Best & Worst States: Business Drain in Illinois

The piece below is part of Chief Executive‘s annual Best & Worst States for Business ranking. Read the full report. 

Some Illinois leaders worry that their state is resembling two things these days: California and a coronavirus patient in critical condition. Concerns include an attempt to get voters to approve a graduated-income-tax constitutional amendment and that a Covid-19-induced recession could exacerbate Illinois deficiencies, such as the Chicago public school system.

“The governor has sold this vote as a tax cut for 97 percent of the population, but the reality is that in every state that has tried to do this, including California, people who can afford to leave have left and relocated their businesses elsewhere,” says Orphe Divounguy, chief economist for the Illinois Policy Institute, a conservative think tank.

The state has already lost 850,000 people during the past decade, seen 21 percent lower personal-income growth over the last 20 years than the national average and may become the first state to go into default due to unfunded public pension liabilities of at least $137 billion.

“Hundreds of thousands of residents moving elsewhere for more economic opportunity is a symptom of the Illinois disease of bad public-policy decisions,” says Jonathan Williams, chief economist for the American Legislative Exchange Council. “Illinois is surrounded by states that are generally going in the right direction, with flat or falling corporate taxes. Plus, they are right-to-work states.”

Yet, plenty of CEOs stay for reasons like having invested heavily there or because of the highly educated millennial workforce in the Chicago area. The latter has helped Fusion Risk Management, for example, become one of Deloitte’s 500 fastest-growing tech companies in America.

“Fifteen years ago, a company like mine would have started on the coasts,” says David Nolan, founder and former CEO of the software and consulting company. “The problem is that the level of churn in those markets is really high and hard to manage. But in Illinois, we have access to a very talented base of resources in excellent” colleges and universities.

Some experts scoff at the depiction of Illinois as the “California of the Midwest.” “You see states fishing for companies in places like California,” says Jay Garner, an economic development consultant. “I don’t see many states setting up shop to try to acquire Illinois-based companies.”

Sid Diamond wouldn’t listen to offers anyway. The CEO of Flix Candy and a couple of other licensed-products manufacturers in Barrington, Illinois, concedes he’s “very concerned” about the rising costs of doing business in his home state. “But it would be very difficult to move to Wisconsin. All of our talent is right here; all of our employees are in our central office” in northwestern suburban Chicago,” he says. “We’ve had employees with us for 30 years. So you go on and hope for the best.”