2014 Regional Report: The Midwest

Michigan (No.45): Reinvesting in Detroit
Michigan holds the dubious distinction of being the nation’s worst-performing state (ALEC’s 2014 Rich States, Poor States report), while bringing up the rear in economic outlook, by trailing only Vermont (No. 49) and New York (No. 50). Recent metrics suggest better days ahead: Michigan led the Midwest in GDP growth (2.7 percent versus the nation’s .4 percent hiccup) between July 2013 and July 2014, says the Fed’s Chicago branch. University of Michigan Ann Arbor economic forecaster George Fulton predicts job growth over the next two years in trade, transportation and utilities; professional and business services; and construction. In Detroit, the city’s filing for municipal bankruptcy has prompted business leaders to begin reinvesting, reversing decades of decline. Statewide, the elimination of Michigan’s business tax in favor of a corporate income tax, easier access to venture capital and growth of the R&D sector have given cheer.

The Tax Foundation ranked Michigan 21st highest out of 50 states in state and local tax burden and 14th in business tax climate. Recent upgrades to incentive programs are paying off, says site selector Gigerich. Michigan spends over $6.65 billion a year on incentive programs, according to The New York Times state subsidy database.

Illinois (No. 48): Ill-Annoy
Illinois faces—or perhaps avoids facing—three serious structural problems: a yawning $45 billion budget deficit, escalating health care costs and persistent high unemployment. Illinois could be “the California of the Midwest—without the technology or the sunshine,” says Gigerich drily, referring to the state’s highly regulated business climate, abundant nuisance fees and deferred-maintenance infrastructure. Real GDP growth has lagged the U.S. recovery rate since 2010.

An Allied Van Lines survey ranked Illinois tops in the nation for out migration; border-hopping business owners blame the “Ill-annoy factor” as they cross state lines into Indiana and Wisconsin. State bright spots include energy sector expansion and slowing bankruptcy and foreclosure rates. Manufacturing continues to rebound, albeit slowly, according to the Chicago Federal survey; JPMorgan Chase predicts continuing recovery through at least 2015.

Chicago remains the business capital of the Midwest, controlling 77 percent of the state’s economy. Yet, Chicagoland’s economic metrics have trailed national rates since the late ’90s. Insiders worry that pension and unfunded liabilities reduce municipal finances to a house of cards. The Tax Foundation ranks Illinois 13th highest out of 50 states in terms of tax burden and 31st in busines stax climate. Connections play outsized roles in getting government assistance; politics “gets further involved than it should,” says BLS’ Bosman.

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