and locating in Indiana but cannot confirm any discussions with prospects," Hancock said.

Crain's Report: Daniels Offering $150 Million To CME To Move To Indiana

According to Gov. Mitch Daniels' meme, businesses are fleeing Illinois to Indiana to escape high taxes and regulations. If this report by Greg Hinz in Crain's is to be believed, they also are coming to take advantage of the large corporate welfare handouts Daniels is offering them. Hinz claims Daniels is offering CME Group, a large derivatives and futures exchange based in Chicago which owns the Chicago Mercantile Exchange and Chicago Board of Trade, $150 million a year savings in economic development incentives to relocate its headquarters in Chicago to Indiana. Hinz writes:

So, just how much is Indiana offering CME Group Inc. to move its headquarters and perhaps other operations to the Hoosier state?

I hear the figure -- in net tax savings -- is a mouth-watering $150 million a year. That's from a reliable source who claims to have obtained the information from Indiana Gov. Mitch Daniels' office.

CME isn't commenting on who's offering what, though CEO Terry Duffy earlier in the week said he expects the headquarters matter to be resolved by yearend.

But, in a conversation with my colleague John Pletz on Thursday, Indian's top economic development official, Dan Hasler, stopped way short of waving us off that number.

Mr. Hasler wouldn't give a number himself. But when told repeatedly that Crain's has heard the $150-million figure and wouldn't want to lead people astray, Mr. Hasler declined to comment on the number or whether Indiana has made an offer to CME.

Hinz's report contradicts an earlier report in June by the Northwest Indiana Times' Dan Cardin, which quoted Gov. Daniels as saying Indiana was not courting CME. Cardin reported then:

Gov. Mitch Daniels would be happy to welcome the Chicago Mercantile Exchange to Indiana but admitted Wednesday the state isn't actively courting the trading floor operator.

"There's a whole lot of businesses over there (in Illinois) we're talking to before we get to that," Daniels said.

CME Group Executive Chairman Terry Duffy told shareholders this month the company is considering relocating its headquarters outside Illinois to avoid a business income tax increase enacted earlier this year.

The company also has announced it wants to sell most of the landmark Chicago Board of Trade building on LaSalle Street and lease back its trading pits from the new owner.

Daniels said representatives from the Indiana Economic Development Corp. have met with more than a dozen Illinois companies — but not CME — considering a move following the January increase in Illinois' corporate income tax rate to 7 percent from 4.8 percent.

Daniels is expected to be in Chicago next week to plug sales of his new book, "Keeping The Republic." Landing the company would be quite a feat for Daniels. According to CME's Chairman, Terry Duffy, the company pays 6% of Illinois' aggregate corporate taxes, more than McDonald's or Boeing. The company claims its taxes have increased more than $50 million a year due to tax increases enacted to deal with the state's huge budget deficit. It's not clear which city in Indiana the company would move--either somewhere in the Region or Indianapolis.