by Dave Roeder, Innovation Illinois Research Fellow
in The Southern Illinoisan 9/04/16
in The State Journal-Register 9/18/16
Which Great Lakes state has recorded the best growth rate in jobs since the onset of the last recession?
Here in Illinois, we’re conditioned to know it’s not us. The drumbeat we’ve heard of actual or almost “worst in the nation” status for things like school funding or unemployment has been too much.
So is it Indiana or Wisconsin, which loaded up on incentives to attract Illinois companies, or maybe Michigan, beneficiary of the auto industry’s rebound since 2009? No, it’s Minnesota, “land of 10,000 lakes” and even more wind-chill readings, where lawmakers in recent years have raised the minimum wage, hiked taxes on the wealthy and brought their budget from a deficit to a surplus.
Around here, we don’t hear much about Minnesota’s economic record, at least compared with certain border states that adopted right-to-work laws to chase a slice of Illinois’ bacon. But it turns out that since December 2007, private-sector jobs in Minnesota have risen 4.7 percent, or by 111,100, through this past June. So said federal data reported to Congress in July by its Joint Economic Committee. Of the other Great Lakes states, Illinois, yes, was last with 0.8 percent growth, or 41,700 net new jobs in the private sector. Michigan added 140,100 jobs over the same period, but its rate of growth trailed Minnesota’s.
The lesson here isn’t that Illinois should do everything Minnesota did. It’s that a state’s economic performance is a complicated story and you can’t predict the winners based on who has the lowest taxes, the least regulation and the greater hostility to unions. By any measure, Minnesota is a high tax state compared with Illinois. The rates it applies to companies and high-wage earners are among the highest in the country.
When companies move or expand, they aren’t voting for red- or blue-state policies. Numerous studies have shown that the driving forces behind these decisions are most likely access to customers and suppliers and the quality and depth of the local work force. Utility costs and office rents also can be factors and, whatever the industry, relocations often come down to what’s an easy commute from the chief executive’s home.
Illinois, especially Chicago, in years past has performed well by these standards. But there’s another important way in which the state is falling woefully short.
It’s the natural human desire for a little certainty. Competing is tough enough on its own, so corporate leaders want to rely on what future tax rates, both state and local, will look like. Stability is more important than the tax level itself.
And lo, what does our state provide? A soap opera, now more than a year old, tiresome to all but the political insiders, of continued budget deficits, out-of-control public pensions, stacks of overdue bills and a bond rating that is, of course, worst in the nation. Add to that the saga of underfunded schools and social service agencies at death’s door, and it’s enough to make any business executive say, “OK, how much will I and my company be billed to fix this?”
In the meantime, fewer job openings get filled and construction projects get deferred. You can see it in the federal employment numbers, which show that for the 12 months through June 2016, the rate of private-sector job growth in Illinois is about half what it was in the prior 12 months.
Just about the time Gov. Bruce Rauner seriously started butting heads with the Legislature, refusing to propose or negotiate a responsible budget, the state economy took a turn for the worse. After a period in 2013 and 2014 in which the unemployment rate here dropped dramatically, we have lost that momentum and now report one of the highest rates of any state.
There is no better evidence of the economic price for Rauner’s antics. The guy with “govern” in his title has refused to act the part, shunning legislative compromise in favor of a loser’s agenda that would gut living standards.
The best thing Rauner could do to promote jobs is to settle on a budget with the Legislature that sustainably funds state services and lowers deficits, setting tax rates that won’t yo-yo with every change in administration. There would be no Springfield chaos to scare the job creators. That’s how Minnesota “took care of business,” by finding common ground and acting in the state’s longterm interests.
The tragedy is that Rauner, who came out of private equity and went to Springfield to teach it some lessons, didn’t understand this important one.