The Outstater

May 29, 2020

A FRIEND, trying to make sense of the then new government-subsidized economic development programs, came up with a word picture that seemed to work. It envisioned money falling from the sky at a certain time and place — a helicopter drop.

Carrying the idea far as it would go, it could be imagined this would create local development not only from the value of the cash fluttering down from above but from increases in property values below. Among the immediate beneficiaries, unavoidably, would be those with advance knowledge of where and when the drop would occur — the corrupt, in other words.

But back then, economic development, or eco-devo, was the rage. So we treated the idea as mere fun, assuming that the economic elements involved, had we fully understood them, were more complicated than our little word picture.

We were wrong.

A study this spring by the Center for Tax and Budget Accountability (CTBA) looked carefully for any economic value added over a period of three decades from a multi-million-dollar economic-development project in a Chicago suburb— a mega helicopter drop, if you will. 

In 1989, Hoffman Estates, a suburb of about 51,000 northwest of the city, entered into an Economic-Development Agreement (EDA) to induce the Sears, Roebuck & Company (now bankrupt) to relocate its headquarters there. The agreement contained subsidies and tax breaks totaling $242 million.

In addition to 10,000 new jobs, Sears promised to encourage the development of “a wide range of first-quality office, light industrial, research and commercial facilities providing a variety of new employment opportunities consistent with the needs of northeastern Illinois.”

The outcome? The $242 million had the effect of our friend’s helicopter drop. That is, the “lucky” few nearby picked up some falling cash but life in the neighborhood quickly returned to normal.

In the language of the CTBA study: 

“After the first nine years of the Sears EDA, the growth in total EAV (Estimated Annual Value) for Hoffman Estates not only slowed but actually began to converge with that of the control group municipalities, which were similar in composition to Hoffman Estates but did not employ an EDA over this sequence of time. For the non-TIF areas of Hoffman Estates, the results were even worse. Beginning in the year 1994 and continuing through 2017, EAV growth in non-TIF areas of Hoffman Estates under performed all the other municipalities in the control group.”

And what about those jobs?

“Labor force outcomes under the Sears EDA fared even worse. For the first nine years of the Sears EDA, covering the 1989 to 1998 sequence, the size of the labor force in Hoffman Estates grew 1.9 percent slower in comparison to the Control Group. For the full duration of the Sears EDA, including its extension through 2017, the size of the labor force in Hoffman Estates grew 2.5 percent slower than in the control group. The model suggests the impact of the Sears EDA on employment is likely negative, but to what extent it had a causal relationship with employment seems limited. That said, development under the Sears EDA failed to generate the promised growth of 10,000 jobs in Hoffman Estates.”

In conclusion, and at risk of pushing our word picture too far, if you see money falling from the sky, know that it is yours and you will be unlikely to recover any of it. — Craig Ladwig


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