Rockford, Illinois, has lived through more than its share of economic downturns. The most notable, of course, was during the Reagan Recession, when one in four Rockfordians were unemployed. The city climbed up out of that trough, only to lose a number of its oldest and largest manufacturers through the frenzied rounds of mergers and acquisitions that marked the Reagan Recovery.
Rockford plodded along a bit unsteadily throughout most of the 1990’s, buffeted somewhat by NAFTA but battered more by the Rockford school-desegregation lawsuit, which placed the city’s public schools under federal control from 1989 until 2002 and raised local property taxes to the highest in the nation for several years running. But just as we were beginning to see the light at the end of the tunnel of judicial tyranny, President Clinton signed into law the repeal of the Glass-Steagall banking regulations, changing the shape of the economic landscape in ways that Rockford and other manufacturing centers felt immediately, but which the rest of the country had to wait almost a decade to experience. Investment flowed out of factories and equipment and into the newly legitimized financial instruments that inflated the bubble that finally burst in 2007-08.
Many of the columns from the first few years of The Rockford Files, which made its debut in the January 2001 issue, documented the effects of that last downturn, which saw Rockford lose 25 percent of its manufacturing jobs. And while it is true that local manufacturing has experienced something of a recovery over the past few years as the rest of the country has caught up to Rockford, I cannot help thinking that the opening years of the second decade of this column are going to look a lot like the opening years of the first.
Last month, I discussed the massive tax hike that Gov. Pat Quinn signed into law in January, raising personal income taxes by 66 percent and corporate income taxes by 45 percent. Even before Quinn signed the law, businesses began threatening to leave Illinois. For some, the process will be relatively simple; Jimmy John’s Gourmet Sandwiches is considering moving its corporate headquarters from Champaign, Illinois, where it employs 100 people, to Florida, where its founder, Jimmy John Liautaud, already lives. Other companies, such as FatWallet, which does most of its business through the internet, are considering moving across the border to Wisconsin, Indiana, or Iowa.
But here in Rockford, manufacturing still accounts for 20 percent of all jobs, and another 20 percent are dependent, in one way or another, on manufacturing. How will Rockford’s manufacturers react to the tax hike? Moving a factory, after all, takes a bit more effort than moving the headquarters of a fast-food chain or the main operations of a web-based company.
Dean Olson, chairman of Rockford Acromatic and vice chairman of The Rockford Institute’s board of directors, was looking at a magazine on industrial relocation when he received my e-mail asking for his thoughts on the long-term effects of the tax hike. Dean pointed out that, for most companies, “whether to wait it out or to leave is a question of scale.” Some undoubtedly will leave, “and every one who does undercuts the revenue projections,” which means that the tax hike will inevitably accomplish less than the governor and the legislature hope. And, as Dean notes, the new taxes are only expected to bring in $6 billion, while the current budget deficit is projected at $15 billion.
Bob Trojan, president of Rockford Linear Actuation and former chairman of the Manufacturers Council of the Rockford Area Chamber of Commerce, finds a ray of hope in the fact that the new tax rates will sunset in 2015 (though they won’t return to 2010 levels). Most manufacturers considering a move would not be able to do so immediately, and any delay brings them closer to the promise of lower tax rates. Moreover, “it would also depend if another state would offer additional relocation incentives.” While “Indiana and Wisconsin can make a lot of noise that they have a better business climate, . . . who’s to say that their taxes wouldn’t go up either?”
Bob has a point: Illinois is in worse shape than most states, but there are very few states that haven’t overextended themselves. The chickens may simply be coming home to roost a little sooner here.
In the end, though, another change that Governor Quinn signed into law might tip the scales: Illinois has reinstated a tax on estates of more than two million dollars. As Dean Olson points out, “this is the type of tax that brings in next to nothing in revenue and sends older guys, like me and my brother, who own businesses out of state quicker than you can blink.” There is no sunset on the estate tax, but by making it more expensive to transfer a business from generation to generation, it may bring the sun down on manufacturing in Illinois, even for those manufacturers who decide not to move.