Why The Chicago Area's Powerhouse Economy Can't Jumpstart Stalled Illinois

With the Chicago region robust and Downstate in a prolonged economic funk, fixing Illinois may be harder than the political talking points suggest.

Illinois is surrounded by what some tout as financial role models, states with sterling credit ratings, healthy pension systems and expenditures pretty much in line with revenue. Each also passes a budget—and on time.

None of those conditions describe present day Illinois, and the deficiencies are at the heart of its nearly 2-year-old budget stalemate.

Even so, when it comes to the daunting economic trends that define the Midwest and defy easy political solution or accommodation, Illinois is very much in sync with its neighbors. Across the region, there is a slow and relentless withering of mostly rural counties as jobs and economic wealth gravitate to metropolitan centers like Minneapolis, Indianapolis, Columbus and, especially, Chicago.

Federal data show that just 20 counties nationwide accounted for half of new businesses created in the U.S. between 2010 and 2014 as it emerged from recession. And Cook was the only county in the Midwest to land on that top 20 list.

 

“The bigger difference in the Midwest is urban-rural rather than state-to-state,” said Michael Hicks, an economist at Ball State University in Indiana who follows job trends in the region. “Economies don’t follow state boundaries. While you can pick out sort of bright spots from really rural places, a lot of that’s a mirage.”

If the concept of a “state economy” is outdated, then perhaps so too are conventional policy prescriptions for turning around a problem child like Illinois. Some experts warn that addressing the urbanization of job creation, and the void that creates in the vast stretches of geography losing out, does not lend itself to the increasingly loud populist demands for cuts in taxes and government regulation.

“I think rather than having a conversation about how to cut taxes, the conversation ought to be more focused on making the transition from areas in which employee opportunities have disappeared rather than pretending you re-grow these same jobs with the same pay. They’re not coming back,” said Michael Pagano, dean of the school of urban planning and public affairs at the University of Illinois at Chicago.

Here are some facts on the ground:

Illinois attracts justifiable notoriety and scorn due to years of financial mismanagement and political dysfunction. Indiana, Iowa and Missouri all own AAA credit ratings, while Illinois has the lowest grade of any state and may still fall further. Meanwhile, Wisconsin’s pension system has nary a leak even as state-run public employee retirement funds in Illinois are $130 billion under water.

Little wonder then that Iowa’s Republican Gov. Terry Branstad recently singled out Illinois as a negative role model. “We don’t want to go there,” he declared. “We want to be responsible.” 

Terry Branstad
Terry Branstad

Yet each of those states, along with Michigan, Ohio and Minnesota, is seeing accelerating rates of population loss and wage stagnation in rural and most non-metro counties. Sixty-three percent of Indiana’s counties have lost population since 2010. The percentage is 67 percent in Missouri and Michigan, 73 percent in Iowa and Ohio, 55 percent in Minnesota and 53 percent in Wisconsin. Illinois topped them all – 86 percent of the state’s 102 counties lost population.

The magnet-like attraction of the Chicago region defies its highly-publicized problems. Data from the federal Bureau of Labor Statistics show Chicago and its surrounding metro counties are the engine for 9 out of 10 new jobs in Illinois. It is a trend vividly underscored in recent months when farm and construction equipment giant Caterpillar announced it was moving its headquarters from Downstate Peoria to north suburban Deerfield.

“Chicago politics offends the senses, but the economic activity that surrounds Chicago says that – even if there was an implosion in Cook County – many of those businesses would say, ‘Well, we’ll just live with it,” Hicks said. “The most corrupt place in Illinois is probably the most successful economic place in the Midwest.”

Despite talk of statewide economic development strategies, the lure of investment almost always benefits large metropolitan areas. Wage data bear that out. Just three of Missouri’s 115 counties – in metro St. Louis and Kansas City – have an average weekly wage of $900 or more, while the average wage in 49 counties is under $600, according to the Bureau of Labor Statistics.

In Indiana, frequently pointed to by politicians and interest groups as a model for Illinois to follow, average weekly wages are below the national norm, in 90 of 92 counties, statistics show. 

 “People are spatially excluded from the growth economy,” Pagano said. “How do you shrink the space between where they are to where the jobs are, because the jobs are coming into the city.”

A recent report from RCF Economic & Financial Consulting, Inc. said 85 percent of Illinois’s job gains since 2009 have gone to Chicago and the 7-county region, citing the growth of service sector positions.

 “Moreover, because Chicago is less reliant on goods-producing employment, it has been better insulated than the rest of the state from the struggles affecting both the construction and manufacturing industries,” the report said. “The difference between the Chicago area economy and the economy in the rest of the state has had and will continue to have important implications for Illinois.” 

“THE MOST CORRUPT PLACE IN ILLINOIS IS PROBABLY THE MOST SUCCESSFUL ECONOMIC PLACE IN THE MIDWEST.”

Michael Hicks, economist, Ball State University 

Caterpillar’s decision to move its headquarters to the Chicago area followed a similar one from agri-business giant Archer Daniels Midland, which moved its top executives out of downstate Decatur to Chicago. Similarly, in Indiana, power equipment make Cummins has announced it will build a new headquarters for its global distribution business in Indianapolis rather than the firm’s headquarters city of Columbus halfway between the state capital and Louisville.

“This is Chicago and other major metropolitan areas gaining at the expense of medium-sized cities,” Pagano said. “If you are in a Peoria or a community that has a single industry, there are fewer opportunities (than) in a Chicago with access to a very well-educated workforce and professional opportunities.”

 One of the problems facing rural areas is that they have been slow to recover from the Great Recession. Pagano said property tax revenue is still below pre-recession levels in many communities, making it increasingly hard to pay for services people want and need.

"All of the incentive is to go to the cities - schools, amenities, an educated workforce, higher-paying jobs," Ball State's Hicks said.

"This isn't about state taxes attracting employers. Look at California and Massachusetts, where taxes are high. They're doing just fine," Hicks said.

Read this story at Crain's Chicago Business

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