CME's Duffy Reluctant To Give Illinois More Time On Tax Break

The Chairman of CME Group Inc. (CME) told Illinois lawmakers late Tuesday that the derivatives exchange would have already accepted "very, very lucrative" offers from other states if the company was determined to leave the state.

However, Chairman Terry Duffy indicated during his testimony that he would be reluctant to grant the legislature more time to consider reducing the exchange's tax load.

House Revenue and Finance Committee Chairman John Bradley requested more time, perhaps delaying action until a special session at the end of this month.

Duffy explained that he couldn't limit the options of CME's board of directors, which is considering leaving Illinois after 163 years as the exchange's home base.

"I will do what I need to do in the best interests of the shareholders of CME Group," said Duffy, who intends to remain at the state capital in Springfield the rest of this week.

The committee did not take action Tuesday night, but Bradley indicated the panel will work through the issue "as quickly and as thoughtfully as we can."

"We've got to get this right, because there's too much at stake," Bradley also said.

CME and options exchange CBOE Holdings Inc. (CBOE) complain they were hit too hard by the corporate tax increase adopted by the legislature in January to fill the state's gaping budget holes.

The tax rate rose to 7%, from 4.8%, costing CME an additional $50 million a year, according to Duffy.

Duffy said it is "not acceptable" that CME accounted for 6% of the state's entire corporate tax collections even before the legislature raised the tax.

A bill being considered would cut taxes by about half for the two exchanges. The key provision would sharply reduce what CME and CBOE pay for electronic derivatives trades.

The state would tax the exchanges for only about 27.5% of electronic trades, rather than for all of them.

"We are not here for a handout," Duffy assured the committee. But, it's his "legal fiduciary" duty to explore other options, Duffy also said.

To win support from both parties, the legislation has broadened in scope to include tax breaks to encourage Sears Holdings Corp. (SHLD) to remain in Illinois, and a multiyear extension of a research-and-development tax credit for all state businesses.

At the urging of the state's Democratic governor, Pat Quinn, the bill would provide tax relief for Illinois workers.

The tax break for CME and CBOE would cost the already cash-strapped state approximately $85 million over two years, said House Majority Leader Barbara Flynn Currie, who's the second in command in the Democratic-controlled Illinois House of Representatives.

A senate committee endorsed the proposal two weeks ago, but Democratic Senate President John Cullerton said the bill needed Republican support for passage.

If CME departs, Duffy said it would move its Globex electronic control center from its Aurora, Ill. facility. All that would remain would be the trading floors at the Chicago Board of Trade, which accounts for less than 5% of CME's business, Duffy also said.

Under a new deal, CME's chairman said the exchange operator would continue to pay $60 million a year in Illinois taxes.

"I would appreciate [for lawmakers] to look at it as an apportionment issue," said Duffy.

"We are not threatening anybody," Duffy told committee members.

-By Howard Packowitz, Dow Jones Newswires; 312-750-4132; howard.packowitz@dowjones.com

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