A state known for its lagging job growth and burdensome tax and regulatory environment, Illinois received some mixed economic news during the week.
Illinois 31st in business tax climate, 45th in job growth
The results of two separate studies place Illinois in the bottom half of states when it comes to business tax climate and job growth.
According to the most recent edition of the State Business Tax Climate Index released by the nonpartisan Tax Foundation, Illinois’ business tax climate dropped two places since last October and is considered by the organization to be the 31st best tax climate in the nation.
To determine an overall ranking, the Index considers more than 100 tax variables in five important areas of taxation including corporate, individual income, sales, property and unemployment insurance tax. A state receives a less favorable ranking for overly burdensome, complex tax codes and high rates. The Index also noted a state’s ranking could change dramatically from year-to-year due not only to its own policies, but in recognition of tax-related modifications or reforms that are made in other states.
The Tax Foundation noted that “evidence shows that states with the best tax systems will be the most competitive at attracting new businesses and most effective at generating economic and employment growth.” While also conceding that “taxes are but one factor in business decision making,” the report noted that compared to reforms in other policy areas that employers pay close attention to, such as healthcare, transportation infrastructure and education, which can take many years to execute, changes to a state’s tax code can be made quickly, and rapidly and dramatically improve that state’s business climate.
Improving the state’s business climate is critical if Illinois hopes to improve its job growth ranking. A report published by Arizona State University placed the state 45th in the nation in job growth using U.S. Bureau of Labor Statistics. This is drop from the state’s 2013 ranking of 39th in the nation.
Good and bad news on local pensions
A report from the legislature’s bipartisan Commission on Government Forecasting and Accountability (COGFA) is a mix of good and bad news on municipal pensions in Illinois.
The report examined the financial status of various public employee retirement systems in Chicago and Cook County, along with the Illinois Municipal Retirement Fund.
The bad news? The eight Chicago municipal pension funds examined had a combined average funding ratio of just under 42% – meaning that they only had sufficient assets to cover 42% of their obligations.
The study also found that two Cook County pension funds are careening toward bankruptcy. Both the Cook County Employees’ Pension Fund and the Cook County Forest Preserve Pension Fund are expected to have negative funding ratios by 2038, meaning they are projected to run out of assets needed to pay pension benefits.
But, there was also good news in the report. The Illinois Municipal Retirement Fund, which covers most municipal and county employees outside of Cook County, remains the strongest public pension fund in the state, with a funding ratio of 87.6%. That is down from a pre-recession ratio of 96%, but represents a gradual climb after hitting a low of 83% in 2011.
The Illinois Municipal Retirement Fund has traditionally been the best-funded public pension system in the state, largely because local governments are required to meet annual contributions to the fund.
More good news – while many of the pension systems examined currently have poor funding ratios, these funds are projected to recover and achieve a targeted 90% funding sometime around mid-century. That’s generally due to recent reforms that established benefit changes for newly hired employees – including higher retirement ages, more modest cost-of-living increases and caps on the salary used when calculating a pension.
As employees hired under a more generous system gradually retire or leave public employment, the long-term obligations of the systems will drop for newly-hired employees, saving the systems money in the coming years.
For example, the Fireman’s Annuity and Benefit Fund of Chicago currently has a dismal 24% funding ratio, meaning it only has enough assets on hand to cover 24% of its obligations. But, thanks to reforms adopted in 2011, the funding ratio is expected to climb each year over the next 25 years, until it reaches 90% funding in 2040.
Because the reforms, most of which were adopted in 2011, impact only new hires, they have not been subject to the same court challenge as changes that were adopted in 2013. The 2013 pension changes are being challenged as an unconstitutional reduction in promised benefits. Opponents have argued that because the 2013 changes were aimed at current employees, those changes violate the constitution’s protection against reducing pension benefits once an employee has been hired.
Although the long-term projections for many of these pension systems is a reason for optimism, critics point out that those projections are contingent upon governments meeting their funding obligations and on the legislature resisting pressure to either roll-back reforms or offer more generous benefits to new hires. Reversing the 2011 reforms could quickly send these retirement systems back on the path to bankruptcy.
Three companies announce plans
In other news, Amazon Inc., Cronus Chemicals and Coyote Logistics announced plans to develop or expand facilities in Illinois.
Amazon confirmed plans to begin operations in the state by 2017, bringing with them 1,000 full-time positions. A company representative did not specify what those jobs would be, but said that the company plans to pursue a variety of different activities in Illinois.
Facility locations have not been decided, but the company is scouting possibilities around the state and noted the Chicago area is one of the potential locations.
The state also celebrated a similar announcement made by Cronus Chemicals LLC, which has chosen Illinois to be the site of its new $1.4 billion fertilizer plant. The plant will produce nitrogen-based fertilizers urea and ammonia.
The plant will be constructed near Tuscola in east central Illinois beginning in spring 2015. Approximately 2,000 temporary construction jobs are expected to be created, with 175 full-time positions once the facility is completed. At this time, 25 Cronus employees work out of the company’s Chicago headquarters.
The company chose Illinois over runner-up Iowa, though a Cronus spokesman said that the company looked at 76 sites in nine states before ultimately deciding on Illinois.
Technology company Coyote Logistics also announced plans to add 500 jobs at its Chicago headquarters.