Three years after favorite son Barack Obama bolstered his home state’s profile and led a “Yes, we can!” victory celebration in Chicago’s Millennium Park, Illinois is mired in an economic funk that has nearby states poaching businesses and big-ticket employers such as Sears pondering a run for the border.
A survey of CEOs from Chief Executive magazine that ranks state business climates shows that Illinois has dropped 40 spots in the past five years, hitting No. 48 in the nation this year. Neighboring Indiana, with its balanced budget and lowered business taxes, improved 10 spots, to No. 6, in the past year.
The two states headed in opposite directions highlight what some see as decades of flawed policies and legislative disasters in Illinois.
The business community’s frustration in the Land of Lincoln is so bad that Indiana has tried to capitalize on its neighbor’s misery with a billboard and digital ad campaign called “Illinnoyed?” that encourages frustrated firms to consider jumping across the state line.
“So far 16 companies are moving all or a part of operations here,” said Katelyn Hancock, spokeswoman for the Indiana Economic Development Corp.
This year, when Illinois competed with Indiana for new investment and new jobs, Indiana won the matchup 42 out of 45 times, she said.
“Those 42 wins account for more than 4,300 new jobs and $2.1 billion in investment,” Ms. Hancock said. “There have been a number of other states modeling their economic development agencies on ours.”
Policy analysts say much of the trouble in Illinois can be blamed on a legislature, currently led by Democrats, that continues to pass tax increases and a government “culture of corruption” that has seen four of the past nine governors go to prison - including Democrat Rod Blagojevich, who was sentenced last week.
In January, in the wee hours of a lame-duck session, lawmakers in Springfield passed a $7 billion tax increase designed to fix the state’s budget woes. The measure passed on a pure party-line vote with no Republican support. With it, personal income tax went up from 3 percent to 5 percent while business taxes rose to 9.5 percent, up from 7.3 percent.
At the time, Gov. Pat Quinn, a Democrat, said the state’s financial condition required drastic action.
“The state was careening to bankruptcy, to fiscal insolvency. Even in the last couple of months, we got seriously much more dire. The idea here is a temporary income tax to deal with the immediate fiscal emergency the state faces,” he told reporters after signing the bill.
But some critics say the tax increases have stymied an economic turnaround in the state.
“Illinois has these huge tax increases, and it turns right around and has pledged hundreds of millions of dollars of tax revenue to keep businesses here,” says Steve Stanek, an economic policy analyst at the Heartland Institute in Chicago. “They are imposing huge tax increases on Illinois residents and businesses and then are handing huge tax breaks to the largest and most powerful businesses.”
Lawmakers have been forced to dangle tax breaks to employers like CME Group Inc. and Sears Holdings Corp. to keep the firms in state.
“A lot of lawmakers have been getting an earful from citizens who are fed up,” Mr. Stanek said. “They see the unfairness of taxes being raised on them and handed to the most powerful businesses.”
Since the tax increases went into effect in January, Illinois has lost more than 89,000 jobs, he said.
“We have a state government that is corrupt. We’re the only state in the nation where two former governors will be in federal prison at the same time,” he adds. “Illinois has a long, disgusting legacy of pay-to-play politics. There’s a price to pay if you want to do business in Illinois - it’s corruption, higher taxes and fees and regulations.”
Like Mr. Stanek, John Tillman, CEO of the Illinois Policy Institute in Chicago, says the most recent tax plan has done little to fix the state’s economy.
“The money was allocated almost exclusively to make the public employees’ pension payment when the promise was that money was to be used to pay down past-due debt and reduce debt,” Mr. Tillman said. “The bottom line on that is they won’t cut spending in order to fulfill their pension obligations and other core services. They have increased spending using the new tax revenue.”
The Illinois Policy Institute teamed with the Manhattan Institute in September to poll state residents about the legislature’s tax remedies to solve the budget crisis. The survey of likely voters found that 82 percent oppose the lack of spending decreases and tax increases, with just 15 percent favoring such measures. Of those responding, 42 percent were Democrats, 24 percent were Republicans, and 26 self-identified as independents.
• Andrea Billups can be reached at andreabillups@hotmail.com.
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