Budget crisis crushing state economy

Thursday, October 14, 2010

With statewide unemployment rates at double-digit levels for most of the year, the struggling economy has hit many Illinois families hard as jobs remain scarce for people who are out of work.

The latest state unemployment figures showed Illinois with an unemployment rate of 10.1 percent in August, slightly above the national average of 9.6 percent. The state's jobless rate has hovered slightly above 10 percent for most of 2010.

Like other states, Illinois was hard hit by the nationwide recession that started in late 2007, but economists and independent observers believe other factors are contributing to the state's economic woes.

David Merriman, professor of public administration and associate director of the Institute of Government and Public Affairs at the University of Illinois in Chicago, said certainly the national recession negatively impacted Illinois' economy but he also thinks that the state's budget crisis has been a damper on economic activity.

"I think that contributes to a lack of confidence in the Illinois economy and that makes it more difficult for businesses to expand or relocate in Illinois," said Merriman. "Consumers are nervous and a lot of service providers are nervous about the (state) budget. The best thing Illinois can do for the economy is to get its fiscal house in order."

Mark Witte, professor of economics at Northwestern University in Evanston, agrees concerns about solvency of the state and the budget crisis are dragging down the Illinois economy.

"It's getting hard for Illinois to borrow. People are concerned about the willingness of the state to pay things back," he said.

Jerry Roper, president and CEO of the Chicagoland Chamber of Commerce, which represents more than 2,600 member businesses in a seven-county region which includes Cook and Lake counties, believes uncertainty about the state economy and budget situation and the possibility of a statewide income tax increase is making businesses and consumers wary about spending money.

"I think to turn to taxpayers and businesses and say we're going to raise your taxes because the state hasn't managed money properly is not the right message to send," he said. "Where are the taxes going to come from?

Roper thinks the state needs to look carefully at its tax and regulatory policies to make sure they encourage business growth and development and don't drive businesses and jobs out of state.

Meanwhile, many union leaders believe the state's ambitious $31 billion capital program to rebuild state roads, infrastructure and schools, which was passed by the legislature last year and signed into law by Gov. Pat Quinn, is helping spur job growth and recovery in the statewide economy.

Ed Maher, spokesman for the International Union of Operating Engineers Local 150, which represents about 23,000 heavy equipment operators and other construction workers in Illinois and Indiana, said jobs and the economy were identified as the No. 1 issue in a survey of union members. He believes the statewide unemployment outlook would be significantly worse were it not for the passage of the capital program.

"While unemployment is still high, it's better than it would have been without a capital program," he said. "The capital bill has been a tremendous shot in the arm for our union and many of our members."

Merriman said direct spending on capital projects, such as new road construction and infrastructure projects, is one way to get more money into the economy and hopefully spur job growth.

In the end, however, he believes Illinois will have to address its budget mess to restore confidence in the state's economy. With the state's huge budget shortfall, he said that will likely require a combination of both tax increases and spending cuts.

"It's a very difficult situation," he said. "I think we have to be realistic about this if we want to accomplish anything."