2017 EDGE/THRIVE End of Session Recap

Over the course of the 2017 legislative session, there were various economic development and business-related pieces of legislation, but the focus for IEDA was on the renewal of the Economic Development for a Growing Economy Tax Credit Act (EDGE).

IEDA was encouraged at the end of the last legislative session with the passage of a temporary extension for the Economic Development for a Growing Economy (EDGE) Tax Credit Program and the introduction of legislation regarding the Transforming, Helping, and Reviving Illinois’ Versatile Economy (THRIVE) Job Creation Tax Credit Act. However, due to the political gridlock in Springfield, the legislature did not approve an EDGE or THRIVE tax credit program.

The THRIVE Act would most certainly be a positive evolution of EDGE tax credits by providing companies a credit for half of the Illinois withholding attributable to job creation, offsetting the corporate income tax for that year, which would be awarded by the Department of Commerce and Economic Opportunity (DCEO). To be eligible for the THRIVE tax credit proposal last session, companies must create at least 50 jobs or jobs equal to 10 percent of its global workforce, whichever is less. They also must have a capital investment in Illinois of at least $2.5 million unless the company employs fewer than 100 people, and provides that the credit may not exceed 50% of the incremental income tax attributable to the applicant’s project.

Whether in the form of EDGE or THRIVE, we recommended to both legislators and staff that future programs include the following:

  • Transferability of credits;
  • Remove or reduce documentation requirements regarding out-of-state options;
  • Streamline the process for receiving tax credit commitments from the state;
  • Alternative incentives for job retention and significant capital investments;
  • Accounting for in-state shifts (i.e. increasing jobs in one sector/region with decrease in another);
  • Increased cap on credits;
  • Credits related to training;

The House Revenue Committee chairman, Rep. Michael Zalewski (D-Riverside), was tasked by the Speaker of the House to develop a tax incentive package, and during the legislative session, IEDA was able to provide testimony in committee regarding the importance of tax incentives. We otherwise remained in direct contact with the main legislative sponsors, state agency and staff throughout the session to encourage a resolution regarding business tax incentives.

By the end of the legislative session, no agreement was reached between the political parties on incentives, so the House Democrats moved forward with a comprehensive package on their own in the form of House Bill 160, which ultimately passed the House but is being held for further negotiations before moving onto the Senate.

House Bill 160 (Rep. Michael Zalewski, D-23, Riverside) was a public demonstration of political will by the House Democrats that contained some of the tax-related “asks” from both the House Democratic caucus and business groups. Regarding the Economic Development for a Growing Economy Tax Credit Act (EDGE) portion of the legislation, which would be extended for five years, below is a summary

  • Clawback provision requires repayment of any economic development assistance “If the Taxpayer ceases operations at a project location that is the subject of an Agreement with the intent to terminate operations in the State”
    • On the floor of the House, the sponsor provided legislative intent that any employee removed would trigger the clawback; however, the intent should be reviewed further since the plain language of the statute does not clearly set the trigger at one employee being removed and the House sponsor later in debate referred to the clawback trigger as “they took the tax credit [to move here] but now they’re leaving”;
  • Incentives would be for prospective job growth only
  • Includes health services, professional services, but no longer explicitly includes data centers in definition of Applicant;
    • The statutory language previously referenced “data centers” as being included within the term “professional services,” but now “professional services” are left without any further description of what that includes;
  • Changes Credit to the lesser of:
    • the sum of (i) 50% of the Incremental Income Tax attributable to the Applicant’s project and (ii) 10% of the training costs of New Employees; or
    • 100% of the Incremental Income Tax attributable to the Applicant’s project.
  • However, if the project is located in an underserved area, then the amount of the Credit may not exceed the lesser of:
    • the sum of (i) 75% of the Incremental Income Tax attributable to the Applicant’s project and (ii) 10% of the training costs of New Employees; or
    • capped at 100% of the Incremental Income Tax attributable to the Applicant’s project.
      • Defines Underserved Area as one of the following:
        • 20% Poverty Rate
        • 50% of children participate in the free lunch program
        • 20% households receive assistance under SNAP
        • Unemployment rate exceeds 120% of national average
  • Enhanced reporting regarding business name, location and annual reporting with additional supplier diversity goals

As noted above, House Bill 160 was held in the House, with further negotiations expected, and with the return of the Legislature for the budget impasse, amended legislation was proposed through House Bill 162 (Rep. Michael Zalewski, D-23, Riverside), which passed the House nearly unanimously and is on Second Reading in the Senate:

House Amendment #2:  The Clawback

House Amendment #2 to House Bill 162 added clawback language for all tax incentives, but the language appeared to have some of the same discrepancies that were in House Bill 160 in comparison to the EDGE clawback language used elsewhere in the legislation:

  • Under the original clawback language proposed in House Bill 162 (HA#1), and potentially agreed to by House Democrats and Republicans, tax incentives may be recaptured by DCEO if the business “…ceases principal operations with the intent to shut down the project in the State permanently during the term of the Agreement…”
  • Under the additional clawback language proposed in House Bill 162 (HA#2), tax incentives may also be recaptured by DCEO if the business “…chooses to move all or part of its business operations and the jobs created by its business out-of-State”

This dispute was resolved with the withdrawal of Amendment#2 and adoption of Amendment#1, which contained language that was already agreed to by House Republicans.

Full Details of House Bill 162, HA#1

  • Provides that an EDGE agreement between DCEO and an Applicant shall include a clawback provision specifying that:
    • “if the Taxpayer ceases principal operations with the intent to shut down the project in the State permanently during the term of the Agreement,”
    • then the entire credit amount awarded to the Taxpayer prior to the date the Taxpayer ceases principal operations shall be:
      • returned to the Department and
      • reallocated to the local workforce investment area in which the project was located.
        • Provides that the amount reallocated by the Department shall be used for purposes of:
          • workforce development,
          • expanded opportunities for unemployed persons, and
          • expanded opportunities for women and minorities in the workforce.
  • Provides that the EDGE award may not exceed the lesser of:
    • the sum of (i) 50% of the Incremental Income Tax attributable to New Employees at the Applicant’s project and (ii) 10% of the training costs of New Employees; or
    • 100% of the Incremental Income Tax attributable to New Employees at the Applicant’s project.
  • Provides that, if the EDGE project is located in an underserved area, then the amount of the credit may not exceed the lesser of:
    • the sum of (i) 75% of the Incremental Income Tax attributable to New Employees at the Applicant’s project and (ii) 10% of the training costs of New Employees; or
    • 100% of the Incremental Income Tax attributable to New Employees at the Applicant’s project.
  • Provides that the maximum amount of the EDGE credit may be increased by an amount not to exceed 25% of the Incremental Income Tax attributable to retained employees if certain conditions are met.
  • Makes changes concerning the capital investment and employment requirements for EDGE credits under the Act—“In order to qualify for Credits…:”
    • If 100 plus employees:
      • $2.5 million capital investment (formerly $5 million) and
      • new employees equal to the lesser of:
        • 10% of the full-time employees world-wide, or
        • 50 new employees
    • if 100 employees or less:
      • no capital investment (formerly $1 million) and
      • new employees equal to the lesser of:
        • 5% of the full-time employees world-wide, or
        • 50 new employees (formerly 5 new employees)
  • Modifies the evidence thresholds for what may be offered to show that receipt of the EDGE credit is necessary (i.e. out-of-state options) for new and retained employees
    • When adding new employees, the business may use evidence such as the “magnitude of the cost differential between Illinois and a competing State,” which is identical to the language offered by DCEO and the GOP in other legislation
    • “if the Applicant is seeking an increase in the maximum amount of the Credit for retained employees, the Applicant must…
      • provide evidence the Applicant has multi-state location options and could reasonably and efficiently locate outside of the State or
      • demonstrate that at least one other state is being considered for the project.”
  • Contains provisions concerning supplier diversity goals (e.g. MBE’s and WBE’s).
  • Extends the sunset to June 30, 2022 (currently, April 30, 2017).
  • Provides that no credit awarded under the Act for an agreement entered into on or after January 1, 2015 may be claimed against the taxpayer’s withholding tax liability.