A $400 million carrot for Sears? Ohio bids for HQ

Kasich isn’t talking, but Illinois’ no-incentives vote helps the Buckeye state

By  Marla Matzer Rose

The Columbus Dispatch Thursday December 1, 2011 7:10 AM

 

If money matters, Ohio’s chances of getting Sears Holdings to move its 6,200-person headquarters to the state from outside Chicago could be getting better.

 

Ohio has offered Sears incentives worth $400 million, as the company pits Illinois against other states vying to land its operations, according to the office of Illinois Gov. Pat Quinn. The package is “basically about four times” what Illinois has been looking to offer, said Brooke Anderson, the governor’s press secretary.

 

Quinn, a Democrat, told an Illinois radio station that Ohio was aggressively courting Sears. Texas is the other state that reportedly has made the retailer’s short list.

 

READ MORE AT:

http://www.dispatch.com/content/stories/business/2011/12/01/a-400m-carrot-for-sears-ohio-bids-for-hq.html

Honestly what is he smoking!!!!

Thanks for posting and unlocking, KJP.

That seems like a lot of money.

Given the company's size, status (even if it's fallen out of the Fortune 50), I don't think it's a terrible idea, as long as the vast majority of that money is conditional on number and quality of jobs, infrastructure improvements, and likely future tax base. EDIT: Also need clawback provisions to recover grant money if they miss targets or reneg on the timeline.

 

I guess this is really only Columbus? No hope for Cinci or Cleveland?

^^Tax dollars.

For many reasons, I hope we don't get stuck with this. We can't afford it. Sears moved out of Chicago to a sprawling, subsidized, suburban mess that forced former transit-riding employees to drive miles and miles and miles to get to work. If Sears moves to Ohio, where will it build a new sprawling facility and how many additional subsidies will it require and how much in local public services will it suck up without fully paying for them? And how many jobs would the move really create? The high-paying jobs would be people moving here from Illinois. Ohio would get some of the lower-paying support jobs.

 

We would be better off supporting future competitors of giant Sears. We shouldn't be subsidizing the past.

OMG, and I was giving Kasuck credit for not caving to Chiquita.  That's crazy!

I'm on record as supporting the idea of luring Sears to Ohio, as a stepping stone to lure other F500 companies to the state as well. But...WOW...that is a lot of money, particularly for a state that's struggling to balance its budget. If that's the precedent we want to establish, I don't know if we can afford to lure companies like that.

Talk about stomach turning... didn't "we" (Governor Kasich) turn down the expansion of rail (100% paid for by federal dollars) in our state because we "can't afford it"?  Yet we can afford to continue corporate welfare to the tune of $400 MILLION?

 

I don't know. I thought the basis for these types of incentives was to have a return within a year's time. I don't know that establishing that kind of timeline is possible with this level of investment.

^ I think for Sears they're willing to expand their timeline a bit. I'm guessing, but it would make sense.

 

It could be a good deal or a bad deal. The devil is in the details. I want to know more.

It makes one wonder what other states are offering if Ohio felt the need to put forth 4x what Illinois is offering for them to stay.  If money talks, and it usually does, and if I were Sears, that would be a pretty big carrot to turn away from, so this certainly ups the chances of a move.  As long as the money comes with provisions to for jobs created, investment, and a return, I'd be okay with it despite the large amount.  I do think Ohio needs to be aggressive on getting companies here.   

 

 

^ Or piss other companies off that was offered very little to stay.

If Sears comes to Ohio I cannot wait to see the burnt out husk of a suburb that gorges itself on Sears for a decade and then declares fiscal emergency as the company declines, moves, or spins off it's parts.  (Hoffman Estates II)

I wish we had LRT incentives worth $400 million...

My question is if Sears... SEARS... is worth $400 Mil?  Kasich can find $400 million for Sears, but couldn't find the funds for rail?  No funding for schools?  Housing demolitions in neighborhoods where people are hurting in the aftermath of the foreclosure crisis- that's not important enough.  SEARS- a company no one expects to be around in another 10 to 15 years- is worth $400 Million.  No one else gets heated when they think of this?

My God this is insane.  If Ohio has $400 mil to lure ONE company (which in my opinion it does not...see above posts) why in the world would you use it to lure Sears of all companies.  I could make a list of 100 other companies I would go after with that sum of money first (even ones not looking to move).

I'm pretty certain there would never be a check written for $400 mil to be cashed on any given date. This is probably spread out over 20+ years and includes stipulations and other blah blah blah

OMG, and I was giving Kasuck credit for not caving to Chiquita.  That's crazy!

 

I wonder if the timing of this story is not a coincidence. After refusing to battle for Chiquita, Kasich might be trying to send a message to the business community by hyper-aggressively pursuing Sears. As if to say "we won't pick just anyone, but if you have the right stuff, we'll go all-out to help you."

 

Assuming Sears turns the offer down, this would be okay. But we can't afford to offer this kind of package, especially not to a dying business.

 

I'm reminded of what Kasich said yesterday about Chiquita: he isn't going to offer a nice incentives package to a company that doesn't want to be in Ohio anyway. I want to know what on earth makes him think Sears is dying to be in Ohio. Why won't they just split town once the bennies wear off?

 

archangel is right that the devil is in the details. However, I find it difficult to imagine the $400mil details will be reasonable. Guess we'll find out.

What on earth are you guys complaining about? This isn't a situation where he's just going to give Sears $400 million cash; rather, it will likely be some combo of tax breaks, credits, abatements, and other incentives if it happens at all. At the least let's wait until we hear the specifics of how Kasich proposes to bring Sears to Ohio before going off the rocker and bashing him. This is a GOOD thing if it comes to Ohio in terms of 6000 jobs or so, ancillary employment, larger tax base, morale and other intangibles for having a Fort 500, yadda yadda.

 

Let's not kid ourselves, if this were Strickland making such overtures, some of you guys would be singing a different tune.

 

Quick thing : in terms of being opposed to states bribing companies to play musical chairs, Ohio could take some vague high road and refuse to deal. But when other states are playing the game, you have few options .... It's a better alternative than the 'well, we stuck to our principles but where the heck did our jobs go? approach.

 

 

I wonder if one if the main reasons Ohio continues to lose corporations and people is because too many of its residents take the automatic approach that keeping or attracting business is just too expensive and it won't matter anyway.  I kinda doubt that any of the states or cities seeing exceptional growth think that way.  It seems to me that our state has been floundering for decades, and while a Sears or any other single company move won't necessarily change that, what we've been doing the last 50 or 60 years really hasn't been working either.  Ohio is a great state.  We have a history of being at the forefront of innovation and prosperity.  We have an educated populace, the infrastructure, and a low cost of living in comparison to the majority of other states out there.  We seem to have everything but the motivation.   

^^ Listen communities are already hurting. This is less taxes for Ohio to collect. 400 million worth of it is a WHOLE lot of taxes. No matter if it's spread over 20 years.

I don't believe anybody on this board object to this alledged proposal is that naive to think that such an incentive would consist of a check for $400 mil as suggested in a couple of posts.  This deals are of course always complex and consist of a combination of perks that in some manner equal that figure.  That said, again, I could think of a hundred other companies other than this dying brand to give such money too or I can think of 100 ways Ohio could better spend (in any form) 400 mil that would create jobs.

What on earth are you guys complaining about? This isn't a situation where he's just going to give Sears $400 million cash; rather, it will likely be some combo of tax breaks, credits, abatements, and other incentives if it happens at all. At the least let's wait until we hear the specifics of how Kasich proposes to bring Sears to Ohio before going off the rocker and bashing him. This is a GOOD thing if it comes to Ohio in terms of 6000 jobs or so, ancillary employment, larger tax base, morale and other intangibles for having a Fort 500, yadda yadda.

 

Let's not kid ourselves, if this were Strickland making such overtures, some of you guys would be singing a different tune.

 

Quick thing : in terms of being opposed to states bribing companies to play musical chairs, Ohio could take some vague high road and refuse to deal. But when other states are playing the game, you have few options .... It's a better alternative than the 'well, we stuck to our principles but where the heck did our jobs go? approach.

 

 

 

I agree.  The two arguments I'm seeing is that it's too much money and that the company is guaranteed to be dissolved in the near future.  The money spent in incentives will, as you say, likely be spread over time and so the total amount looks large, but any given year will see a much reduced figure.  As far as the company's future, it could go either way, but that could be said about any company.  We could bring in a company that looks perfect on paper but goes into bankruptcy the next year.  That could be said with companies that are already here,  yet I doubt anyone would say that Ohio doesn't want them.  There are no guarantees, but even if Sears lasted only 5-10 years more, that's 5-10 years of high-paying jobs in an economy that continues to struggle.  5-10 years from now, perhaps the impact won't be as significant.  Right now, it is. 

^^ Listen communities are already hurting. This is less taxes for Ohio to collect. 400 million worth of it is a WHOLE lot of taxes. No matter if it's spread over 20 years.

 

Wouldn't the state be collecting taxes on personal income, sales taxes, taxes on related businesses that spring up in support, etc?  This is not just a situation where money would be leaving the state and nothing would be coming back in return.  Ohio is spending $1.6 billion on a few miles of highway through Columbus, a project that will never pay for itself and will continue to cost money in maintenance in the years to come.  No one complains about that.  I saw mention of the rail project, but there are no guarantees that would've paid for itself either (even though I supported it), and would've required state subsidies and maintenance costs as well.  We do things all the time that cost money that we never get back.  This investment at least has the chance to put us ahead and raise our profile as a business-friendly state.   

Another thing is that Ohio other metros will be pissed that they are not allowed to offer another companies 400 million in incentives. If i sound bitter i am.

Another thing is that Ohio other metros will be pissed that they are not allowed to offer another companies 400 million in incentives. If i sound bitter i am.

 

I would think any metro can make an offer, and from my understanding, Sears looked at locations in all 3-Cs.  If you are referring to Columbus the city/metro is NOT making this offer, but state government.  I'm still not sure where they liked best, but even so, it would probably not be an urban location. 

But we're not losing $400 mill, despite the word 'spending'. If we give them certain tax breaks, we're not spending anything; they're just not giving us anything, which wouldn't be any different if they were not to come at all. Now I'm not saying all $400 million will be like that, and obviously Ohio would have to fork some major cash up, but the negativey on this particular Sears board is just bizzare. I don't know if it's an anti-Kasich thing or we're just not used to jobs in masse potentially coming to Ohio, but it's very disheartening to see this kind of reaction.

Another thing is that Ohio other metros will be pissed that they are not allowed to offer another companies 400 million in incentives. If i sound bitter i am.

 

You are. Chiquita was gone either way. No need to throw resources at a company whose needs are no longer met by Ohio. Frankly, Chiquita is not even worth the money CLT threw at them either and I'll never understand why they were so aggressive courting a financially unstable company with less than 400 employees.

 

This Sears debate is a difficult one and reasonably so, but as TBideon points out quite well, it's not all cut and dry.

 

Kasich has to play the game either way. He's supposed to be pro-business and he'd be beat down by the republicans and the Ohio business community if he didn't.

As far as the company's future, it could go either way, but that could be said about any company.  We could bring in a company that looks perfect on paper but goes into bankruptcy the next year.

 

By this logic, we shouldn't care one bit about the perceived health of a company, for that could reverse completely randomly at any time. I'm guessing you are not an investment advisor?

I could have understood 100 million. But 400 million.  Come on. That leaves no room to offer other companies incentives.

But we're not losing $400 mill, despite the word 'spending'. If we give them certain tax breaks, we're not spending anything; they're just not giving us anything, which wouldn't be any different if they were not to come at all. Now I'm not saying all $400 million will be like that, and obviously Ohio would have to fork some major cash up, but the negativey on this particular Sears board is just bizzare. I don't know if it's an anti-Kasich thing or we're just not used to jobs in masse potentially coming to Ohio, but it's very disheartening to see this kind of reaction.

 

I suspect that if Microsoft was thinking about moving to Ohio, some would say that Apple was the real future and Microsoft was not what it used to be.  I do think that many Ohioans are just in this mode that positive news can only bring about something bad in the end, and that's why we're reluctant to be aggressive.  We as a state have been screwed over by many a corporation and industry over the years and our leadership has simply allowed it to happen.  I truly dislike Kasich, but in this case I think he's right.  We need to be aggressive and play the game or we will continue to fall further behind. 

I think it's related to the size of the incentive.  Here in Cincinnati the city still gets blasted for the incentives it put forward to keep Kroger and Convergys a few years ago, and those are absolutely dwarfed by this reported $400 million figure. 

I'm pretty certain there would never be a check written for $400 mil to be cashed on any given date. This is probably spread out over 20+ years and includes stipulations and other blah blah blah

Thank you. 

 

Everyone is talking like Kasich has been hiding $400 million dollars from us, and he is ready to shell it out to Sears tommorrow.

As far as the company's future, it could go either way, but that could be said about any company.  We could bring in a company that looks perfect on paper but goes into bankruptcy the next year.

 

By this logic, we shouldn't care one bit about the perceived health of a company, for that could reverse completely randomly at any time. I'm guessing you are not an investment advisor?

 

That's not what I'm saying.  I'm saying that business, like anything else, offers no guarantees.  If we are too afraid of failure to even attempt to bring in jobs, we might as well accept that we are heading into a future of our own choosing, and it's not pretty. 

I could have understood 100 million. But 400 million.  Come on. That leaves no room to offer other companies incentives.

 

Do you know of any other large companies looking at a move to Ohio?

Let say they move to Dublin. How are they suppose to absorb 3000 students, which 6200 jobs should bring without the needed tax money to build another school or two????

^Those are very very good problems to have, however.

 

I suppose you look at what other cities and towns have done in similar situations and try to mirror the successful ones. Of course I'm sure a deal of this magnitude will go over factors like "cost" to local communities well in advance of signing the dotted line.

 

 

As far as the company's future, it could go either way, but that could be said about any company.  We could bring in a company that looks perfect on paper but goes into bankruptcy the next year.

 

By this logic, we shouldn't care one bit about the perceived health of a company, for that could reverse completely randomly at any time. I'm guessing you are not an investment advisor?

 

That's not what I'm saying.  I'm saying that business, like anything else, offers no guarantees.  If we are too afraid of failure to even attempt to bring in jobs, we might as well accept that we are heading into a future of our own choosing, and it's not pretty. 

Sears is a company we are all familiar with, and the consensus seems to be that we feel it's falling apart. That should be taken into account when deciding whether to offer incentives, particularly large ones, to lure the company to Ohio. You seem to be arguing that we should not factor this in, whereas it's probably the main criterion which should be used when deciding to make an investment or not.

 

It's not a matter of being afraid of failure in the abstract, it is the result of a very rational assessment of the company in question.

Let say they move to Dublin. How are they suppose to absorb 3000 students, which 6200 jobs should bring without the needed tax money to build another school or two????

 

I would think that a few thousand more residents paying property taxes would help.  The city has a 3% property tax rate, so for every $100,000 home, it would get $3,000 a year.  Let's say 50% of the people with Sears moved to Dublin (not all of them will), so that would be 3,100 representing 3,100 homes.  That would be $9.3 million a year in taxes provided the homes were all worth $100,000.  However, the average price of a home in Dublin is much higher than that, so it would be even more. 

 

BTW, Dublin grew 33% in the last 10 years alone, so it's used to exceptional growth. 

As far as the company's future, it could go either way, but that could be said about any company.  We could bring in a company that looks perfect on paper but goes into bankruptcy the next year.

 

By this logic, we shouldn't care one bit about the perceived health of a company, for that could reverse completely randomly at any time. I'm guessing you are not an investment advisor?

 

That's not what I'm saying.  I'm saying that business, like anything else, offers no guarantees.  If we are too afraid of failure to even attempt to bring in jobs, we might as well accept that we are heading into a future of our own choosing, and it's not pretty. 

Sears is a company we are all familiar with, and the consensus seems to be that we feel it's falling apart. That should be taken into account when deciding whether to offer incentives, particularly large ones, to lure the company to Ohio. You seem to be arguing that we should not factor this in, whereas it's probably the main criterion which should be used when deciding to make an investment or not.

 

It's not a matter of being afraid of failure in the abstract, it is the result of a very rational assessment of the company in question.

 

It's not that simple. You can't totally write off a company just because they have had some problems in the past, especially considering how difficult and rare it is to bring large companies into Ohio (We're not Charlotte, Denver, Atlanta, or R-D).

 

Yes, Sears is not what it once was. The retail environment has changed; however, there are plenty of companies that were once in decline that studied the market, reevaluated their product, and starting doing business differently only be be successful once again.

 

And again, we can't take this $400 million number at face value. The word "incentives" is a very, very broad word and nobody knows how that money would play out should they come to Ohio.

As far as the company's future, it could go either way, but that could be said about any company.  We could bring in a company that looks perfect on paper but goes into bankruptcy the next year.

 

By this logic, we shouldn't care one bit about the perceived health of a company, for that could reverse completely randomly at any time. I'm guessing you are not an investment advisor?

 

That's not what I'm saying.  I'm saying that business, like anything else, offers no guarantees.  If we are too afraid of failure to even attempt to bring in jobs, we might as well accept that we are heading into a future of our own choosing, and it's not pretty. 

Sears is a company we are all familiar with, and the consensus seems to be that we feel it's falling apart. That should be taken into account when deciding whether to offer incentives, particularly large ones, to lure the company to Ohio. You seem to be arguing that we should not factor this in, whereas it's probably the main criterion which should be used when deciding to make an investment or not.

 

It's not a matter of being afraid of failure in the abstract, it is the result of a very rational assessment of the company in question.

 

No, I think health of a company is an important factor, but it should not be the ONLY one, which seems to be in this debate.  I can't remember the last time a major company was looking to move to Ohio, and now that one may be, the overwhelming response is that it's not good enough because it's not the dominating force it once was.  IMO, a company does not have to be at the top of the heap to be successful.  All retail companies go through periods of decline.  I know, because I've been in retail most of my life and worked for companies that were once strong and went out of business and others that started weak but steadily improved.  Sears is not a dead brand and still carries weight to it.  Who knows, perhaps the stifling Illinois tax structure has not allowed the company to do what it needs to to become successful again.  There are many unknown factors, and I personally don't like to stick my nose in the air at potentially thousands of jobs because of an unknown.  I guess I don't understand why so many others will. 

I think Illinois knows more about Sears than Ohio does. That's why they will not match the incentive.

As far as the company's future, it could go either way, but that could be said about any company.  We could bring in a company that looks perfect on paper but goes into bankruptcy the next year.

 

By this logic, we shouldn't care one bit about the perceived health of a company, for that could reverse completely randomly at any time. I'm guessing you are not an investment advisor?

 

That's not what I'm saying.  I'm saying that business, like anything else, offers no guarantees.  If we are too afraid of failure to even attempt to bring in jobs, we might as well accept that we are heading into a future of our own choosing, and it's not pretty. 

Sears is a company we are all familiar with, and the consensus seems to be that we feel it's falling apart. That should be taken into account when deciding whether to offer incentives, particularly large ones, to lure the company to Ohio. You seem to be arguing that we should not factor this in, whereas it's probably the main criterion which should be used when deciding to make an investment or not.

 

It's not a matter of being afraid of failure in the abstract, it is the result of a very rational assessment of the company in question.

 

I'd obviously rather Ohio be known for young, dynamic growth companies, and not become an elephant graveyard where old Fortune 500s go to die, but in the worst case scenario, I think having Sears live out a long, slow decline here in Ohio might still be profitable for the state on the whole, IF, (A) there aren't better targets for this incentive money, and (B) the incentives are structured in such a way that a significant portion is tied to growth and can clawback incentives if the company shrinks too much, fails to invest a certain amount, or what have you. And I don't think that the 'worst case scenario' is a given. Certainly Sears will radically restructure at some point in the near future. Beyond that, it's hard to tell.

 

Sears isn't stupid, and they know this isn't a $400M grant. It's an incentive contract, and they probably know they won't hit all of them. Kasich (despite my own misgivings) is not stupid either, and while he has a political interest in saying "I brought a F100 to Ohio", he will not give away the store for Sears. He was wise not to for Chiquita and I suspect he hasn't done so here, either - but we need more information to know if it's really a wise calculation or an irresponsible political gamble.

 

And be honest - how many of you would change your minds if Sears said they'd build/renovate a skyscraper in a 3C city? ;)

^Good post....odds are, in Cleveland, they would end up next door to Eaton on a hilltop looking at downtown in the far distance. :wink:

archangel, I think you make good points (though honestly a skyscraper wouldn't change my mind. I would imagine it being vacant a few years down the road, hurting the office real estate market in whichever city). I especially think your point of "if there aren't better targets for this incentive money" is interesting, because it makes me think another company might jump and try to grab it before Sears can.

 

I think you're right, Kasich is not stupid. (Crazy, yes. Stupid, no.) He's playing a chess game here, and it's impossible for us to know what is going on in his head. He's all about the bold moves (rational and otherwise), and this is one of them.

People tend to focus on their own retail experiences with Sears and Kmart locations more than Sears as a company overall. Many larger retailers these days are financial firms more than they are stores. Sears makes a ton of money off of the Sears card and extended warranties. People still buy a lot of tools, home/garden equipment, appliances and electronics from them and they are making rental income off of those dentist's offices, eye doctors and whatnot. They also have those auto centers that seem quite profitable and all those home improvement/maintenance services. Sears is also very popular with Latinos. And, I bet they still own a lot of real estate.

 

So, even if you prefer buying clothing or cologne somewhere else and your suburban friends can find stuff cheaper at Wal-Mart, don't write off Sears just yet. Ever notice how they are one of the last ones to close in a dead mall? Wal-Mart might shut down before they do since Wal-Mart's success is largely based on low fuel costs paired with fancy computer systems rather than services and financial products.

 

Even GameStop has moved in a financial direction. Pre-orders? Financial instruments. Disc scratch insurance? Financial instrument. Extended warranties? Financial instruments. Notice how they're always trying to get you to subscribe to Game Informer when you're in there? They're making sure that their publishing arm continues to make money.

People tend to focus on their own retail experiences with Sears and Kmart locations more than Sears as a company overall. Many larger retailers these days are financial firms more than they are stores. Sears makes a ton of money off of the Sears card and extended warranties. People still buy a lot of tools, home/garden equipment, appliances and electronics from them and they are making rental income off of those dentist's offices, eye doctors and whatnot. They also have those auto centers that seem quite profitable and all those home improvement/maintenance services. Sears is also very popular with Latinos. And, I bet they still own a lot of real estate.

 

So, even if you prefer buying clothing or cologne somewhere else and your suburban friends can find stuff cheaper at Wal-Mart, don't write off Sears just yet. Ever notice how they are one of the last ones to close in a dead mall? Wal-Mart might shut down before they do since Wal-Mart's success is largely based on low fuel costs paired with fancy computer systems rather than services and financial products.

 

Even GameStop has moved in a financial direction. Pre-orders? Financial instruments. Disc scratch insurance? Financial instrument. Extended warranties? Financial instruments. Notice how they're always trying to get you to subscribe to Game Informer when you're in there? They're making sure that their publishing arm continues to make money.

 

All good points. I also think that there are lots of smaller, rural markets where Sears is still popular because there are only a few other competitors. They are a well-diversified company with a legacy of high quality appliances and tools/outdoor equipment that is still quite relevant today.

For $400 million in incentives couldn't Ohio just focus on growing or starting businesses in-state?