That Sinking Feeling

CNBC just released its list of top 20 U.S. cities in the U.S. in which to start a business.  I search high and low, looked under the table and behind the cabinets.  I looked far and wide and checked the list numerous times and Chicago was not on it.  Of the 20 cities, 6 were in Texas.   Des Moines, Iowa made the list.  The Second City, City of the Big Shoulders, Hog Butcher for the World, home of the 3^rd busiest airport in America, two major world class universities, centrally located, with a magnificent lakefront was nowhere to be found.

Chicago and Illinois are dying and unless something dramatic happens soon, Chicago will become the next Detroit and the rest of Illinois will come tumbling down with it.  At every level….city, county, and state, the can kicked down the road is out of road.

A couple of years ago, I attended a general business roundtable of about 20 professionals in Chicago and the topic was the business climate in Chicago and Illinois.  When it came for my turn to speak, I simply asked the question, “If your child had job skill that would enable them to work anywhere they wanted, and you wanted them to have a happy and prosperous future, would you advise him or her to stay in Illinois?”  The question just elicited guffaws.  I followed up and asked, “Where would you advise them to go?”  The answer was unanimous---Texas.  It is not surprising that the CNBC list bears out what we have known for a long time.

Just the other night, another professional confided in me, “I really do not want to leave Chicago.  But I feel I am being forced out.”

At every turn and at every level, politicians are grabbing for dollars.  Toni Preckwinkle, President of the Cook County Board (after vowing not to) raised the state sales tax.  Cook county not only raised property tax rates but increased assessments.  Rahm Emmanuel is trying to get through a utility tax increase.  Mike Madigan is in a death match with Bruce Rauner in his attempt to raise taxes once again while Rauner is demanding systemic reforms.  Meanwhile, the state is buried under a mountain of unpaid bills and social services are being strangled.  The city, state and public school system bond rating are rated junk.  The state became a national joke when lottery winners were forced to sue to collect.  Let that sink in for a minute.

Why would you start a business here?

Or relocate here?                 

          

Or raise your children here?

GE took one look at Chicago as a potential home for its headquarters and quickly said, “Thank you, very much.  We’ll pass.”

Over the past few months, the news has gotten even more disturbing.  The Chicago Tribune published an article a few months ago that showed that working class, professional class, and entrepreneurial class African Americans are fleeing Illinois for the South.  The Illinois Policy Institute (illinoispolicy.org) recently posted statistics that showed that millennials are also fleeing the state.  If black and young people are fleeing, who will be left?  These are groups that are needed here to be the backbone of the city and state over the next decade. 

Yet, the politicians, Mike Madigan in particular, refuse to budge.  And the Democratic appointed judges resist ANY attempts to solve the problem.

The great economist Herbert Stein came up with something called Stein’s Law, which states: “If something cannot go on forever, it will stop.”

If there is any chance of halting the bleed out from Illinois, the elephant in the room needs to be confronted.   There is no solving the problem without dealing with the pension issue.  The pension issue is also driving the debt rating issue and it is getting bigger by the day. 

Most troubling was the issue raised by last week’s Crain’s Chicago Business. The financial crisis is so bad that it is pinching higher education.   Universities are struggling to attract and retain quality faculty and other universities are poaching our schools.    Faculty are leaving this great city because they are not sure they can get paid.

Education is about the future.  Pension payments are about the past.  Illinois is robbing from the future because they overcompensated workers in the past.   Young people know it and that is why, despite a tremendous geographic advantage, you would have to have a mental disorder to start a business in Chicago now. 

And when you add the violence on top of the dire fiscal situation, you can see why I believe the slide will accelerate as long as Mike Madigan remains in office.  And he is just hanging on until Dick Durbin and eventually, his daughter Lisa can get elected. 

I have spent a good portion of my professional career dealing with distressed entities.  In 100% of the cases, unless the entity makes fundamental, structural changes, it is doomed.  Mike Madigan and John Cullerton continue to pretend that we can fix these things with more tax increases.  It’s just not there.  People and businesses are voting with their feet.  Illinois and Chicago need to make dramatic changes now if there is any hope of reversing the slide and avoiding Detroit’s fate.  Once people leave and build a life elsewhere, they will not be coming back. 

This was a once great city and a great state.  It has been my home for my entire life and my family dates back to the Chicago Fire in this town.  But the fiscal catastrophe and the violence are making it harder and harder to stay and I can no longer tell young people that this is a great place to build a future.

Illinois is on a top 20 list, but it is is a list of deadbeat governmental units.