Was Boeing’s Chicago Deal Worth the Taxpayer Cost?

The gold rush among corporations to demand expensive public help in underwriting development and jobs got a kick-start when tax incentives enticed Boeing to move its headquarters to Chicago.

The Boeing Company Headquarters (Scott Olson/Getty Images)

This story was co-published with Crain's Chicago Business, as part of the latest Crain's Forum on economic development.

To lure Boeing to move its corporate headquarters from Seattle to Chicago nearly two decades ago, the city and state showered the aerospace giant with a package of still partially ongoing tax incentives that have cost taxpayers more than $60 million.

Boeing's end of the deal was a promise to relocate 500 high-paying, top-level jobs to Chicago, a pledge records show was watered down in the fine print and riddled with loopholes that raise questions about whether it came close to being met. A company spokesman says Boeing is in compliance with state and local incentives requirements.

News reports say the massive $2 trillion coronavirus stimulus package signed by President Donald Trump includes billions of dollars in loan guarantees for Boeing, in financial peril before the pandemic because of the grounding of its faulty 737 Max aircraft. By that and other incentive measures, the price tag for the 2001 Boeing deal might seem puny.

Chicago has earmarked more than $2 billion in economic incentives to jump-start huge privately owned mixed-use developments on the North Side and in the South Loop. A few years ago, the city and state jumped into the nationwide competition to lure a second Amazon corporate headquarters, dangling $2 billion in an unsuccessful bid that saw one municipal suitor offering more than $7 billion. Also a few years ago, Wisconsin cut a multibillion-dollar tax deal for Taiwanese electronics giant Foxconn.

Even so, the comparatively modest Boeing incentives laid down a marker for megadeals to come that opened the public purse in the name of economic development. Since then, states and cities have engaged in an escalating bidding war for jobs and bragging rights, with the promise of future economic riches as bait.

In Illinois alone, the state has approved hundreds of incentive deals for companies to either move here or refrain from picking up stakes and shifting jobs elsewhere. Under the state's largest incentive program, the Economic Development for a Growing Economy Tax Credit Program, or EDGE, Illinois has pledged more than $2 billion in tax credits to corporations since its creation in 1999. The majority of those companies, however, have historically failed to create or retain jobs promised to capture subsidies.

In the wake of the Great Recession that gripped the state and nation from 2007 to 2009, then-Democratic Gov. Pat Quinn shifted the focus of the EDGE from job creation to job retention and cut deals that gave companies wiggle room to lay off hundreds of workers and still receive incentives. Quinn's Republican successor, Bruce Rauner, later shifted the program's focus back to job creation.

As public money increasingly is committed to underwrite private enterprise through an alphabet soup of tax credit and subsidy programs, a chorus of critics has also grown louder questioning the value of such giveaways.

In his Democratic presidential campaign, U.S. Sen. Bernie Sanders of Vermont has decried such subsidies as "corporate socialism" and called for billionaires to "get off welfare."

He's not the only politician calling for an end to the incentives war.

Earlier this year, two Illinois lawmakers introduced legislation to allow Illinois to enter into multistate agreements to swear off enticing each other's stock of corporate headquarters, manufacturing facilities, office space and real estate developments with tax incentives or grants.

The bill is aimed "at the tax dollars we use to recruit, and really frankly, poach businesses from other states," Rep. Bob Morgan, a Democrat from Deer eld and the bill's sponsor, said at a House committee hearing in February. "Other states do it to us, we do it to them. It is a prisoner's dilemma."

A similar bill languished in the Legislature last year, and Morgan acknowledges in an interview it was too early to predict whether the new one would gain more traction. However, he notes similar proposals are now pending in the legislatures of 13 other states.

A spokesman for Gov. J.B. Pritzker says the governor has yet to take a position on the bill, though a long-range development plan he has released anticipates an overhaul of tax incentive programs to target more startups, small businesses and underserved populations.

Some in Springfield worry Morgan's approach could backfire, with several lawmakers wondering aloud at that February hearing whether states that didn't agree to a ceasefire would gain a competitive advantage. "Politically, would there be any undercutting of this by other states to say, 'See, they are not even interested'? " asked Rep. Michael Zalewski, a Democrat from Riverside.

Last year, the Democratic governor of Kansas and the Republican governor of Missouri signed an agreement to end just such a border war, which they said had cost their states flanking the Missouri River hundreds of millions of dollars but had not created a net increase in jobs.

"You have these crazy situations where companies can move very short distances across the state line and get greeted as new job creators in the new state, even though they didn't create any new jobs and they didn't hire anybody—they just changed their employees' commuting routes in the morning," says Greg LeRoy, executive director of Good Jobs First, a Washington- based nonprofit that researches business incentives. "So that's what we call interstate job fraud."

Central to the problem, LeRoy says, is the "divide-and-conquer strategy" that companies have used to pit states against each other.

Research from Tim Bartik, a senior economist at the Michigan-based W.E. Upjohn Institute for Employment Research, shows incentives influence less than 25 percent of relocation or expansion decisions. Put another way, many businesses that get tax breaks for expansions or relocations are good at bluffing public officials into helping pay for something the companies intended to do regardless.

In his 2019 book, "Making Sense of Incentives: Taming Business Incentives to Promote Prosperity," Bartik argues incentives do not pay for themselves, despite frequent claims to the contrary from public officials. "Job growth yields population growth that increases the need for public services such as expanded roads, more teachers and police," he wrote. "Such public service needs consume over 90 percent of any increased tax revenue."

Chicago and Illinois officials put forth a very different calculation back in 2001 in advocating for incentives for Boeing. The public officials argued back then that by relocating its headquarters — though not its job-rich aerospace manufacturing facilities, which would remain largely in the Seattle area — Boeing would bring 500 top-level jobs to Chicago, and that would induce a multiplier effect that would add five times more jobs locally.

Bottom line, the argument went, without the financial incentives Illinois would lose the Boeing headquarters to other suitors and forgo a potential jackpot that would come with hosting a company that was generating more than $50 billion a year in revenue at the time.

Within a year of inking the deal, however, Boeing acknowledged to the Chicago Tribune that all 500 of the jobs it promised would not be relocations from Seattle and elsewhere. Its revised math included 150 people moved here from Seattle and elsewhere and another 250 hired locally. The total was 100 jobs short of the number touted by state and city officials.

In fact, state records show the company also fell short of that 500-mark in at least 2003, 2004, 2006 and 2007. City and state records relied on self-reporting of headcounts from Boeing, which reported different numbers to City Hall and Springfield.

Boeing spokesman Peter Pedraza writes in an email that the city and the state used different criteria for which "employees" the company could count toward its job numbers. He declines to break down employment numbers by location, citing company policy, but says the company counted employees physically located in Gary, where Boeing maintained an "ancillary transportation facility."

"These jobs are not counted by the state of Illinois," he says.

By 2003, not long after the incentives deal commenced, Boeing consolidated its corporate jet fleet in Gary. The move included planes and jobs that had been housed at Midway International Airport. It is difficult to determine how many of the jobs Boeing reported to the state and city were actually based at the firm's Chicago headquarters. Fine print in the city's portion of the incentive deal allowed Boeing to count jobs above 450 from a "Boeing affiliate," suggesting that fewer of the positions Boeing had promised to bring here were top-level and high-paying. Pedraza says the "affiliate" meant a Boeing subsidiary.

Another wrinkle in the city's portion of the deal allowed Boeing to drop the headcount to just 360 at its Chicago headquarters and still qualify for an annual reimbursement on real estate taxes at a prorated rate, though it is unclear if that ever happened. The reimbursement has averaged about $1.5 million a year. At the state level, Boeing's EDGE deal, which expired in 2016, was worth a multiyear total of $34.9 million. The state only required Boeing to bring 400 jobs and had a loose definition of what that meant, allowing the company to count contractors.

Neither the state nor the city have audited the company's figures for accuracy.

In a statement, Mayor Lori Lightfoot's spokesman for Planning and Development, Peter Strazzabosco, said the agreement with Boeing was “negotiated two administrations ago, when the Loop’s relatively recent revitalization as a global business destination was in its infancy.” The city has since stopped offering "incentives or financial assistance for the relocation of corporate offices downtown," he added.

Chicagoans might long have forgotten about the deal crafted nearly 20 years ago, but they are still paying for it and are committed to doing so through 2021.

Through 2018, records show, Boeing had received $25.5 million in city real estate tax subsidies, payouts that continued annually through thick and thin, through budget shortfalls and layoffs, through a crushing recession and now into the likely economic upheaval tied to a global pandemic.