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A new report places Illinois in the middle of the pack when it comes to its appeal to manufacturers.
The news comes from an annual Manufacturing Scorecard produced by the Center for Business and Economic Development at Ball State University. The researchers identified the areas that matter most to the profitability of manufacturers and the factors that influence decisions on where to locate or expand facilities.
Illinois got an overall “C” grade on the scorecard, with plusses and minuses found across several different areas.
“There’s a huge logistics industry and some real advantages in some categories,” said Dr. Michael Hicks, director of the Center for Business and Economic Development, “but some stunning weaknesses, in terms of tax climate and the expected tax climate due to the unfunded liability gap.”
The state received the lowest grade possible, an “F,” on its tax climate.
“Taxes are relatively high across Illinois,” Hicks said. “In the more productive areas, outside of Chicago, where manufacturers might want to locate, they remain very high. And tax rates have been going up at a time when most other state taxes have stabilized.”
For manufacturing firms that can operate virtually anywhere, the report said that tax rates matter in location decisions.
“A generic manufacturing firm that wants to be part of a supply chain … you wouldn’t go to Illinois,” Hicks said. “You wouldn’t go to southern Illinois. The taxes are high and the communities are largely indistinctive from those in Wisconsin, Ohio, Indiana, or Michigan. It all looks the same to a manufacturer except for the tax bill.”
Illinois also received an “F” in the category of expected fiscal liability gap, largely due to unfunded pension costs. Hicks said business owners know that eventually, someone will have to pay that bill.
“The state of Illinois is the worst in the union [in that category],” Hicks said. “If you’re a manufacturer or logistics firm considering putting capital there, you’re not only facing steep taxes now, but the expectation has to be that taxes are going to rise in the coming years. Or there will be a big cut back in public services that you expect from those high tax bills.”
In a statement, Illinois Manufacturing Association president and CEO Mark Denzler acknowledged some of the headwinds.
“Illinois manufacturers … face challenges including massive pension debt, costly and onerous regulations, and high taxes along with a misguided effort to impose a graduated tax on Illinois job creators,” Denzler said.
Despite an outmigration flow over the recent years, the report gives the state good marks for human capital, largely due to the high number of productive workers with a high share of advanced degrees in the Chicago area.
The state’s lone “A” grade was given for the relative strength of its logistics industry.
“The state has done a pretty good job of keeping in mind the role of logistics in sustaining all the other things Illinois would like to be,” Hicks said. “A manufacturing place, a place that grows and ships agriculture. I think that’s one area where Illinois enjoys an extraordinarily strong advantage.”
According to a recent analysis conducted for the Illinois Manufacturing Association, the manufacturing sector employs 592,000 women and men in the state while contributing the single largest share of the gross state product.
“Illinois has many great attributes that should make us an economic engine for the nation including our central location, global airport, skilled workforce, comprehensive infrastructure system, access to water, and competitive and low- priced energy markets,” Denzler said.
Illinois is almost completely surrounded by states that achieved higher overall marks on the report card. Iowa, Indiana, Michigan, and Kentucky all received “A” grades, while Wisconsin grabbed a “B.” Hicks said one reason is that more should be expected from a state with a tax climate like the one Illinois has.
“If you have really strong schools and extraordinary productivity at universities partially supported by state funding, those are some of the potential benefits of public investment in education,” Hicks said. “If you have really high taxes and those are absent, then that’s a disincentive.”
Denzler said he remained optimistic about the future.
“If we can get the correct policies in place, Illinois is poised to lead the nation in manufacturing growth," he said.