Illinois reviewing Sears' tax breaks

Company’s cutbacks at HQ jeopardize deal worth $15.3M

Posted: November 7, 2017 at 1:58 a.m.

CHICAGO -- Sears Holdings Corp. has cut thousands of jobs and closed hundreds of stores this year as it tries to stay afloat heading into the Christmas season.

But while it's waiting for shoppers, Sears is also waiting on the state of Illinois, which has yet to decide whether the department store chain has lived up to the terms of an agreement reached six years ago to give it millions of dollars in tax credits.

Not getting the credits, worth $15.3 million in the fiscal year that ended Jan. 31, 2016, would be another blow for a company that just last month had to tap a $200 million credit line from affiliates of its billionaire chairman and chief executive officer, Edward Lampert.

At issue is that Sears submitted its request for 2016 tax credits in March this year, shortly after it notified the state of plans to eliminate the jobs of 120 corporate workers, mostly at its Hoffman Estates headquarters. After cuts of 400 more employees announced in June, Sears said it had fallen below the minimum of 4,250 employees in Hoffman Estates and its Loop satellite office needed to secure the tax break for 2017.

The state is taking a closer look at the company's records to verify when Sears fell short of the employment benchmarks its agreement requires and "the legal significance of such noncompliance," said Jacquelyn Reineke, spokesman for the Illinois Department of Commerce and Economic Opportunity. The state said in June that it was reviewing the company's records.

"The department continues to work with the company to obtain sufficient records in order to complete its books and records review," Reineke said last week. The review will be completed "as quickly as possible," she said.

Sears won the tax deal in 2011, during the administration of Gov. Pat Quinn, after threatening to move its headquarters out of Illinois. In exchange for staying, making in-state capital investments and not cutting its workforce by more than 13.4 percent, Sears got tax credits valued at an estimated $15 million a year for up to 10 years through the state's Economic Development for a Growing Economy program.

Every year, companies receiving incentives through the Illinois program must submit updated reports on the number of new or retained employees, capital improvement costs, and payroll to show they are still hitting required benchmarks.

Sears, which also owns the Kmart discount chain, first collected tax breaks for the fiscal year that ended Jan. 31, 2015. It reported 5,444 employees, up from 4,908 when the deal was inked, and qualified for $21.2 million, according to state records.

By January 2016, Sears' roster shrank to 5,097 and its tax credit to $15.3 million -- still the second-largest single-year credit a company has received through the Illinois program, according to the state.

By Jan. 31 this year, the headcount at Sears' headquarters dropped to 4,411, according to records the company sent the state in March.

Sears won't say how many people it now employs in Hoffman Estates.

Shortly after receiving Sears' March request, the Department of Commerce and Economic Opportunity asked the company to provide more evidence that it was in compliance with its agreement, Reineke said.

The state said it "regularly requests information" from companies seeking tax credits through the economic development program to confirm that they are complying with the terms of their deals. But it did not provide examples of any other cases where it had conducted such a review.

Sears has continued to cut costs and seek cash infusions. In August, the retailer said a restructuring program announced this year led to more than $1 billion in savings.

But the company repeatedly has turned to its CEO for loans in the run-up to the Christmas season, and last week it announced plans to close 63 more stores in late January. The company has lost more than $10.4 billion since 2011 as sales have continued to fall.

The agreement with Illinois, which runs through 2024, includes a provision allowing the state to recover credits if Sears does not maintain operations at its headquarters for at least five years.

Business on 11/07/2017