A Chance for Sun

As Illinois weathers turbulent times, some bright spots for its business climate are beaconing. By Timothy Inklebarger | Summer 2017



There’s no question that politically and financially the state is in disarray—that news is pushed on us day in and day out. With billions in pension and healthcare debt, education missteps, and political inaction, it’s simple to see the issues lingering over the state like a dark cloud threatening to engulf any potential progress—but there are some sunny spots on the horizon, like Illinois’ bright tech sector.

Here’s what some of the top minds in the state think about Illinois’ business climate.

STEM Initiatives

Despite the discontent over funding and pensions, it isn’t all doom and gloom for education in Illinois. In fact, Illinois is making solid strides in science, technology, engineering, and math education—commonly known as STEM. The Illinois Science & Technology Coalition’s fall 2016 Illinois Innovation Index reported that 29.1 percent of Illinois graduates earned STEM degrees in 2015, outpacing the national average of 27 percent. One especially strong spot is the state’s healthcare sector—41.9 percent of STEM degrees earned in Illinois in 2015 were healthcare related, compared to 34.2 percent nationally. The Illinois Innovation Index also notes that Illinois was second only to California in computer science graduates.

Sure, Illinois still slightly trails the national average in STEM-related jobs, but in looking to the future, the Illinois Innovation Index projects that those lucrative STEM jobs new graduates and experienced pros are seeking “will grow at a faster rate than the national average over the coming decade.” Matt Bragg, Illinois Science & Technology Coalition program manager for data and policy, says that outlook is backed by Illinois Department of Employment Security statistics.

Logically, Illinois-based universities are taking notice and committing major resources to STEM education. In early 2016, the University of Chicago announced a major expansion of its computer science department, and Northwestern University rolled out plans to invest $150 million in computer science in the coming years. The University of Illinois at Urbana-Champaign, identified by the Illinois Innovation Index as the fourth largest producer of computer science graduates in the country, also is expanding its program. Even beleaguered Chicago Public Schools is continuing its STEM commitment, announcing computer science will be a graduation requirement starting with its class of 2020 as part of its ongoing and expanding Computer Science 4 All initiative.

In turn, both the state and City of Chicago are making commitments to attract and develop STEM talent and build “communities and workspaces where STEM entrepreneurs can partner with business and talent to grow new companies.”

“These efforts include spaces such as 1871, Coalition: Energy, MATTER, mHUB, and a network of university-affiliated technology parks, as well as organizations such as Built in Chicago, Clean Energy Trust, and iBIO, among others,” according to the Illinois Innovation Index.

Continuing along this path could eventually pay big dividends to Illinois’ workforce and business climate, as well as the broader economy, considering that the U.S. has been falling behind the rest of the world.

“Today, as ever, the majority of employers struggle finding qualified workers—it is among the most cited problems faced by executives. OECD [The Organisation for Economic Co-operation and Development] found that America’s high school graduation rate dipped from 18th among 24 industrialized nations a few years ago to 20th most recently,” reports John Rait in the U.S. Chamber of Commerce Foundation article, “To Compete Globally, America Must Up its Game.”

“In standardized testing of students, we remain on a downward track in rankings, dropping six places in reading literacy, six places in math literacy, and two places in scientific literacy. And we place last in the proportion of college students receiving degrees in the skills of science, engineering, and math,” Rait reports.

Innovation

Although the Illinois Innovation Index paints an optimistic picture of the state’s burgeoning high-tech workforce, Bloomberg offers a reality check with a more sober appraisal of the state’s overall innovation, ranking Illinois as the country’s 22nd most innovative state— down one spot from the previous year—based on the metrics of “R&D intensity; productivity; high-tech density; concentration of science, technology, engineering, and mathematics (STEM) employment; science and engineering degree holders; and patent activity.”

On Bloomberg’s scale of zero to 100, Illinois scored 54, which at least bests its Midwest neighbors of Indiana at 33, Iowa at 39, Missouri at 41, and Wisconsin at 42. Bloomberg notes, however, that “to some extent, the data show the limits of measuring healthy innovation. For example, the migration of talent across state lines can be difficult to measure and often captured only on delay, such as through U.S. Census bureau figures.”

Aiming to solve this problem, LinkedIn aided the Illinois Innovation Index in tracking the migration of workers in and out of Illinois. The result, unfortunately, revealed that while Illinois attracts talent from across the Midwest and abroad, it ultimately loses much of that brainpower to other states.

Tech talent inflow often comes from India, Indiana, Iowa, Kansas, and Ohio. That same talent is later lost primarily to California, Colorado, Florida, Texas, and Washington. “These migration patterns, paired with our earlier analysis of computer science degree production in Illinois, show a state that is exporting tech talent to industry hotbeds outside the state,” reports the Illinois Innovation Index.

“Chicago, and the state, has a reputation as a talent exporter,” Bragg says. For change to really come, he says, “It’s a matter of retaining those jobs as much as it is attracting them from other states.”

Population Growth

In other words, Illinois must continue growing high-tech and highly paid jobs, among other things, if it’s going stem the tide of talented residents exiting the state.

Reporting by the Chicago Tribune in March states: “Illinois was among eight states to lose residents [in 2016], putting its population at 12,801,539 people, its lowest since about 2009. The state’s population first began to drop in 2014, when the state lost 11,961 people. That number more than doubled in 2015, with a loss of 28,497 people, and further multiplied in 2016, according to census data.”

Cook County actually suffered the largest outflows in the entire nation, reporting a total of 66,244 residents migrating to other parts of the U.S. from July 2015 to July 2016, according to U.S. Census Bureau data.

In fact, most of Illinois is depopulating—93 of Illinois’ 102 counties are experiencing net out-migration, and 89 of Illinois’ 102 counties have shrinking populations. A Paul Simon Public Policy Institute poll released in October 2016 found that taxes were the top reason people want to leave Illinois.

Bill Bergman, director of research for the Chicago-based nonprofit Truth in Accounting, says Illinois’ tax burden “is a consequence of our long-term financial practices.”

“The state’s inability to fund retiree healthcare and pension benefits is putting pressure on elected officials to raise taxes or cut government services, and that’s driving people away,” Bergman explains. “The out-migration of residents can lead to a ‘downward spiral’ because along with those residents goes much needed tax revenue, further exacerbating the problem.”

Fiscal Health

Truth in Accounting released in March its financial breakdown report, “Illinois Finances Continue to Crumble.” And, as you might have guessed, Illinois garnered the grade of “F” on its financial report card.

“Repeated decisions by state officials have left the state with a staggering debt burden of $210.4 billion. … That burden equates to $50,400 for every Illinois taxpayer. These statistics are troubling, but what’s more troubling is that state government officials continue to obscure large amounts of retirement debt on their balance sheets, despite new rules to increase financial transparency,” the report notes, revealing that, at the time of its writing, Illinois had a $138 billion unfunded pension liability and $44.5 billion in unfunded retiree healthcare costs hanging over its head.

This financial stress has caused Illinois to lag behind other states in rebuilding budget reserves depleted during the 2008 financial crisis, says a September 2016 report from the Pew Charitable Trusts. In 2015, Pew identified Illinois as having 10.6 days’ worth of reserves— the amount of time the state could continue to operate without new revenue. That dropped to less than a week in fiscal year 2016. Further failure to establish reserve funds could severely risk the state’s ability to “manage budgetary uncertainty, deal with revenue forecasting errors, prevent severe spending cuts and tax increases, and cope with unforeseen emergencies,” according to Pew.

Housing Market

Of course, this all has an impact on housing—Realtor.com forecasts the Chicago area to have one of the slowest growing real estate markets in the country this year.

Jonathan Smoke, chief economist for Realtor.com, told Crain’s Chicago Business in December that their projection of a slow-growing market is tied to “relatively high unemployment” in the Windy City, paired with “low income growth and slow home price recovery.” Smoke told Crain’s that lagging prices “holds back inventory and limits the rate of turnover by existing owners.”

The good news is that both price and sales growth for the entire state have actually been tracking higher from the prior year during the first quarter of 2017, according to reports from Illinois Realtors, a statewide trade association.

“Our biggest issue is a lack of inventory,” says Illinois Realtors President Doug Carpenter, adding that the association is seeing more properties “getting multiple offers” as they come back on the market.

“Consumers have no choice but to be nimble as they find fewer homes on the market and increased competition for those homes,” Carpenter said in April. “Many of the realtors I talk to are reporting an increase in multiple offer situations, which means buyers can’t dawdle when they find what they want and they may want to make sure any offer they bring is an aggressive one.”

Again forming a bright spot, Illinois’ burgeoning tech sector is predicted to have an impact on the real estate market as well. IT staffing services company Modis recently conducted a user survey to determine which big city housing markets were poised to be “transformed” by the tech industry—Chicago landed at number one in the ranking.

Looking Ahead

Most pundits would agree that things are going to get worse in Illinois before they get better, but efforts in Springfield toward balancing the budget and reforming the state’s broken pension system could go a long way toward righting Illinois’ fiscal ship. Don’t expect those reforms to come without new taxes and further budget cuts, but real reforms would send a sign to the business community that Illinois is open for business.

Looking to the future, embracing the concept of a state driven by the tech and healthcare industries could create new, and more prosperous, paths for Illinois, luring back Midwesterners who’ve departed for greener pastures and hopefully attracting some new ones, too.