Battered by voters angry over tax increases, Illinois lawmakers have an opportunity to reduce levies on Chicago’s iconic financial markets and save thousands of jobs. They just can’t agree on how to keep everyone happy.
CME Group Inc., operator of the Chicago Mercantile Exchange, and CBOE Holdings, parent of the Chicago Board Options Exchange, are threatening to flee the state if their tax burden is not cut. Legislators are struggling over how to keep them, appease thousands of other businesses that want tax relief and avoid the perception of corporate welfare.
The fight shows the consequences of a January vote in which Democrats, who control both legislative chambers, pushed through record increases in tax rates to close part of a $13 billion budget deficit. Now lawmakers are embroiled in a debate over who deserves relief and who doesn’t.
“It’s kind of a no-win situation either way,” said Senator John Sullivan, a Quincy Democrat. “Do you want them to leave the state?”
Since January’s tax increases -- 67 percent for personal income and 46 percent for corporate -- companies have grumbled about the cost of doing business in Illinois.
The Chicago companies loom large in the trading world. CME Group is the world’s largest exchange operator by market capitalization, valued at $19 billion. CBOE Holding’s two exchanges have the largest total share of the U.S. options market, handling 27 percent of trading in September.
Calling the exchanges’ tax load “an inequity,” Senate President John Cullerton, a Chicago Democrat, proposed halving their rate to preserve more than 50,000 jobs. That would mean a tax cut of about $75 million for CME, he said, and $7.5 million for CBOE.
“We should respond to this issue,” Cullerton told the Senate Executive Committee yesterday in Springfield, the state capital.
While the committee sent the bill to the Senate floor, Republicans voiced objections. Senator Dale Righter, a party member from Mattoon, said the measure looks like “another corporate bailout” with the state rescuing a big business that has clout that small operators do not.
“This isn’t a bailout of any sort,” James Parisi, chief financial officer of CME Group Inc., told the committee. “It’s a modernization of the tax code.”
Republicans, who opposed the tax increases in January, object to the idea of cutting the rates for the exchanges alone.
‘What About Me?’
“I get calls in my office, and I am not kidding, from small and medium sized businesses that say, ‘What about me? I’m struggling,’” Senator Christine Radogno, the Republican minority leader from Lemont, said during the committee hearing.
“I don’t want to perpetuate the perception of special treatment,” she said.
Speaking directly to CME’s Parisi, Radogno said, “If you guys leave because this doesn’t pass today, it does raise the question to the sincerity of whether or not you’re staying in the first instance.”
House Republican Leader Tom Cross is proposing broad business-tax deductions and other changes that would cost the state about $492 million annually. That would be in addition to the relief for CME and CBOE.
City of Big Shoulders
Losing one or both of the exchanges would rob Chicago of part of its identity, not to mention its tax base. Although most deals are now done electronically, the trading pits are a loud and raucous symbol of the city’s history and swagger.
Mayor Rahm Emanuel has personally lobbied the exchanges to stay.
“We’ve done this before, for Boeing and Motorola,” Senator Donne E. Trotter, a Chicago Democrat, said in an interview. “This is just one of the ways to keep key jobs in our state.”
Keeping the exchanges may come at a price. The exchange bill, which includes a research-and-development tax credit for all businesses, would drain the treasury of about $110 million a year, Cullerton’s office said. Illinois already faces a $4 billion backlog of unpaid bills.
The cost would rise if other breaks and concessions are added to gather political support.
“We’re now looking at something growing like Topsy,” Representative Barbara Flynn-Currie, a Chicago Democrat, said in an interview. “The business community is telling us to spend less, get your fiscal house in order, and in the meantime their constituent elements are coming to Springfield with their hands out.”
Lawmakers will return to Springfield Nov. 8 to consider the bill.
Senator Matt Murphy, a Republican from Palatine, said the fight is a “good opportunity for those who foisted this tax increase upon the state to consider the unintended consequences and the damage done.”
“It’s important to move quickly,” Murphy said in an interview. Relief shouldn’t be “targeted to the few that have the ability to come down here with a lobbyist and a specific bill,” he added.