Illinois economy poised for improvement, says extensive new Illinois Chamber study

Feb 23, 2016

As the state’s legislative session begins in earnest, we need to acknowledge a new report that gives us a road map to improving the Illinois economy. We need to recognize that the state’s economy was sorely lagging behind the national economic recovery, so jobs were not being created, unemployment was excessive, and people were steadily abandoning the state. The good news is that this new study points to strengths, and paves the way for Illinois to quickly choose which weaknesses it can fix.

For example, if things are so great in Illinois, why is it that the state continues to lose a Congressman every 10 years? That’s just one of the downsides to losing residents.

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From 2000 to 2013, Illinois experienced a net population loss of 786,638. The 2015 census data revealed Chicago experienced the 6th greatest population out flow among U. S. metro areas. Most importantly, why was there no concerted effort to halt and reverse a troubling trend that erodes and undermines the ability of the state to finance its government?

Population trends have a direct economic bearing on retail sales, purchase of personal services, real estate transactions, commercial and residential construction, improved public infrastructure and tax receipts.

There are fewer workers in the state to assume the burden of the increasing cost of government. It should be apparent that increasing the number of jobs and growing the population is in the best interests of all taxpayers.

Illinois’ greatest failings were to take the state’s historic economic standing for granted, deny competition exists for jobs and investment, ignore critical indicators that the capitalist engine sustaining all government spending is sputtering in Illinois and assume there would be no economic consequences for political decisions.

The belief that simply being the fifth largest state in the union, the center of the third largest metropolitan market in the country and the 20th largest economy in the world was sufficient to hide a long running deterioration of the state’s status when compared to other states’ economic progress was short-sighted and downright neglectful.

There remain many positive points about Illinois’ natural attributes, transportation advantages, business successes, economic opportunities, a world class city and an attractive quality of life, but the sense that the state has a robust economy, stable political leadership and a predictable future is sorely lacking.

A majority of 2014 voters recognized Illinois has been moving in the wrong direction. It was easy to see the abandoned industrial sites, empty retail stores, and vacant office space throughout the state. Everyone knows a friend, neighbor or relative who has left Illinois for either better employment prospects or out of frustration and disillusionment for a state that repeatedly demonstrates governmental dysfunction and routinely fails to address obvious problems. It is not uncommon to experience a psychological strain and a tinge of embarrassment when Illinois citizens travel and find themselves in conversations that require them to stand up for the home state’s reputation. For many Illinois residents the most painful insult of all is the realization that their children and grandchildren aren’t likely to make Illinois their home.

The new Illinois Chamber Foundation report on economic competitiveness shows the social and economic indicators are compelling. The report documents past experience, establishes a base line from which to compare future progress or regression during the Rauner years, and offers insight and guidance for promoting economic growth and an improved standard of living for Illinois.

In order to improve the household incomes and relative standards of living for the people of Illinois elected officials should be attentive to economic indicators and assume more responsibility for improving basic measures such as: 1) growth in Gross State Product; 2) growth in non-farm employment; 3) growth in median household income; 4) percentage of personal income allocated to state and local taxes; 5) unemployment rates; 6) private sector job growth; 7) growth of per capita personal income and 8) the percent of the population living in poverty.

Illinois’ current standing is not good.

  • Growth in Gross State Product significantly lagged the national economic measures from 1998 to 2013. While the U.S. average grew by 91% Illinois grew by only 68%. While the national economy improved during 2011-2013 GSP data revealed Illinois lagging recovery in regional industrial states Michigan, Indiana, Ohio and the U.S. average.
  • In the Great Lakes Region Indiana, Ohio, Michigan and Wisconsin all surpassed the average personal income per capita growth recorded for Illinois residents from 2000 to 2013.
  • Illinois ranked 46th in non-farm payroll employment growth from 2000 to 2012. During that time non-farm employment growth in Illinois was 2.7% while the national average was 10.3%.
  • In 2014, Illinois ranked 25th and slightly higher than the national average in median household income. In 1984 Illinois ranked 17th in median income. There has been a steady decline in this key measure of individual prosperity for Illinois residents.
  • In fiscal year 2012, Illinois residents allocate 10.2% of income to state and local taxes. Illinois residents assumed the 13th highest state and local tax burden among the 50 states. The tax burden was higher than the national average, the average for the Great Lakes states, the average burden for Right to Work States and the average burden for non-right-to-work states.
  • Although improved in the last two years, Illinois’ long-term unemployment rate from 2000-2013 was more than a full percentage point higher than the national average.
  • Illinois experienced net employment gains in 2014, but still ranked 47th in state job growth. Even worse than the ranking of 46th in job growth between 2000 and 2012 when the nation suffered a great recession.
  • Personal income per capita growth in Illinois was 8 percent below the national average from 2000 to 2013.
  • In 2013, 14.7 percent of the state’s population, 1.85 million, was defined as living in poverty by the U.S Census Bureau. The percent of the Illinois population living in poverty closely mirrored the national norm.

Numerous comparative business narratives exist to help elected officials determine pro-growth business environments and favorable fiscal conditions. Illinois consistently appears on the least favorable end of the scale and frequently in the lowest percentile.

Northwood University’s competitive index for 2014 moved Illinois’ competitive ranking from 46th to 39th. The Beacon Hill Institute Competitive Ranking of 2013 placed Illinois 45th. CNBC ranked Illinois 27th most favorable business climate. Forbes Magazine’s Best States for Business ranked Illinois 38th. The Tax Foundation’s 2014 State Business Tax Index ranked Illinois as the 31st most favorable jurisdiction among the states. The American Legislative Exchange Council-Laffer study determined Illinois’ economic performance as 46th during the decade of 2002-2012. The Kauffman Foundation’s Index of Entrepreneurial Activity in 2013 identified only 9 states with lower scores than Illinois. The Mercatus Center at George Mason University 2013 report ranked Illinois as the state with the worst fiscal condition in the nation.

The challenge for Gov. Rauner’s administration and the rest of Illinois’ elected leadership is to improve on the state’s current status among at least some of the multiple measurements available to guide policy. The state’s economic slide has gone on for too long. There needs to be a collaborative and all-out effort to reverse the trends because Illinois’ future as a great state for business operations, entrepreneurship, economic opportunity and center for business excellence is at risk.

Robert Barro’s seminal 1991 work established the foundation by which to assess pro-growth government policies. Key elements are investments in human capital, education, low taxes, limited regulatory burden on business, promotion of trade and reliable government infrastructure that encourages legal stability, private investment, property ownership and entrepreneurship.

A contemporary interpretation of Barro’s research that would be meaningful to Illinois’ situation suggests efforts be applied to measurements that emphasize human development, job growth and increased household incomes.

Illinois’ political leaders should be pursuing and measuring human development policies that: 1) improve educational standards and outcomes; 2) invest in workforce development programs that are aligned with employer needs; 3) increase the absolute number of jobs; 4) increase the percentage of the population participating in the workforce; 5) increase the potential for every person to be an educated, working and productive member of society; 6) move the formerly incarcerated into meaningful work and 7) maintain high skilled advance degree programs for technology, engineering and medical training, as well as establish adequate opportunities for training skilled trades, repair and machine technicians.

Job growth requires government officials to be attentive to ever changing factors that influence private industry decision making. This includes technology, competitive markets, work force needs, modernization and the costs associated with fundamental business inputs such as the cost of taxation and regulatory compliance. Policy makers should: 1) nurture entrepreneurship and new business startups; 2) champion higher education and national laboratories while simultaneously promoting private sector research, development and innovation; 3) ease the challenges to “birthing of new businesses”; 4) embrace and introduce technology in government offices in order to reduce response time and improve efficiency in the delivery of government services; 5) reduce the burden of regulation, permitting and compliance; and 6) promote international trade.

Gov. Rauner clearly grasps the big picture and the significance of the challenges to be addressed during his time in office. Without significant improvement in employment and economic output the state’s ability to provide quality public service and resolve accumulated fiscal issues is in peril.

It is ironic that so few of the state’s elected officials appreciate Illinois’ precarious and vulnerable status among the fifty states or are willing to aggressively pursue policies to improve the state’s economic standing and reputation.

Yet, the tasks of providing a worthy environment for investment, encouraging a diverse economy, ensuring opportunity for constituents, assuring job growth, and guaranteeing the public has a financially stable government shouldn’t be a partisan matter. It should be universally expected, even in Illinois.

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