United Continental Holdings, parent of United Airlines, is giving back $5.6 million in City of Chicago tax incentives.
The incentive money is tied to United's 2007 move to its corporate headquarters at 77 W. Wacker Drive, along the Chicago River.
Because of United's recent plans to move out of that building and consolidate its headquarters into Willis Tower where it has other operations, the airline said it was "appropriate" to return the money. However, it wasn't necessary.
City officials said United had so far fulfilled its obligations for receiving the money, such as maintaining a minimum employment level in the 77 W. Wacker Drive building, and that the incentives would have traveled with the company as it moved several blocks down Wacker Drive to Willis Tower.
"I commend United Airlines on an incredible act of corporate citizenship that speaks to the unique role Chicago's business community plays in the future of the city," Mayor Rahm Emanuel said in a statement.
United said it will give back $5.6 million it already received in Tax Increment Financing, or TIF, a funding tool used by Chicago to promote investment in the city.
United will also forgo up to $9.7 million more in TIF money that the city would have paid the airline, for a total of $15.3 million. However, United probably wouldn't have received the remaining $9.7 million because the money was tied to its fuel consumption at O'Hare International Airport.
"We were unlikely to ever realize the incremental $9.7 million anyway because of our improving fuel efficiency and reduced capacity," United spokeswoman Christen David said, referring to the airline's business strategy of reducing its overall flying by operating fuller planes.
The giveback does not include $35.9 million in TIF money tied to a separate 2009 incentive agreement that involved moving 2,500 workers from Elk Grove Village to Willis Tower.
"Since we are vacating 77 W. Wacker, which we redeveloped with the help of city economic incentives, we feel it is appropriate to return the funds we used for that redevelopment," David said.
The airline decided it should not combine the incentive agreements for the two locations. "This decision does not have any impact on the agreement for Willis Tower," she said.
The move to return money might seem surprising, coming from a company with thin profit margins in an industry that has struggled. Flight cancellations during superstorm Sandy caused a financial setback of $90 million in revenue and $35 million in profit for the month of October, United said last week.
"I do think this is rare," Joe Schwieterman, a professor in the school of public service at DePaul University, said of giving back incentive money. But in general, companies like to maintain their flexibility and can be hamstrung by a requirement for a minimum employment level at a certain location, he said. United's TIF agreement called for a minimum employment of 315 over 10 years, starting in 2007 at 77 W. Wacker. A 10-year commitment "is an eternity in the topsy-turvy world" of business, he said. "And employment guarantees can be an albatross around senior management's neck."
When United finishes the move, it will have more than 4,000 employees in Willis Tower, far more than the approximately 2,800 they were required to have for both TIF agreements.
United CEO Jeff Smisek said in a letter to Emanuel last week that the airline will consolidate into Willis because it "will be a critical factor in building a common company culture and greater operational efficiency, which we view as keys to our success."
He said United has met the commitments in its incentive agreements on the headquarters building. "However, now that we are relocating co-workers to Willis Tower, we believe it is appropriate to terminate those agreements and repay the city funds we have received," Smisek said in the letter.
United currently leases about 625,000 square feet in Willis. The airline secured another 205,000 square feet in the building and extended the term of its lease through 2028, according to Smisek. The airline expects to finish building out the additional space by the second quarter of next year, according to Smisek's letter.
The mayor's office called United's Willis expansion "one of the largest office space commitments in Chicago's history."
United is the fourth company to return TIF funds recently, according to the mayor's office. The others are CME Group, CNA Group and Bank of America, which together returned some $34 million in TIF money last year. CNA and Bank of America fell short of the 2,700 or so jobs each was required to keep in exchange for the tax breaks, which helped them update buildings. However, they returned the money earlier than they had to, a city spokesman said.
The returned money goes back into the TIF program and will be used for other projects.
gkarp@tribune.com
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United returning $5.6M in tax incentives
