Illinois facing jobs assault from other states

Even as Illinois Gov. Pat Quinn hailed the start of a construction project Tuesday that will create 1,200 short-term jobs, Indiana and South Dakota kept up a push by other states to chip away at Illinois' vulnerable economic image and lure jobs away.

Quinn announced a $146 million infrastructure project at a Ford Motor Co. assembly plant on Chicago's southeast side, which he said would ease rail and vehicle congestion. But Blue Island, Ill.-based Modern Forge Cos., which makes truck, RV and aerospace parts, at the same time announced plans to expand in Indiana and possibly leave Illinois entirely. It plans to hire up to 240 people in permanent jobs over the next three years.

"I don't think it takes a genius to figure out the business climate in Indiana is better than Illinois, and that's been coming on for a long time," said Modern Forge general manager Patrick Thompson, who said he expects a large number of the company's 275 Blue Island employees to take jobs 35 miles east in Merrillville. The company will close the 97-year-old Blue Island plant if its new facility does well, he said.

"It's not just about state income taxes," Thompson added, citing worker's compensation costs and other factors.

The move fueled more debate over Illinois' business climate, and how much its recent corporate and personal income tax increases have damaged its image among business owners. While some Illinois business leaders commented that states in the area should stop bickering and work to develop a regional economy, Indiana's secretary of commerce said Illinois' high taxes and battered image make that unlikely.

Illinois' corporate tax-rate increase, from 4.8 to 7 percent, was intended to help ease the state government's multibillion-dollar budget deficit. But it made the state a target for Indiana, New Jersey and other states trying to lure businesses away. Over the past month, a smiling South Dakota Gov. Dennis Daugaard has joined the dogpile, asking via direct-mail postcards sent to businesses in Illinois, Minnesota and California, "Tired of taxes? Call me."

Quinn, for his part, talks up Illinois' successful bid last year to keep Navistar International Corp.'s headquarters in state, and bring about 1,000 jobs with it from Indiana.

For months now, though, a number of Illinois businesses have said they just might leave if the state doesn't listen to their complaints.

Quinn, as he announced the Chicago project, said Illinois made Modern Forge an offer to stay and maintained that the state remains the cornerstone of the Midwest's economy.

"I wish they would stay here. We did make, I thought, a generous offer to them, but it's their choice," he said. "We're a regional economy in the Midwest and I think it's very important to understand that Illinois is the capital of the Midwest and always will be, and we are the biggest economy."

Illinois Chamber of Commerce President Doug Whitley has been a harsh critic of the income tax increase, but he said regional cooperation makes far more sense than the scrambling states are doing now to lure jobs from each other. It's an argument many economists make, too, saying that working to draw companies from one location to another doesn't create new jobs.

"The reality is, our economies are very much intertwined; when a plant is built in Indiana there's a very good likelihood that they're getting products and they're getting components from Illinois," Whitley said. "It is in Illinois' interests to have a better relationship with our neighboring states."

Indiana Secretary of Commerce Mitch Roob, though, said his state sees no benefit in trying to work with its higher-tax neighbor — particularly given how its image has suffered since the tax increase.

"We've got to differentiate ourselves nationally and internationally from Illinois," he said. "It would be better for us if Illinois were perceived as a business friendly state. … As long as Illinois is not a competitive location from a tax standpoint, there's no way we can market with them."

Indiana Gov. Mitch Daniels, who was in Merrillville on Tuesday for Modern Forge's announcement, has said state economic development officials have met with more than a dozen unhappy Illinois companies since the tax increase in January. State officials have said that, as of earlier this month, 13 Illinois companies have pledged to move about 1,000 jobs to Indiana this year.

After hearing companies like Caterpillar Inc. complain about the state's business environment and others like CME Group, which owns the Chicago Mercantile Exchange and the Chicago Board of Trade, threaten to leave, Illinois lawmakers have been holding hearings on the tax increase. The third was held Tuesday in Springfield, with one more planned later in Marion.

A spokeswoman for Senate President John Cullerton, who called the hearings, said he won't comment on what — if anything — could come from the hearings until after they're finished.

No surprise, business owners and trade groups have told lawmakers they'd like the tax rate to be dropped.

"Illinois should never have a higher corporate tax rate than our neighboring states," Whitley said.

Whitley doesn't expect radical changes from the hearings, but he is optimistic that the bait Indiana, South Dakota and others are throwing in the water may eventually have an unintended effect in Illinois.

"I think that the other states that are doing that are doing us a favor in that they're raising the consciousness of Illinois politicians," he said. "They have to be concerned about the business climate in Illinois that would cause a company to want to be someplace other than Illinois."