State leaders ignored Caterpillar’s needs for a decade, then showed no remorse when it was too late.
Illinois is experiencing an exodus. Simple policy changes could drastically improve the state.
C aterpillar was a proud Illinois company for nearly a century, but for the past decade, the clearly outlined needs from its CEO were ignored by elected leaders.
Former CEO Doug Oberhelman was serving on a state advisory panel in 2012 when he wrote that, although his company was growing, it wouldn’t grow in Illinois unless state leaders got control of their spending, taxation, and workers’ compensation costs. He warned that Caterpillar was not alone in those worries, especially when other states offered more fertile conditions to increase revenue and the number of jobs.
“Let me be clear. Caterpillar is not threatening to leave Illinois,” Oberhelman wrote. “Rather, we want to grow our presence in the state. For Illinois to really compete for new business investment and growth, the state must address these matters.”
The state didn’t. Now Caterpillar is moving its corporate offices and 240 workers to Irving, Texas.
And Oberhelman was right about Caterpillar not being unique in its needs. Illinois lost 1,000 workers and the Takeda Pharmaceuticals headquarters to the Boston area. Boeing is moving its headquarters from downtown Chicago to Virginia. And Citadel, a venture capital firm managing $50 billion in assets, just announced that it is moving its headquarters from Chicago to Miami — a move prompted by Illinois taxation and Chicago crime.
“Chicago will continue to be important to the future of Citadel, as many of our colleagues have deep ties to Illinois,” founder Ken Griffin said in a note to his 1,000 Chicago employees, explaining there would still be an office in the city. “Over the past year, however, many of our Chicago teams have asked to relocate to Miami, New York, and our other offices around the world.”
The snapshot of Illinois’s issues includes shrinking population (a loss of nearly 114,000 last year), growing taxation (No. 1 burden in the U.S.), unbalanced state budgets (21 deficits in a row), a public-pension monster ($313 billion deficit), and ballooning property taxes that eat up house values (average rates in Illinois are the second-highest in the nation).
It’s no wonder people and corporations are leaving.
But the tragedy is that these are public-policy issues that are relatively easy to fix. There is a lot to gain if state leaders listen to those advocating the well-being of all Illinoisans, rather than continuing their political tradition of sacrificing the state’s future to offer short-term gains to powerful special interests.
However, there’s no indication that Governor J. B. Pritzker gets it. He downplayed the Caterpillar move, and he did his best to aggravate the highlighted issues with $5.24 billion in new taxes, including $650 million specifically targeting businesses.
So here’s what the state’s elected leaders need to fix, along with the repair manual.
Reform public pensions: State lawmakers realized nearly a decade ago that there was a public-pension crisis, with too many promises made to government workers at state and local levels. Those promises and the compounding annual raises are driving up state taxes and local property taxes to nation-leading rates. The Illinois supreme court scuttled lawmakers’ pension fix as unconstitutional, meaning the Illinois Constitution needs to be amended to allow the changes.
If the state passes an amendment to allow for controlling the growth in future benefits, there is a “hold harmless” pension-reform plan that would tie all pension cost-of-living adjustments to inflation rather than a fixed, 3 percent compounding annual raise. This would save $2.4 billion for the state budget in the first year and more than $50 billion by 2045. It’s worth noting this would increase required government contributions to fully fund retirees’ promised pensions as well, rather than the state’s meek goal of 90 percent funding by 2045. The proposed plan is also politically popular, with polling showing enough support to pass on the ballot.
Public pensions eat up more than 25 percent of the state budget, so fixing them is the path to ending deficits and the constant cuts to public services. Reform relieves the property taxes that were driven up by education and local government pensions.
Cut government: Illinois leads the nation, by far, in its number of government units. All those units (nearly 9,000 in all) come with pricey administrative overhead. If Illinois targeted only its 852 school districts for consolidation to reflect the national average, there would be an extra $732 million per year for classroom instruction, property-tax relief, or both.
Curb government unions: Illinois grants too much power to its public-employee unions, allowing their contracts to override state law and letting teachers strike when no neighboring state grants that power. But the government unions through their political clout are making another power grab: Amendment 1, on the November 8 ballot.
If it passes, Illinois would be the only state to enshrine government-union power in its constitution. The proposal is so broad that even state prisoners could unionize, and the sort of militancy embodied by the strike-happy Chicago Teachers Union would be encouraged. Increasing that power also means taxpayers would be expected to pay for whatever was demanded while their elected representatives would have little power to push back.
Reduce regulations: Illinois imposes nearly 260,000 regulations on its businesses and workers, ranking No. 3 in the nation. These are especially tough on small business owners, who in 2018 ranked Illinois the worst state in the U.S. for business friendliness. That’s especially concerning for Illinois, as most of its jobs come from small businesses. While regulations keep food safe, does government really need to dictate hair-braiding standards?
State policies on which businesses needed to close and for how long amplified the impacts of the Covid-19 pandemic. Illinois is still missing 146,300 jobs as its economy lags the nation in its pandemic recovery.
Budget better: Each year, state lawmakers and the governor pretty much repeat the previous year’s budget, add some fresh pork and increase for inflation, resulting in ever-growing state budgets that outstrip revenues. They got away with it again this year, thanks to an infusion of federal Covid-19 money, which should have been used to fix the multi-billion-dollar hole in the state unemployment trust fund that threatens to bring new job-killing payroll tax hikes.
Better budgeting would include assessing department performance data and cutting programs that are unnecessary for or unsuccessful at serving Illinoisans. A spending cap tied to the state’s economic health and guaranteeing that each fiscal year ends with a balanced budget would also be solid steps, all made easier if reforms were passed to control voracious public pensions.
State political leaders ignored Caterpillar’s needs for a decade and then showed no remorse when it was too late, so it takes quite a bit of optimism to hope for better. But faith, grit, and innovations that plow prairies and move earth are elemental parts of the Illinois character.
We will make the mechanical repairs that again get our state moving forward.