After the Illinois Senate narrowly approved a well-intentioned, but misguided, bill last year to compel publicly traded companies headquartered in Illinois or selling products here to report their state income tax liability to the secretary of state — who would then post that information online — the measure went on to die in the House. If Illinois is to overcome its reputation as a state unfriendly to business, an identical bill now stalled in the House Rules Committee warrants the same fate.
Illinois is in a fiscal free fall, so tax reform soon will be a high priority in Springfield. The bill's supporters argue that without company-specific disclosure, legislators can't make tax policy decisions that fairly reflect the impact of tax loopholes enjoyed by powerful companies and special interests. But publicly traded concerns, demonized as wielding the lobbying clout to sway tax laws their way, are likely to be among the biggest contributors to the state's economic recovery.
CHILLING EFFECT
The tax disclosure bill, which would make Illinois the only state in the nation to require businesses to reveal their state tax records for public viewing online, would have a chilling effect on corporations already burdened by the fourth-highest income tax rate in the country. Undermining taxpayer confidentiality, the bedrock of our tax system, and subjecting companies to still more government intrusion would make our business environment even less competitive and less likely to create jobs and spur economic opportunity.
Not only does the bill overreach; it does so for no good reason. As things stand, the Illinois Department of Revenue provides its fiscal analysis of all the tax bills the General Assembly considers.
What's more, the bill wouldn't offer policymakers a clear view of state tax compliance. Companies operating in many states often have intricate revenue models and tax patterns not easily understood by the public or policymakers.
Without serious tax reform, education, health care and other vital services will continue to be the targets of draconian cuts. The costs and burdens of government need to be shared by everyone in an even-handed manner reasonably calculated to foster economic growth, but so do tax subsidies.
Let's urge our lawmakers to shift their focus from naked disclosure for its own sake to genuine accountability and start by requiring businesses that negotiate state tax incentives for themselves to show the public what comes of them. Every tax break that's awarded to an Illinois company should be tied to an obligation that its recipient divulge both the taxes it's paid and the positive economic impact it's made.
The world's first social impact bond, or SIB, was introduced in 2010 to fund innovative social programs that realistically might reduce recidivism by ex-offenders in Peterborough, England, and, with it, the public costs of housing and feeding repeat offenders. Prudently building on the strengths of that initiative, Illinois Gov. Pat Quinn is rolling out SIBs to help solve some of the state's most vexing social problems.
A SIB isn't a traditional bond where investors are guaranteed a fixed return but a contract among a government agency that agrees to pay for improved social outcomes, a private financing intermediary and private investors. SIBs shift the risk of experimenting with promising but untested intervention strategies from government to private capital markets, with public funds expended only after targeted social benefits have been achieved.
Peterborough's problem was daunting: Sixty percent of prisoners serving short-term sentences historically had gone on to re-offend within a year after their release. But policymakers were confident that a solution was within their reach. They attracted private investment to pay experienced social service agencies to provide intensive, multidisciplinary support to short-term prisoners, preparing them to re-enter society and succeed outside the penal system.
The government decided which goals would be supported, but exactly how those goals would be achieved was left to the private sector. It was the investors, through a bond-issuing organization, who ultimately endorsed the allocation of investment proceeds — how much would be invested in job training, drug rehabilitation and other interventions.
If the Peterborough plan eventually shrinks recidivism rates by 7.5 percent or more, the government will repay the investors' capital and share the taxpayers' savings with them, delivering up to a 13 percent return. If the target isn't hit, the investment will have failed and the government will owe the investors nothing.
Illinois' SIB effort was spearheaded by the state's Task Force on Social Innovation, Entrepreneurship and Enterprise — the governor's think tank on social issues, which I am privileged to chair — with support from Harvard University's John F. Kennedy School of Government, the Rockefeller Foundation and the Aurora-based Dunham Fund. A request for information issued by the Office of Management and Budget on May 13 yielded responses from service providers eager not only to reduce recidivism here but also to create jobs, revitalize communities, improve public health outcomes, curb youth violence, cut high school dropout rates and alleviate poverty.
Now the governor has issued a request for proposals intended to spur better outcomes for Illinois' most at-risk youth — by increasing placement stability and reducing re-arrests for youth in the state's Department of Children and Family Services, and by improving educational achievement and living-wage employment opportunities justice-involved youth most likely to re-offend upon returning to their communities.
Kudos to Mr. Quinn for bringing SIBs to Illinois. May they soon start delivering on their promise.
- See more at: http://www.chicagobusiness.com/article/20131007/OPINION/131009850/a-new-kind-of-futures-contract-for-illinois#sthash.ThgxeiFt.dpufMarc J. Lane is a Chicago attorney and chairman of the Illinois Task Force on Social Innovation, Entrepreneurship, and Enterprise.
Reprinted from Marc Lane's December 18, 2013 editorial which appeared in Crain's Chicago Business. Crain Communication Inc.'s permission is gratefully acknowledged. Copyright © 2013 by Crain's Communications Inc.
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