Illinois' job drought -- what's the solution?

Greg Hinz Blog

Tuesday, March 30, 2010

As the candidates for governor fight about tax hikes, spending cuts and the like, a far more fundamental reason exists for Illinois fiscal woes: The state's job-producing machine is all but broken.

A study by economist Geoff Hewings that I wrote about in this week's issue of Crain's neatly lays out the hole into which the state has fallen.

Illinois has lagged national job-creation rates for at least three decades. It never regained all the jobs it lost after the Sept. 11 recession. Then the new financial crisis hit, pushing the state's economy pretty much over a cliff.

The net result is that Illinois now has 475,000 fewer full-time jobs than it did in November 2000. The lost sales- and income-tax revenues from those lost positions — $2 billion a year now, and $6 billion over the decade — comprise almost half of the state's projected fiscal 2011 budget, and almost half of its cumulative $13-billion deficit.

I'd like to say that Mr. Hewings' numbers are wrong. In fact, lots of other data out there suggest he's all too right.

For instance, Aaron Renn in urbanophile blog has a neat summary of a recent Brookings Institute report — amplified with federal data — that showed Chicago losing 4.4% of its jobs between the first quarter of 2001 and the first quarter of 2009.

That's not only far worse than the nation, but worse than just about any other major Midwest city, placing us behind behind industrial burghs like Cincinnati, Pittsburgh and St. Louis, and ahead only of Milwaukee, Cleveland and Detroit.

But what do we do about it? That should be a central, and maybe the central, focus of the gubernatorial race.

Both Democratic incumbent Pat Quinn and Republican Bill Brady talk about jobs, a lot. But their solutions are night and day.

Mr. Quinn pushes a few conservative initiatives like a $2,500-per-employee tax credit for new hires by small businesses. And he's had some success, particularly crafting credits to get Ford to add a second shift and 1,200 jobs at its Torrence Avenue plant.

But his emphasis is on the spending side — notably a massive capital program — and on raising new revenues via a 33% income-tax hike to balance the budget.

Mr. Brady, in turn, goes much father down the tax-cut road, proposing to eliminate about $1 billion in business levies imposed during the Blagojevich years and talking a lot about tort reform, workers' compensation and the like. He talks a lot about the success Gov. Mitch Daniels has had in Indiana with such moves.

But I have questioned from the beginning and still do whether Brady's plan to balance the budget — 10% cuts across the board, combined with more borrowing for pensions — is feasible or sensible.

As in most things, the solution likely is somewhere in the middle. As Mike Lawrence points out in his column Monday morning, even big business groups like the Civic Committee and Civic Federation say the state cannot totally cut its way out of trouble but will need new revenues to "avoid chaos" and stabilize its finances. And even conservative groups like the Illinois Policy Institute envision pension borrowing, at least for a few years.

But ultimately, as Mr. Hewings' data suggest, Illinois needs to grow its economy to get out of trouble. And while tax and spending policies are part of that, I suspect that a lot of other factors need attention, too.

For instance, are the state's colleges and universities training the right people for the right jobs? Does the state need to focus its resources on developing a few hot sectors, or concentrate more on improving its business climate overall. Can Chicago do a better job marketing itself, and can someone get labor and businesses together for a change?

I don't know the answers. I do know we need them. Mr. Hewings' data nicely lay out the problem. Now is the time for the debate on the solution.