Feb. 3 (Bloomberg) -- Governors in New Jersey, Indiana and Wisconsin, angling to steal jobs from Illinois after its record tax increase, may find that employers consider a broader range of concerns as they decide their future in the Land of Lincoln.
Hours after Democratic Governor Pat Quinn signed the legislation Jan. 12 to help plug a $13 billion budget hole, the Republican chief executives began offering their states as havens for businesses wanting to avoid higher levies on personal and corporate income.
While some of Illinois’s largest employers -- Caterpillar Inc., United Continental Holdings Inc., Deere & Co. -- opposed the increases, companies from Wisconsin, Missouri and Oregon announced plans to establish operations there within days of their enactment.
Overtures by New Jersey’s Chris Christie, Indiana’s Mitch Daniels and Wisconsin’s Scott Walker are “a lot of political theater, a lot of hubris,” said Kim Maisch, director of the Illinois chapter of the National Federation of Independent Business, which represents about 10,000 small businesses in the state.
New Jersey’s state and local tax burden ranked first in the nation while Illinois ranked 30th in a 2008 survey by the Tax Foundation, a privately funded research and advocacy organization in Washington. Illinois’s corporate tax increase would move it into fourth place from 21st among U.S. states in overall business taxes, the foundation said.
Taxes matter, said Maisch, who has called for the repeal of the increases that she said “flabbergasted” her members. They are a single component of a complex mix of factors that includes workers, unemployment compensation costs and the litigation climate, she said.
“Small businesses are different than corporate America,” Maisch said in a telephone interview from her Springfield office. “Many of them have two mortgages, as opposed to the CEO in Chicago making $10 million. They’re part of their community, their kids are in Little League, and you just don’t get up and leave.”
A state’s regulatory climate and political responsiveness are also major considerations when a company is deciding to stay or move, Donald Haider, co-author of “Marketing Places: How States and Cities Market Themselves,” said in a telephone interview from Evanston, Illinois.
“It is simply not taxes and taxes alone,” he said. “Usually a tax increase is an indicator of something else going on.”
Illinois faced a shortfall of at least $13 billion in the 2011 budget year. When lawmakers raised the personal income tax to 5 percent from 3 percent and the corporate income levy to 7 percent from 4.8 percent, Republican opponents predicted the wholesale flight of businesses to neighboring states and those with lower rates.
Christie, during a meeting with business leaders today in Newark, said he will be meeting with company executives in Chicago tomorrow, and hopes to lure them back to New Jersey.
What business leaders “want more than anything else is certainty,” Christie said. “Now, both New Jersey and Illinois are providing businesses with certainty and this is my pitch tomorrow: In New Jersey you can be certain that taxes are going down over the next three years. In Illinois you can be certain that they’re going up.”
The mayor of Indianapolis, Gregory Ballard, invited readers of the Chicago Tribune in a Jan. 18 ad to take a “serious look” at his city in light of “large, new state tax increases.”
Quinn, 62, dismissed Christie and others as “folks who come from other places and engage in political theater” during a Jan. 25 news conference in Chicago.
“I’m the clean-up guy,” Quinn said “I’ve got to repair this. And that’s exactly what I’m doing.”
United Continental Holdings Inc., the outcome of a marriage of United and Continental airlines, opposed the tax increases, said Mike Trevino, a spokesman in Chicago. The company has more than 13,000 employees in the city, he said.
Deere, the farm and construction equipment maker in Moline, also opposed the tax increase, said Ken Golden, a spokesman. The Chicago-based Boeing Co., the world’s biggest aerospace company, said the tax change did not have a “significant impact” on the company’s operation, according to Chaz Bickers, a spokesman.
Navistar International Corp., the maker of International-brand trucks, announced before the tax increase it is moving its headquarters to suburban Chicago from Warrenville, Illinois, and will expand there.
“Navistar has no regrets about its decision to consolidate in Lisle, and you can quote me,” said Roy Wiley, a spokesman.
Three companies said last month they are moving into the state. Each got financial incentives to move, Quinn’s office said in press releases.
Oregon-based steel producer Evraz Inc. said Jan. 20 it is moving its North American headquarters to Chicago from Portland. Becker Iron & Metal Inc. said Jan. 21 it will relocate its headquarters to Venice, Illinois, from St. Louis.
American Aluminum Extrusion Co., based in Beloit, Wisconsin, said Jan. 27 it will build a manufacturing plant in Roscoe, Illinois.
Businesses want stability, and Illinois bought itself some, said Justin Hoogendoorn, director of capital markets at BMO Capital Markets in Chicago. Hoogendoorn argued for the increases to boost investor confidence; Illinois shares with California the lowest rating among the states from Moody’s Investors Service, A1.
“Taxes are a necessary evil, with as big a shortfall as the state had,” Hoogendoorn said.
A report issued yesterday by the Chicago-based Center for Tax and Budget Accountability said that without the tax hikes, “Illinois’ bonds would be lowered to junk status, effectively crippling the state’s ability to issue bonds of any type and paralyzing state financing.”
The center is a nonprofit think tank that studies tax and economic policy.
Even after raising taxes, Illinois will still have the lowest overall burden as a percentage of personal income of all neighboring states, except Missouri -- “contrary to the misleading spin of neighboring state governors,” the report said.
Businesses will be looking at how the state deals with its long-term debt, including more than $6 billion in unpaid bills and more than $80 billion in unfunded pension liabilities, Haider said.
“It’s the tax increase without any fiscal discipline and without any spending reforms that causes business concern,” Haider said. “That is probably more critical than the tax increase itself.”
To contact the reporters on this story: Tim Jones in Chicago at Tjones58@bloomberg.net.
To contact the editor responsible for this story: Mark Tannenbaum at email@example.com.