Letter From Chicago: Where Have All The Good Times Gone?

by Ann C. Logue on July 6, 2011

photo by Merrick Brown/Flickr, used under a Creative Commons license

Sears is threatening to leave Illinois in order to get a better tax deal. Of course, Sears has already been benefiting from a tax deal in Illinois, worth $240 million, to keep the retailer in state when it abandoned the iconic Sears Tower downtown for the northwest suburbs about twenty years ago. The deal expires in 2012, and Sears’ officials have told the state that they need more tax breaks or they will move. Michigan and Virginia almost immediately announced offers to entice Sears to relocate.

When Sears left the west Loop, it was the nation’s second-largest retailer behind Wal-Mart. It now ranks tenth, according to the National Retail Federation –  and that’s after merging with two other retailers, K-Mart and Lands’ End. I was recently in their flagship store on State Street in downtown Chicago. Except for the Lands’ End department, the store is run-down and filled with tired, unfashionable merchandise.

Something has gone screwy with this corporate incentive game; it is not serving states and it may not be helping the business much, either. Much research on the power of incentives has been done by the Upjohn Institute in Kalamazoo, Michigan, and the results are mixed. So many variables come into play, making it tough to tease out what works and what doesn’t. Done right, government incentives create jobs and ultimately increase tax revenue. The problem is that many governments don’t design good incentive packages. For example, they may offer tax breaks to bring in new workers to a region without considering that the new arrivals will place new burdens on the school system. Or, they may get caught up in the frenzy of bidding and become cursed winners, attracting the business by overpaying.

It’s perfectly rational for Sears to want the best tax deal, at least in the short run. It may not be rational for the different states to try to attract Sears, though, given the company’s current track record. If Sears were serious about retailing, it would put as much energy into the stores as it is into relocation. If it wanted to get closer to the people who seem to understand the business, it would move its headquarters to Dodgeville, Wisconsin, where the good folks at Lands’ End could teach the Sears merchandise team about how to make archetypal Middle American goods.


Celebrate Good Times

Last weekend was the annual Chicago Gay Pride Parade. The event was marred by vandalism; someone got the bright idea to slash the tires on the floats. That’s just stupid and hateful. But here’s what I find interesting: there are companies in the business of making parade floats!

I guess it’s not surprising, but I always thought of float-making as something that happened in the pep club captain’s back yard. It’s a real business, though, with different regional operators throughout the United States. Associated Attractions has been in business for almost 40 years, making floats for different parades and related events in the Midwest. Chuck Huser, the company’s general manager, says that floats costs between $1000 and $15,000, depending on the complexity and amount of customization that the customer wants.

The vandals weren’t able to stop the parade, by the way. All they managed to do was cost Associated Attractions a lot of money, because the company staff worked to repair the tires so that the floats were able to make it for the festivities. That’s good customer service.

The wonder of small business is that there are so many companies out there doing things you never realized were being done.  You couldn’t have a holiday without them.


Baby, You’re a Firework

Fireworks are illegal in Illinois, not so you’d know come 9:00 pm on July 4. Hence, my fellow Illini will be crossing into Indiana, Wisconsin, or Missouri to load up on fiery frogs (in my opinion, your best value), aerial arsenal shell kits, and assorted firecrackers and sparklers. All that sales tax revenue will leave the state. Even if there’s a pickup in Skyway tolls, it won’t benefit the state because the Skyway was privatized in 2005.

The American Pyrotechnics Association is the trade organization for the fireworks industry. It reports that in 2010, fireworks sales in the U.S. were $952 million. Assuming a five percent average sales tax, that was $47.6 million in revenue. Plus, shooting off fireworks is a lot more fun than shopping at Sears.

Aren’t convinced of your need for fireworks this weekend? Let the Firecracker Moms talk you into it.

Until next time,

Ann C. Logue

Guest columnist Ann C. Logue is a lecturer in finance at the University of Illinois at Chicago and the author of Socially Responsible Investing for Dummies (Wiley 2009).

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