By H. Will Racke
Illinois is the latest state to establish a public-private economic development corporation in hopes that it will spur business investment. It’s especially needed now as the state continues to lose jobs and residents to its neighbors.
Modeled on similar groups in other states, the new Ilinois Business and Economic Development Corporation will marshal resources from the state’s private sector to showcase the advantages of doing business in the Land of Lincoln.
The ILBEDC is currently more aspirational than operational, but state officials have said that its formation was inspired by successes of quasi-public corporations like those in Florida and Texas.
Looking south for inspiration
The Sunshine State’s economic development corporation, Enterprise Florida, was created in 1996 and today comprises over 70 state government officials and business leaders. According to director of communications Stephen Lawson, Enterprise Florida has helped to diversify Florida’s economy, which has traditionally depended on its tourism and agricultural sectors.
Lawson explained that semi-public corporations can spur business investment by highlighting a state’s natural economic advantages and negotiating incentives to relocate. Enterprise Florida does not replace the state’s department of commerce, but rather acts as a marketing and recruitment firm for the state.
“Enterprise Florida are the people trying to sell the state,” he said. “The department [of commerce] handles the money and contracts of the deals that we do. We work hand in hand with them.”
Texas utilizes a similar arrangement, with the privately-funded Texas Economic Development Corporation working in concert with the Economic Development and Tourism division of the governor’s office.
The Texas EDC was established in 1991 as a tax-exempt 501(c)(3) organization. Through its Texas One program, it conducts trade and industry events, business recruitment missions, and advertising campaigns extolling the benefits of doing business in Texas.
President and CEO Tracye McDaniel says the group works effectively in close cooperation with the state government and private sector partners that include small businesses, Texas-based Fortune 500 companies, and city chambers of commerce.
“TexasOne and the Office of the Governor also maintain a strong team of allies within various state agencies as well as local economic development partners in communities across the state, allowing us to streamline the regulatory and permitting process in expansion and relocation projects,” she wrote in an e-mail.
In a recent relocation project, the Texas EDC used grants from its enterprise fund as an incentive for Toyota to move its North American headquarters from California to Plano, Tex. Similar grants were used to entice GRI Renewable Industries, a Spanish wind power manufacturer, to build a new plant in Amarillo.
Those two projects alone brought 4,300 jobs and $390 million in capital investment to Texas, said McDaniel.
The new Illinois BEDC, which is seeking tax-exempt status from the IRS, hopes to foster a similar working relationship with the state Department of Commerce and Economic Opportunity. Gov. Rauner’s directive ordered the corporation to “assist the department in carrying out its economic development work and, in particular, to lessen the burdens of government of the State of Illinois.”
The executive order did not include specifics as to the composition of the corporation’s leadership and staff, but Commerce and Economic Opportunity spokesperson Kyle Ann Sebastian wrote in an e-mail that the corporation will “will be governed by a board of directors comprised of diverse civic and business leaders from across the state.” The membership and leadership of the board have yet to be determined, she said.
According to Sebastian, the Illinois corporation will be funded entirely with private donations through the current fiscal year ending in June, and the Commerce and Economic Opportunity Department will “maintain key functions, including federal program administration, final authority over grant making, and grant and incentive monitoring.”
While that vision is similar to the models used by Texas and Florida, Enterprise Florida spokesman Lawson cautioned that loans and tax incentives alone are not enough to attract sustained business investment. “What we do in terms of incentives is just one piece of the puzzle,” he said. “A lot of companies don’t need incentives.”
Companies that decide to relocate are primarily attracted by the state’s underlying economic and tax policies, according to Lawson. He cited low personal and corporate taxes, lighter regulation, a good credit rating, and well-developed transportation infrastructure as key factors a business takes into account when deciding to locate in a state.
“All of those things are tremendously important to businesses, and not having them can negatively impact your ability to attract business,” said Lawson.
On that score, Illinois does not compare favorably to states like Florida and Texas.
In addition to well-documented budget woes and pension shortfalls, the state currently has the worst credit rating in the nation after receiving downgrades from both Fitch and Moody’s Investor Services last October.
Personal and corporate income tax rates—3.75 and 5.25 percent respectively—are in line with national averages, but Illinois has the second highest average property tax rate, according to the Tax Foundation, a non-partisan tax policy organization that advocates tax code reform. Sales taxes are relatively high, as well. A 2015 Tax Foundation Study found that Illinois had an average combined state and local sales tax rate of 8.19 percent, 10th highest in the nation.
In any case, the Illinois corporation will have to convince businesses to relocate to—or stay put in—a state that now experiences net out-migration to other states.
In a December report, Michael Lucci of the Illinois Policy Institute compiled U.S. Census Bureau data that showed Illinois’ population shrank by more than 22,000 between July 2014 and July 2015, largely the result of a domestic out-migration of more than 105,000 residents. It was the only Midwestern state with a population decline during that period.
Changing the narrative
To overcome the negative publicity of budget fights and credit downgrades, the Illinois corporation plans to highlight the state’s built-in advantages, including an extensive transportation and logistics network and a diversified economy anchored by the regional economic capital of Chicago.
As he signed the executive order, Gov. Rauner emphasized this competitive edge and hoped that the Illinois corporation would help the state recover ground lost to other states.
“ILBEDC will make us more competitive to put Illinois back in the game after years of sitting on the sidelines, idly watching neighboring states and others lure businesses and jobs away from Illinois,” the governor said in a statement.
Angela Griffin, chairman of the board at the Illinois Economic Development Association, a private organization, agreed that the new entity could be a potential weapon in the fight to prevent further business and jobs losses to other states.
“Having a dedicated state-level effort is critical,” she said. “It will change the narrative and the psychology about Illinois.”
Selling Illinois to bring back lost jobs
According to a statement from the governor’s office, the new corporation’s mission is to draw upon private sector resources to boost Illinois’ competitiveness for jobs and investment through marketing, sales, and recruitment efforts. Jim Schultz, director of the Commerce and Economic Opportunity Department, said he hopes the creation of the public-private corporation will signal a change of course in the state’s economic affairs.
“We’ve lost tens of thousands of jobs and residents to other states in recent years,” said Schultz. “The corporation will employ economic development best practices to help reverse these trends and bring businesses back to Illinois.”
Lately, the state’s jobs landscape has indeed looked bleak.
The latest regional and state employment report from the Bureau of Labor Statistics showed that Illinois shed over 16,000 jobs in the month of December alone. Many of those came from the state’s shrinking manufacturing sector, which lost 2.4 percent of its workforce that month.
The statewide unemployment rate currently sits at 5.9 percent, a full percentage point higher than the national average.
Total non-farm jobs (in thousands) by state: January 2008 vs. December 2016
Eager to rein in those losses, business groups cheered the formation of the new corporation.
“We’re supportive because we’ve seen it be successful in other states,” said Todd Maisch, president and CEO of the Illinois Chamber of Commerce. “If you are trying to retain and recruit employers, it will be the tip of the spear, and using employers in the state is the way to go.”
Even modest success on that front would be a welcome change for a state that has become used to bad economic news.