Tipping Point: Businesses crossing state lines for cheaper cost

Tipping Point: Businesses crossing state lines for cheaper cost

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CHICAGO (FOX 32 News) -

For those who ask, "Why does Illinois have the highest unemployment rate in the Midwest?" this is why.

"They do not make -- the state is not helping you grow your business," Deron Lichte, owner of Food Warning Equipment Co. explains. "They're placing hurdles in front of you."

Deron Lichte told us last summer why he moved more than 100 jobs from a now-empty factory in the Northwest Suburbs to a new plant in Tennessee. He said it's less expensive to do business there and his company would make more money.

"I loved Illinois," he said. "It's where I grew up. It's where I raised my family. I didn't want to move. It's sad to move. You know you're disrupting and changing people's lives."

Factory owners dominate the ranks of those leaving. Some simply cross the state line in search of lower costs. Kenall, Hanna Cylinders, Emco Chemical and Noark Electric are among Illinois companies recently exiting to Wisconsin.

Indiana says at least 31 Illinois-based employers have recently moved 2,700 jobs to the Hoosier State; virtually all manufacturers, including Blue Island-based Modern Drop Forge in the South Suburbs. It's still owned by the Heim family who founded it.

"My family's been in business in Blue Island for 97 years," Modern Drop Forge owner Greg Heim says. "To make a move like this, besides being a business move, it's also a very emotional move."

Indiana increased recruiting of Illinois jobs in 2011, the year Illinois raised its income tax by 67% and made its corporate income tax highest in the nation. Indiana touts its new right-to-work law that weakens the power of labor unions. And it boasts the lowest cost in the country for workers compensation, a program for employees injured on the job. Illinois's cost is 4th-highest in the country.

For a $50,000-a-year worker, Illinois employers pay about $1,415. Employers in Indiana: $580.

Here's what that may mean for Modern Drop Forge, when it moves next year to this new factory in Merrillville, Indiana.

"What I understand is that, when they move to Indiana, they're going to save $300,000 to $400,000 a year just on their premium for workers comp," Donald Peloquin, the former mayor of Blue Island explains.

Business groups who worked with Modern Drop Forge claimed one non-financial factor played a big role in the company's eventual decision to leave Illinois.

"They were reaching out to State Senator Emil Jones, who was President of the Illinois State Senate at the time. And their state senator. And they felt that they were totally turned out," says Douglas Whitley, CEO of the Illinois State Chamber of Commerce. "No responsiveness whatsoever, no contact, no return phone calls. And I think that might have been the proverbial straw that broke the camel's back. Next thing you know, Modern Drop Forge is announcing that they're going to invest $35 million in Indiana and they're going to move their jobs to Indiana."

Contacted by FOX 32 News, Former Senate President Emil Jones said he did not recall ever hearing from the owners of Modern Drop Forge. Governor Quinn said Illinois made a "generous offer" to the company in an effort to keep it. Repeated phone calls to the company drew no response.

A spokeswoman for Governor Quinn's Administration said, "This idea of businesses fleeing the state is a myth." She cited a study claiming that, in 2012 alone, companies coming to Illinois brought slightly more jobs than were taken by companies leaving.

But there's no disputing the state's long-term decline. The Illinois Policy Institute found that, 13 years ago, Illinois had 640,000 more jobs than it has now. Between 1995 and 2009, Illinois lost a net 366,616 taxpaying households and a staggering $26 billion in taxable revenue.

If, instead of shrinking, Illinois had grown at merely the national average, a gusher of tax dollars would be flowing into the state treasury. Illinois could have paid its unpaid bills, met its public employee pension obligations and avoided having its credit rating slashed to the worst of any state; all without job-killing tax increases. The state's politicians have appeared powerless to stop the decline, as noted in a recent University of Illinois study.

"I'm afraid that Illinois is getting a reputation as being a state that cannot function, the perception that individuals are out only for their own gain and only for their own political survival," says University of Illinois Professor David Merriman.

FOX 32's Mike Flannery asked the mayor for his diagnosis.

"Well, we do have the fastest-growing central business district in America," Emanuel responds. "That would not be called ‘wrong.' Because that's our muscle. We also have muscle that has atrophied. When we did our study, with Brookings Institute and McKinsey, they did show a decline in manufacturing. But they showed us actually holding our own in advanced manufacturing. There's help wanted signs all across manufacturing throughout Illinois."

He said training workers to fill those advanced manufacturing jobs would keep their employers here.

"If all you get is a high school graduation, you're as good as unemployed, unfortunately. That's where the economy is going. And we have to give everybody, starting in kindergarten, starting in elementary school, starting in high school, starting in our community colleges a total scrub and upgrade in the quality of an education."

Governor Quinn insisted things are improving as he recently snipped a ribbon in Elgin, where a Canadian company promised to hire 50 workers. The Toronto-based CEO said one key attraction was nearby O'Hare, with its connections to every corner of the world.

The mayor also told FOX 32 that, after long decades of decline, things are getting better.

"We are a health care leader, pharmaceutical leader, risk-management leader, leader in the insurance industry," Emanuel asserts. "We're a leader in the convention and hospitality industry. We have a quality of life unmatched. That's why more companies -- 25,000 jobs -- have either decided to expand headquarters or expand their presence here by adding additional jobs. Because we can out compete, out work anybody and out-distribute any product."

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