Despicable campaign by Indiana to lure Illinois companies, shows paltry results.

Enjoy this article discovered by Daniel Smolensky, SIOR in Crain’s Chicago Business.

January 03, 2015

Inside Indiana’s campaign to lure ‘Illinoyed’ businesses

By MERIBAH KNIGHT

INDIANAPOLIS—Victor Smith sinks into an upholstered armchair in his office and smoothes the wrinkles from his charcoal gray suit. It’s been a good year for Indiana’s secretary of commerce. Following the largest tax cut in state history, Smith presided over a record-breaking year for economic development that included persuading dozens of companies to jump the border from Illinois. Soon, Smith will walk across the street to the cavernous state Capitol and listen to Indiana’s Republican Gov. Mike Pence tout the relocations and expansions as proof that “Indiana is open for business.”

AR-301039989.jpg&maxw=600&q=100&cb=20150113010941&cci_ts=20150106131110Indiana Secretary of Commerce Victor Smith – KENDALL KARMANIAN

For now, though, Smith, a boyish-looking 46, is taking a few moments to show off his department’s promotional handiwork. “I love this one,” he says, pointing to one of a half-dozen snarky tag lines mocked up for potential advertisements. It reads: “Can you spell decifit? We can’t.”

Others—all conceived by Smith and his team—read: “Hoosier Santa now?” “Do you have financial envy?” “Psst, the folks who raised your taxes are on the naughty list.”

Many never made it to print, but the ribbing probably sounds familiar. For three years, in an economic development strategy aimed squarely at jobs and revenue in higher-tax states, Indiana has been trying to poach Illinois businesses. While they say the tactic has succeeded wildly, officials in Illinois say the impact of cross-border moves largely has been a wash, more political theater than anything substantive.

It all started in 2011 when Indiana spent a paltry $369,000 to line the highway from Illinois with billboards asking drivers if they were “Illinoyed by higher taxes?” Since then, the state has lured—by way of low corporate tax rates, good fiscal health and financial incentives—more than 100 companies to expand or relocate from Illinois.

In mid-December, Pence spoke at the City Club of Chicago. Opening his speech, he thanked the club for the invitation despite his state’s “playful penchant to poach business.” Leaning into the lectern, Pence said he thought his state’s harshest jab came in the pages of Crain’s, in an ad telling Chicago-area readers, “Envy is a sin, but moving here isn’t.”

‘BEST SANDBOX’

The earnest push to target Illinois businesses started under Gov. Mitch Daniels, who—helped along by Illinois’ 30 percent hike in corporate income tax and nearly 70 percent hike in personal income tax—said he wanted to build “the best sandbox in America” for companies. In 2013, Pence picked up where Daniels left off and successfully pushed to lower the state’s corporate tax rate, which will drop from the current 7.0 percent to 4.9 percent by 2021. (On Jan. 1, 2015, Illinois’ rate dropped to 7.75 from 9.5 percent.)

But all that glitters is not necessarily gold. Jobs data show Indiana has a higher rate of growth in lower-end manufacturing compared with Illinois. This, experts say, means Indiana’s strategy may be appealing to companies that are footloose—but also low-wage and low-innovation.

“In some ways, it’s the easy way out,” says Howard Wial, executive director at the Center for Urban Economic Development at the University of Illinois at Chicago and a Brookings Institution fellow. “They can say they have attracted jobs. They have healthy job growth. But you have to look at the quality of jobs.” The problem with this strategy, Wial says, “is there is always someone who can beat them in a race to the bottom.” Texas and China come to mind, he adds.

Asked to respond, Smith says Indiana wages have been going up, averaging $20.17 an hour, according to the latest state figures. “We’re like, bring it on!” he says of the naysayers. (The most recent data from the Bureau of Labor Statistics, from May 2013, show Indiana’s average hourly wage is $19.61 and Illinois’ is $22.92.)

Indiana Gov. Mike Pence recognizes 16 manufacturers that will create 2,100 new jobs in his state over the next several years. Joining him at the press conference Dec. 18 are lawmakers, business owners and executives.
Indiana Gov. Mike Pence recognizes 16 manufacturers that will create 2,100 new jobs in his state over the next several years. Joining him at the press conference Dec. 18 are lawmakers, business owners and executives.
The recent example of food equipment maker AM Manufacturing could support either side in that argument. Exploring a move to Indiana, the company hit a snag that ostensibly rewarded sheer numbers of jobs over their quality. Mark Van Drunen, AM’s engineering and production manager, says his 35-employee company fell short of the 50-person requirement for certain tax credits, despite wages averaging more than $20 an hour.

“I made the argument that I am not bringing 50 minimum-wage employees—I am bringing 30 higher-quality jobs,” he says. In the end, his argument worked. Last fall, with $400,000 in tax incentives, AM moved its factory from south suburban Dolton about 5 miles southeast to Munster.

What’s more, Indiana’s personal income tax is not as low as it appears, even with a planned 5 percent reduction by 2017. While the state levy is only 3.4 percent compared with Illinois’ 3.75 percent, factoring in local income taxes can make it nearly equal, if not higher, depending on the county.

Smith, a former manufacturing company executive, likes to say Indiana has “a good story to tell” and “armed with the facts,” companies will “make the right decision.” In other words, because Illinois hasn’t gotten its fiscal act together—high debt, exploding pension costs and past increases in personal income taxes—Indiana is going to show folks what they’re missing. “Indiana just needs a bigger megaphone” is a phrase Smith comes back to again and again.

As head of the Indiana Economic Development Corp., a public-private company with about 60 employees and a budget of $75 million, Smith regularly logs 50,000 miles a quarter on the road. Once a month, he travels to Chicago, often in his state-issued Toyota Sequoia, to meet with companies and sell them on his state. Smith earns $162,999.98 a year, according to a state-maintained database of Indiana public-sector employees. On a mission to spread the word about Indiana, Pence and Smith rang in the new year in Israel, and they plan to go to Brazil this year.

SOFTENING THE TONE

Kelly Harrington Nicholl, head of marketing at the development corporation since 2009, is the woman behind Indiana’s most memorably catty catchphrases: “Illinoyed” and “Stillinoyed.” But after years of poking fun at its fiscally challenged neighbor, Indiana is about to soften its tone. “We’re not going to beat up on Chicago anymore,” Smith says.

This means that a cluster of billboards along I-90 cautioning northbound drivers that higher taxes lie ahead will come down soon, Nicholl says. “It’s time to play nice,” she says. She declines to say whether Illinois’ newly elected Republican governor, Bruce Rauner, has anything to do with it. “There is a sunset to everything.”

Nicholl, 52, says she and her three-person team, comprising a copy writer, graphic designer and events coordinator, do 95 percent of Indiana’s marketing—from coining the catchphrases that line Smith’s office to buying the ad space. “We operate like a mini ad agency,” she says. She declines to give specific spending numbers except to say that Smith has raised her budget since becoming commerce secretary.

Despite Indiana’s bravado, the number of state-to-state moves are increasing in both directions, according to an analysis of preliminary data by the Chicago Metropolitan Agency for Planning. The data, supplied by New Jersey-based research firm Dun & Bradstreet, show 70 companies in Illinois relocated their entire business or branches of their business to Indiana in 2013, up from 40 in 2012. During the same period, 48 companies in Indiana moved all or portions of their businesses to Illinois, up from 39 in 2012.

It’s important, too, to consider the size of each state’s economy, experts say. About 5.8 million people worked in Illinois in 2013, compared with 2.9 million in Indiana, according to the Federal Bureau of Labor Statistics. Census data show in 2012 roughly 29,300 new businesses formed in Illinois, compared with about 12,700 in Indiana. And Chicago pulled in more corporate investment projects than any metro area in the U.S. in 2013, according to Site Selection Magazine.

While Indiana’s job growth is outpacing Illinois’, “things are mostly moving in the same direction,” UIC’s Wial says. “Indiana is just growing . . . from a smaller base.”

‘ALL GROWN UP’

Following the press conference, Smith and Pence stop by a local television station to talk up Indiana’s record year, which includes a commitment of $4.4 billion in corporate investment over the next five years, up from $2.63 billion in 2013. Afterward, they head to a tour of Elanco, a division of pharmaceutical giant Eli Lilly specializing in products for animal wellness. Elanco is about to spend $13 million building a vaccine research center. The lab, opening in early 2016, will be 48,000 square feet and employ 75 scientists with annual salaries averaging roughly $60,000. Smith grins. “This is the old farm all grown up,” he says.

While Smith admits companies might move to Indiana without the snarky billboards and print ads, he says the efforts of his team work as a catalyst. “It’s like throwing Miracle-Gro on a plant that is already going to grow,” he says.

As Smith and the governor head out, Pence stops to recall a recent conversation with Rauner. “I told him, ‘As near as I can tell, the only person talking more about Indiana’s economic record for the last year than me was Bruce Rauner.’ “