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updated: 5/9/2011 10:38 AM

Sears could leave Hoffman Estates, costing suburbs big money and jobs

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  • Hoffman Estates officials are worried that Sears Holdings might pack its bags and head out of town, leaving its Prairie Stone campus in Hoffman Estates and taking thousands of jobs with it.

       Hoffman Estates officials are worried that Sears Holdings might pack its bags and head out of town, leaving its Prairie Stone campus in Hoffman Estates and taking thousands of jobs with it.
    Mark Welsh | Staff Photographer

  • Hoffman Estates officials are worried that Sears Holdings might pack its bags and head out of town, leaving its Prairie Stone campus in Hoffman Estates.

       Hoffman Estates officials are worried that Sears Holdings might pack its bags and head out of town, leaving its Prairie Stone campus in Hoffman Estates.
    Mark Welsh | Staff Photographer

  • Hoffman Estates officials are worried that Sears Holdings might pack its bags and head out of town, leaving its Prairie Stone campus in Hoffman Estates.

       Hoffman Estates officials are worried that Sears Holdings might pack its bags and head out of town, leaving its Prairie Stone campus in Hoffman Estates.
    Mark Welsh | Staff Photographer

  • Hoffman Estates officials are worried that Sears Holdings might pack its bags and head out of town, leaving its Prairie Stone campus in Hoffman Estates.

       Hoffman Estates officials are worried that Sears Holdings might pack its bags and head out of town, leaving its Prairie Stone campus in Hoffman Estates.
    Mark Welsh | Staff Photographer

 
 

Twenty-two years ago, Sears Roebuck and Co. leveraged an impending move from Sears Tower and fears it would move out of state into a sweet deal valued at $240 million and a sprawling new headquarters in Hoffman Estates.

Now, with the last of those state and local incentives set to expire in 2012, Sears again has been quietly evaluating where it wants to call home.

Sears Holdings Corp., the beleaguered parent to Sears Domestic, Sears Canada and Kmart, reportedly has been talking with officials in North Carolina, Texas, Tennessee and New Jersey.

"We do owe it to our associates and shareholders to consider options and alternatives and intend to be very thoughtful and thorough in our deliberations," Sears spokesman Chris Brathwaite said. "It is still very early in the process."

As part of that process, the company commissioned an economic impact study that concluded the company's departure could send shock waves through the suburbs with the potential loss of about 6,000 Sears employees and another 9,000 ancillary jobs with nearby businesses, vendors and contractors.

While Hoffman Estates officials say they haven't received a specific request from Sears, their conversations with company officials, the talks with other states and the impact study led them to work with state Rep. Fred Crespo, a former village board member, to introduce House Bill 3435. The bill aims to keep Sears in the village for 15 more years by continuing property tax breaks that were part of the original deal.

"We're not going to wait until Sears makes an announcement that 'We're leaving,'" Hoffman Estates Mayor William McLeod said last week in a meeting with the Daily Herald.

The legislation would require that Sears maintain 4,000 workers in the village, up from the 2,000 required in the current deal, but less than the 6,200 who work there now.

"If I can keep 4,000 jobs or 6,200 in the community, I'm going to do my utmost to do that," McLeod said.

And then there's the impact on the village's continued hopes for the Prairie Stone business park, the hundreds of acres of commercial property that Sears bought and is selling off for development, albeit at a slower pace than anticipated when the original deal was signed.

"The Marriott's toast if Sears goes," McLeod said, referring to the nearby Chicago Marriott Northwest Hotel, the site of the village's 50th anniversary gala in 2009.

As Hoffman Estates works to build support for the proposed legislation, questions will include the seriousness of the threat that Sears could move and how to weigh the impact of continuing the tax breaks on financially pressed Carpentersville-based Community Unit District 300, which stands to forego the most money if the bill passes.

School officials, who recently approved cutting 363 jobs, were anticipating receiving millions more in property tax dollars each year when the deal expires. Sears, Hoffman Estates and District 300 officials are planning to meet Thursday.

The village took out $180 million in bonds for Sears in 1990 as its part of the incentive package. Sears is responsible for repaying the bonds but uses rebated property tax money to cover much of that cost. Because Prairie Stone has developed more slowly than anticipated, only about $120 million of the bonds have been repaid, village documents indicate.

The expiration of the financing deal next year "is something we cannot ignore," said Brathwaite, the Sears spokesman. "We have had some preliminary discussions with Hoffman Estates and did commission an economic impact study."

Development surrounding Sears' headquarters has already slowed, and the company's departure could cripple future plans and existing businesses. About 200 of the 700 acres within Prairie Stone remain empty, and plans like an outdoor music theater have been nixed because of the economy.

Sears, which merged with Kmart in 2005, has posted eroding profits and faced criticism from Wall Street and consumers over its constantly changing retail strategy. With a new CEO at the helm, the corporation announced last week it could see its store sales drop further.

Despite its troubles, the Sears brand lends credibility to Hoffman Estates, attracting developers and employees who spend money in the community, village officials said, adding that they're willing to do what's necessary to keep the company.

Hoffman Estates Village Manager James Norris called Crespo's legislation, which lies with the House Rules Committee, "an insurance policy."

Crespo, a Democrat, agreed.

"The EDA (Economic Development Area) expires next year, and there was a need to address this and look for an extension," he said. "One of my biggest concerns is that we're losing a lot of jobs in the state."

Sears isn't the only company to look for major tax breaks to stay in Illinois. On Friday, Motorola Mobility and Illinois Gov. Pat Quinn announced a deal worth $100 million to keep that company's headquarters in Libertyville.

Besides the loss of roughly 15,000 jobs, a Sears move out of state would lead to the loss of millions in tax revenue, according to the impact study Sears commissioned from Gruen Gruen & Associates and the Regional Economics Applications Laboratory.

"Annual tax revenues to the state of Illinois will decline by $130.7 million," the study said. "Annual tax revenues to the Chicago region will decline by $112.4 million."

Those numbers give credence to village officials, who believe offering incentives to Sears is worth it for the region.

"I'd be willing to bet the indirect and direct impact of having Sears in the state is dramatically more than the value of the incentives," Norris said.

"If Sears leaves it's catastrophic," he said. "If you look at the Motorola building in Harvard, the EAV (equalized assessed value on which property taxes are based) on that building dropped 85 percent when it was vacated over a couple of years … . It's devastating for all of us."

While the incentives deal has resulted in property tax revenue being redirected from local governments, including District 300, to help cover Sears' development costs, Hoffman Estates officials point out that those governments are better off than if Sears hadn't come.

From 1994 to 2010, the Sears deal has provided taxing bodies with $40 million in property taxes. District 300 has received half of that.

Cheryl Crates, District 300's chief financial officer, acknowledged that Sears is an asset to the community. "We're very amenable about sitting down and talking about it," she said.

A company like Sears would need a significant tax benefit to relocate, said Kathleen Thies, a tax analyst with Wolters Kluwer, a tax and accounting firm based in Riverwoods.

"They're certainly not going to go for any small reasons, and the resulting tax benefit depends on what state they go to," Thies said.

Generally, states offer companies a chance to structure their losses against their income and carry over losses to lessen their tax burden to the state in future years. However, in an effort to provide more tax revenue to the state in the short term, Illinois recently suspended its net loss deduction, Thies said. Illinois this year also increased its overall tax rate on business income from 7.2 percent to 9.5 percent, which rubbed more salt in the wound to businesses.

But relocating would cost an already struggling company millions of dollars and be disruptive to its workforce. And while Sears was able to sell Sears Tower, once the world's tallest building, for a big profit, finding a new user for the Sears campus in Hoffman Estates likely would be more difficult.

"The worst part of this is that many of its people won't want to move with the company," said Mike Gonzales, president of Armstrong Relocation in Dallas and Chicago, which has handled moves for some major companies, including American Airlines' move from New York to Dallas.

Moving to another state would be a gamble that many other large retailers haven't taken. J.C. Penney has stayed in Texas, Macy's in Ohio, Target in Minnesota and Kohl's in Wisconsin, said Jason Asaeda, a retail equity analyst with Standard & Poor's in New York.

"The gap between Sears and its competitors is fairly wide," he said.

Still, assuming Sears wouldn't move from Hoffman Estates would be a mistake, with potentially dire results, McLeod said.

"We don't have a whole lot of employers who employ 6,200 people at one location," he said. "That's a big chunk of the jobs in this community."

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