 Well, former Indiana governor Mitch Daniels believes the Land of Lincoln can.
Earlier this month, Daniels, who is now president of Purdue University, shared
some of the reforms he instituted in Indiana for this special report.
“The governor of Arkansas used to say, ‘Thank goodness for Mississippi.’ When I
took office, I used to say ‘Thank goodness for Illinois,’” joked Daniels.
In many ways Indiana and Illinois are alike.
They have identical climates.
Both are states with economies largely dependent on manufacturing and
agriculture.
And both have skilled workforces, long traditions of organized labor, excellent
transportation systems and central locations.
But over the last decade, the Hoosier State has consistently outperformed the
Land of Lincoln.
For example:
Since the bottom of the Great Recession, Indiana has been creating jobs at
nearly twice the per capita rate as Illinois.
A steady stream of Illinois businesses have relocated from Illinois to Indiana.
Indiana has the highest bond rating in the United States, Illinois has the
lowest.
When a business contemplates relocating a factory or headquarters to another
state they contemplate a number of factors, not the least of which is the
overall health of state government, Daniels said.
“These businesses are making a long-term investment, they want to be sure they
won’t be hit by higher taxes down the road,” he said. “So they look at the
overall health of state government when they make their decisions.”
Todd Maisch, executive vice president of the Illinois Chamber of Commerce, noted
the inconsistency in Illinois taxation policy over the last decade.
“We had Rod Blagojevich pushing for a gross receipts tax. We had Pat Quinn and
the General Assembly pass a 67 percent income tax increase that is supposed to
sunset soon, but now they have changed their minds and are pushing to make it
permanent,” he said. “Businesses want to be able to plan and know what to
expect. Illinois has been so inconsistent in its tax policy it’s difficult for
them to plan and that makes them reluctant to invest in this state.”
Indiana, Wisconsin, Texas, New Jersey and other states have attempted to take
advantage of this perceived vulnerability by aggressively poaching jobs from the
Land of Lincoln.
Texas Gov. Rick Perry and New Jersey Gov. Chris Christy have repeatedly visited
Illinois to recruit businesses to relocate to their states.
But Indiana has been by far the most aggressive purchasing billboards throughout
Illinois that say things like “Illinoyed by higher taxes?” and touting the
taxation benefits of moving to Indiana.
Indiana economic development officials say in recent years they have lured 40
companies and more than 3,000 potential jobs to the Hoosier State.
The reason more businesses are moving to Indiana from Illinois is all about
taxes, said Travis H. Brown, a St. Louis-based researcher specializing
interstate job migration and the author of “How Money Walks.”
Since 1985, Indiana has experienced a net gain of more than 40,000 households
from Illinois. That equates to a net migration of more than $2 billion in
taxable income from the Land of Lincoln to the Hoosier State, Brown said.
“Indiana doesn’t have mountains or beaches or more sunshine,” he said. “The only
reason Illinoisans are moving there is for the jobs and the lower taxes. And
companies are relocating to Indiana because it costs less to do business there.”
Indianans pay $3,294 per capita in taxes compared to an Illinois rate of $4,512
per capita.
On the corporate front the story is much the same.
Illinois’ corporate tax rate is 9.5 percent compared to Indiana’s 7 percent.
But Illinois’ shortcomings go well beyond tax rates say businessmen with
operations in both states.
“Indiana is just a much easier place to operate than Illinois,” said Jerry Huot,
a Kankakee-area businessman who, until this year, owned convenience stores in
Will, Kankakee and Iroquois counties and continues to operate a petroleum
distribution business in both Illinois and Indiana.
Huot said he sold the chain of 12 convenience stores this year because of higher
state taxes, escalating regulatory costs and the state’s decision to raise the
minimum wage.
The minimum wage in Illinois is $8.25 per hour and in Indiana it is $7.25 an
hour.
And Illinois lawmakers are considering raising the minimum wage to $10.65 per
hour.
Huot, who employed many students and other part-time workers in his businesses,
said these wage hikes cut into profit margins and resulted in his overall
workforce being smaller because he couldn’t afford to employ as many people.
The state also increased fees to inspect his gasoline pumps as a means of
pumping more money into state coffers.
These increased costs coupled with new Obamacare mandates that also increased
costs prompted Huot to sell his chain of stores.
“My family has been operating the Baron-Huot Oil Co. for 103 years. We have
survived two world wars, the Great Depression and wars in Vietnam and Korea,”
Huot said. “But the state of Illinois and Obamacare were able to do what all of
those other things weren’t – put us out of business.”
Right to work?
For many corporate CEOs, whether a state has a right-to-work law is the ultimate
test on whether to invest in a particular state.
At least that is the contention of former Indiana Gov. Mitch Daniels, who got a
law passed in 2012 that prohibits workers from being forced to join a labor
union or pay a labor organization a representation fee.
“A lot of companies that don’t really want to talk about it publicly are
perfectly explicit about talking about in private,” Daniels said.
Shortly after Indiana passed its right-to-work legislation, Michigan followed
suit.
Daniels said the measure in neighboring Michigan passed because lawmakers feared
losing jobs and companies to Indiana.
Illinois, also an Indiana neighbor, is not a right-to-work state.
Just how much this is a factor in the migration of jobs to the Hoosier State is
a matter of debate.
“Indiana has not derived the full benefit of becoming a right-to-work state,”
said Maurice McTigue, vice president of the Mercatus Institute at George Mason
University. “Those laws generally have a lag time of three to four years before
you get to the full benefit.”
McTigue said such laws are desirable for creating a more attractive business
climate and creating more jobs.
Other economists say there are more beneficial factors for a state becoming
competitive than a right-to-work law. But they concede becoming a right-to-work
state is a competitive advantage.
“I’m sure there are some who will tell you that Indiana is growing because it is
right-to-work and it has tax policies more conducive to business growth. Those
things are helpful. But there are other things you need to complement those
decisions. You have to pay attention to the quality of schools and good
infrastructure.” said Frank Conti, the economist in charge of the State
Competitiveness Project at the Beacon Hill Institute at Suffolk University in
Boston.
Todd Vandermyde was a lobbyist who represented Operating Engineers Local 150 in
Iowa, Illinois and Indiana until last year.
He was a leader in the fight against Indiana’s Right-to-Work law and played a
role in shaping Illinois labor policy as well. Local 150 has a case pending
before the Indiana Supreme Court challenging the law’s constitutionality.
“I don’t think right-to-work laws are particularly important to businesses
located here in Illinois,” Vandermyde said. “And it’s not right that we are
legally obligated to represent people who aren’t paying us dues or
representation fees.”
As to whether right-to-work law gives Indiana a competitive advantage in
attracting jobs from Illinois, Vandermyde said he doesn’t know.
But Mitch Daniels says he does know. In 2012, he pushed a measure through the
Legislature to make Indiana a right-to-work state.
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 “In the last of our eight years we did seek legislature’s
agreement to make that move. … [Indiana] was the first industrial
state or northern state to do that since [1947], essentially. …
Almost the only time we would ever lose a competition for new jobs
it was to a right to work status. And the only states rated more
highly than Indiana on anybody’s list of top places to do business
were all right to work states.”
Tax structures
At time when Illinois taxes have been escalating, Indiana’s have
been dropping and people and businesses have been moving from the
Land of Lincoln to the Hoosier State.
This is hardly a coincidence says Travis Brown, a St. Louis
researcher who specializes in studying migration data. Ranking Chart
“People follow jobs and jobs are created at a higher rate in states
with lower taxes. Why else would Illinoisans be moving to Indiana?
They certainly aren’t attracted by mountains, beaches or sunshine.
It’s all about taxes.”
In fact, since 1985, Indiana has had a net migration of 40,000
households and more than $2 billion in taxable income from Illinois,
Brown said.
Just consider:
The personal income tax rate in Indiana is 3.4 percent and in
Illinois it is 5 percent.
Indiana’s corporate rate is 7 percent compared to Illinois’ 9.5
percent.
Indiana is phasing out its inheritance tax, while Illinois continues
to tax estates at a top rate of 16 percent.
Tax reform did not come immediately to Indiana.
Indiana faced similar economic challenges to what Illinois faces
today when Mitch Daniels entered office, the former Indiana governor
told Illinois News Network.
“The state had run seven straight unbalanced budgets — and I mean by
big margins,” he said. “It had run through its reserves and it was
in a literal debt or bankrupt position. So we said to ourselves Job
1 is to balance the budget, Job 2 is to pay the debts, Job 3 is to
put some money in the reserves to protect the state and to protect
taxpayers and then we’ll cut taxes. And that’s exactly what we did.”
Daniels said the tax on which he first set his sights on reducing
was the property tax.
“We now have one of the lowest rates of property taxation in the
country,” he said. “I can never resist pointing out depending on
which community you live in it can be from one third to one fifth of
the average rate in Illinois.”
The lower tax rates make Indiana a more attractive place for
businesses and their executives to relocate, Brown said.
Also, Daniels said Indiana is in the process of phasing out its
inheritance tax.
The reason was simple he said, wealthy individuals were retiring to
states without inheritance or estate taxes so more could be passed
on to their heirs. This meant less money was being invested in
Indiana, given to Indiana charities or spent with Indiana
businesses.
Illinois currently has an estate tax with a top rate of 16 percent.
The key to lowering taxes was cutting government spending, Daniels
said.
Daniels said he did this by creating automatic refunds to taxpayers
once government reached a certain size and had adequate levels of
savings.
“You’d be amazed how much government you’d never miss,” he said. “In
other words, people who have some very direct special interest in it
may miss it and they’ll make a lot of noise, but for the average
citizen there’s all kinds of government that the average citizen
does not benefit from and wouldn’t notice, doesn’t notice, if
there’s less of it or if it goes away completely.”
Regulatory environment
Jerry Huot knows the frustration of dealing with state bureaucrats
firsthand.
The Kankakee-area businessman operated a chain of convenience stores
across eastern Illinois for decades. In fact, his family has been in
the petroleum-marketing business for 103 years.
The company has the oldest motor fuel tax number in the state of
Illinois. So, regulations were nothing new for Huot.
But he said over the past decade Illinois’ business climate has
become repressive.
For years, a private firm licensed by the state inspected the
calibration on his store’s gasoline pumps to ensure they were
dispensing fuel accurately.
Then the state stepped in, insisted on doing it themselves and
charging gas station owners more.
“The state kept jacking up the fees to inspect our gas pumps. It had
absolutely nothing to do with covering the cost of the inspection.
They viewed it as a revenue stream because the state was short on
money,” Huot said.
Huot sold his Illinois gasoline stations this year but continues to
operate a wholesale petroleum business that operates in both
Illinois and Indiana.
“Indiana is much easier state to do business,” Huot said. “When we
interact with their state revenue department, they are much more
responsive.”
Indiana has strived to change its regulatory environment, says
former Indiana Gov. Mitch Daniels, who Illinois News Network
interviewed earlier this month.
Daniels had this to say about what business leaders ask themselves
when contemplating whether to invest in a particular state: “Is this
a place where they’re going to regulate me in an onerous way or
unpredictable way, which turns into money? Are they fast or slow
giving me guidance or answers? Time is money, I used to tell people.
It’s not just a figure of speech, its literal truth.”
Elmhurst businessman Randy Truckenbrodt agreed saying, “Indiana has
just gotten out of the way of us doing business. Illinois hasn’t.
Workers compensation costs are much higher in Illinois than in
Indiana and there are other costs that make Indiana a much easier
place to do business.”
Truckenbrodt started his business 38 years ago. It rents
construction equipment and manufactures refrigeration paraphernalia
and also does business in both Illinois and Indiana.
“What’s happening in Indiana is businesses are moving there. It
seems to be a broad spectrum of companies. We are there. We have not
received any harassment whatsoever. Here in Illinois, my business
had a sales tax audit once during its first 32 years. … But in the
last six years he has had three sales-tax audits.“
Truckenbrodt contends this is state-sponsored harassment.
“The cost to the company is huge. The state (auditors) make
unrealistic claims,” he said. “Every time, I appeal, I win. And the
state screws down tighter and tighter. … We haven’t even finished
our last audit and they are ready to start another one. I just went
in and told the auditor. This is the last one you are going to do,
because when I am done here, I’m moving the company to Indiana. …
I’m not going to spend money defending myself – if you don’t want us
here, we’ll go away.”
Truckenbrodt’s said his companies, which employ 160 people, do
business in Illinois, Indiana, Tennessee and Florida.
“Illinois is the only place I can expect to be audited year after
year after year,” he said. “I’ve always been proud to have been from
Illinois. But it recent years, when I tell people from out of state
that I’m from here, I get a snicker. And I have to say ‘I know, I
know.’ We are known for things that we just shouldn’t be known for.”
One of those things is high workers compensation rates.
According to 2014 study conducted by the state of Oregon, Illinois
has the seventh-highest worker’s compensation rates in the nation.
And North Dakota is the only state with lower workers compensation
rates than Indiana. Work Comp Comparisons
Worker’s compensation is the insurance all employers must buy to
compensate employees injured on the job.
Eric Doden, who is president of the Indiana Economic Development
Corp., said worker’s compensation has been one of the things
corporate CEOs relocating to Indiana have told him is a major factor
to their decisions.
But Doden said businesses leaving Illinois for the Hoosier State are
also disillusioned with the Land of Lincoln’s higher taxes,
regulatory environment, government inefficiency and perceived lack
of responsiveness to the needs of business.
“We would love to see Illinois improve itself – dramatically,” Doden
said. “We would love to see Illinois get better. But when they are
not getting better in what they are doing and they are consistently
underperforming as a government then we are going to continue to put
pressure on them to get better performance.“
Doden said that explains the “Illinoyed” billboard campaign his
agency is conducting throughout the Prairie State to lure jobs and
businesses to Indiana.
“We have made it no secret – we want to embarrass Illinois into
better performance. As a region, we need them to perform better.”
[This
article courtesy of
Watchdog.]
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