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Economic News

Clarion call for regional economic push is largely unheeded

September 15,2015 | By Kathy Bergen • Contact Reporter for the Chicago Tribune

Slow-mo on regional cooperation

SEPTEMBER 15, 2015, 5:11 AM

While welcoming Great Lakes leaders to a forum on how to work together for regional prosperity, Chicago Mayor Rahm Emanuel peppered his otherwise cordial welcome speech with a few jabs.

Emanuel called dibs on future water-technology development, despite the fact that Milwaukee leads in that arena. "If you come up with a project for household water conservation," he said, "I want it invented here, patented here and built here in the city of Chicago."

He also heralded the opening of an eco-friendly soap factory on the city's South Side, and in doing so, took a poke at a nearby state: "To those from Michigan, I have to apologize, because (the plant) was going to go there but it's coming here to Chicago." The boast was greeted with laughter and applause.
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The feisty remarks were emblematic of the balkanization that persists in metro Chicago more than three years after a prestigious international report found the tri-state region was underperforming due to squabbling leadership, fragmented development efforts and costly cross-border poaching that merely shifts jobs within the same market.
 

With Illinois Gov. Bruce Rauner threatening to "rip the economic guts out of Indiana" and Indiana Gov. Mike Pence admitting to "a playful penchant to poach business from Illinois," efforts to forge alliances within the tri-state metro area have been consigned to scholarly conferences and countless committee meetings, with scant tangible results.
 

"Nobody is having this conversation on a real basis — we're having it academically," said Gary Mayor Karen Freeman-Wilson, at a recent conference on regional cooperation that Chicago representatives did not attend. She assessed the level of tri-state progress as "absolutely none."

Within Illinois' borders, Emanuel continues to aggressively woo suburban firms, reaching out to CEOs and influential investors in local corporations, including Warren Buffett. He has touted the arrival of nearly two-dozen suburban operations or headquarters since February 2012, when he unveiled his economic growth plan, which trumpeted the need for regional cooperation. Some of those firms received state or city tax-break packages.
 

In March 2012, the Paris-based Organization for Economic Cooperation and Development issued its study of the 21-county tri-state area, which called intraregional business attraction efforts "petty and destructive."

In the global competition to attract business and talent, regions that collaborate to establish a brand, develop industry hubs, streamline transportation, foster a cultural scene and revitalize neighborhoods have a competitive edge, experts say.

"We have to get rid of the political boundaries that stand in the way," said urban affairs author Benjamin Barber, of the City University of New York. "I know of nowhere where it's been done that they've said, 'Oh, that was a disaster, we shouldn't have done that.'"

Formalized regional collaboration is paying off for a number of major metropolitan regions, helping to stoke their economies and lure new residents. Denver-area taxpayers have anted up repeatedly for cultural and transit projects that have revitalized the city. Portland and its suburbs worked together to rev up exports. Metro Minneapolis' tax-sharing strategy has helped reduce the gap between rich and poor communities. 

The communities lining the southern coast of Lake Michigan comprise the nation's third largest economy. They are home to a rich assortment of businesses, an educated workforce, respected universities and a massive, if overloaded, transportation system.

But greater Chicago's tepid growth rate is outpaced by a number of metropolitan areas with cohesive regional strategies. Denver, for instance, ranked No. 6 in economic performance among the nation's 100 largest metros since its pre-recession peak, while Chicago was No. 77, according to Brookings Institution data.

Many factors drive prosperity. "You cannot say that regions that work together are 25 percent more productive," said urban strategist Jennifer Bradley, co-author of "The Metropolitan Revolution," a book that examines innovative approaches in Denver and several other cities.

But, she added, Denver's regional strategy has enhanced its attractiveness to companies seeking sites for investment or expansion. The city makes it into the ranks of top three finalists more than 50 percent of the time now versus 30 percent of the time in 1985.

"People are being shown a wealth of resources," she said, "as opposed to being told, 'Don't go there, look here' … that sort of cutting each other off at the knees approach."

In Chicago this summer, Emanuel took credit for successfully wooing in-flight wireless provider Gogo and food giant Kraft Heinz from the suburbs. After the Kraft Heinz announcement, Rahm said, "I work every angle. We've been recruiting since day one, companies to relocate or expand."

Asked whether suburbanites should fear losing more businesses, he said, "No, because we've had companies from around the globe, as well as around the country, relocate here. What it does mean, if you live in New York, London, Beijing, Berlin, watch out. Chicago is coming for you."

To some extent, Emanuel is riding a national wave of companies moving to central cities to attract young, tech-savvy workers who prefer urban living, said one member of his economic team.

The trend is a reversal from two decades ago when firms were high-tailing it to the suburbs, and "every mayor would capitalize on it," said Rita Athas, formerly Chicago's point person for business attraction and now its part-time liaison for regional cooperation efforts.

"(Emanuel) is a tenacious and highly effective recruiter of businesses to the city," said Gogo CEO Michael Small. Gogo also considered sites in Colorado. To keep the jobs in the region, the state came up with a tax-break package with a potential value of $5.8 million while Chicago is expected to provide up to $2 million in workforce

training funds.

However, the overall practice of cross-border poaching within regions has its critics. The 2012 OECD report described the use of tax incentives to lure a company from one town to another within a region as zero-sum game.

"It's just re-arranging the deck chairs," said Lance Pressl, who led the report. "There is no net gain."

Amid the company moves, the region is beginning to work together on less contentious issues. Cook County Board President Toni Preckwinkle brought together seven Chicago-area counties to work with the city on projects aimed at boosting exports, cutting truck-permit red tape and fostering growth in the metals manufacturing sector. Those initiatives, however, are moving slowly.

One observer says the programs are overshadowed by Preckwinkle's decision to seek a county sales tax hike rather than work with other government leaders to devise a comprehensive plan for addressing the multiple financial crises stemming largely from huge pension liabilities. The penny-on-the-dollar tax hike returns Chicago's rate

to the highest of any major U.S. city, which makes it politically difficult for the city or other taxing bodies to seek sales tax hikes.

"It's the great paradox," said Joseph Schwieterman, professor of public service at DePaul University. "It makes a mockery of the efforts to coordinate strategies for the region that benefit all."

The state's economic future hinges on whether leaders can craft a well-organized tax plan to address the financial quagmires, said Theresa Mintle, president of the Chicagoland Chamber of Commerce.

"Without any sort of strategy or any sort of overarching how-does-this-all-fit-together, we will continue to have one-off decisions ... suddenly in 10 years we wake up and we realize we've strangled our economy," she said.

A spokesman for Preckwinkle said the tax hike was essential, in part to address ballooning pension liabilities, and that building regional trust has been a cornerstone of her agenda.

Denver's experiment in regionalism was born of desperation more than a quarter-century ago when the city was set on its heels by the energy bust and hovering air pollution.

"We were fearful — there were a lot of cooties in the brand," recalled Tom Clark, CEO of the Metro Denver Economic Development Corp., which was created to serve as the central clearinghouse for regional business attraction and which administers an anti-poaching policy among the region's own municipalities.

With support from the business community, the region coalesced to clean up its air quality, build a major airport, fund its cultural and arts institutions, erect baseball and football stadiums, and fund construction of FasTracks, a major mass transit project.

The mountain-rimmed region is now one of the nation's fastest growing economies, a top aerospace employer and a magnet for college grads.

One of its smart moves, said Bradley, was to focus early attempts at regionalism on an issue with emotional pull: a 1988 tax referendum to support the arts, the museums and the zoo.

The campaign's "polar bear logo did a lot of work," she said. "Most people don't feel that attached to a giant airport project."

A regional approach doesn't eliminate competing interests and disputes. Denver was engaged in a three-year tug-of-war with neighboring communities over how to distribute the financial benefits expected to flow from a future airport expansion. But a tentative accord was hammered out in talks, not in court. Taxpayers will vote on it in November.

The regional dynamic "is almost like a functional family," quipped Clark.

In the Chicago tri-state region, residents like the idea of regional cooperation, within limits. Most say it's OK to pool resources for transportation planning or joint professional licensing, but not for direct efforts to attract tourists and businesses, a recent Marquette Law School poll found.

That lack of zeal was apparent in the aftermath of the 332-page OECD report, which cost $1.2 million in federal, state and private funds and donated services.

The Chicagoland Chamber of Commerce, which commissioned the study and launched an organization to follow up with development proposals, spun off the group after about a year. The move came about six months after Mintle took over chamber leadership after the retirement of Jerry Roper. The chamber provides no financial

support now.

Chamber members "care about what is in their backyards and what it takes to run a business day to day," Mintle said.

The spinoff group, the Alliance for Regional Development, has two staff members and a roster of sponsors that includes some Wisconsin and Indiana municipalities and economic development agencies. World Business Chicago is not a sponsor. Kelly O'Brien, its CEO, declined to disclose the alliance's budget.

The alliance has hosted conferences, pulled together information on the region's water resources, tech activities, job training programs and transportation system, and created videos with the tagline, "Working Fast Together."

But no major project proposals have emerged yet. O'Brien said the forum dialogues and committee research will serve as valuable "foundation-setting" exercises. In the coming year, it will narrow its focus to transportation and workforce issues.

In a 2015 update to its original report, the OECD notes that metro Chicago has made some progress toward regional coordination. It cites the formation of the Metropolitan Mayors Caucus in 1997, which led to a merging of regional land-use and transportation planning agencies into the Chicago Metropolitan Agency for Planning in 2005 and to the 2003 launch of CREATE, a public-private partnership that has begun to tackle freight rail gridlock.

Nonetheless, the region, with its 1,700 units of government, continues to be a national poster child for governmental fragmentation, according to the OECD. Its latest update focuses on transportation problems, among them transit systems that link up poorly, if at all; a fragmented road system; a lack of regional planning among the transportation agencies that move goods; and a byzantine system for truck permitting.

In the past year or two, leaders from Cook, DuPage, Kane, Kendall, Lake, McHenry and Will counties have begun working together with World Business Chicago to address some regional issues, though the scale is small and progress has been slow:

•A public-private effort to centralize oversize truck permitting was launched in December 2013, and in May 2015, a consultant was hired on a $246,000 one-year contract to devise a plan. Right now, the trucks that haul steel beams, windmill blades and the like must get permits from every town they pass through.

•In mid-2014, the region won a designation that should ease its ability to win federal grants to aid metals manufacturing. The multi-county consortium has supported 18 applications, and two have been granted so far, worth a total of $250,000. A decision is expected this fall on a more significant request: $18 million to reconstruct a

northwest suburban portion of Touhy Avenue that is home to metals firms. The project would include construction of a bridge to allow traffic to flow over a street-level rail crossing.

•A two-year collaboration to boost exports was rolled out in September 2014, and the fledgling organization aimed to make contact by summer's end with 250 small to midsize companies that could benefit from referrals to information resources or microgrants of up to $5,000 apiece from JPMorgan Chase. As it turned out, Metro Chicago Exports had interaction with 140 companies. It expects to finish awarding microgrants, collectively worth $225,000, to nearly 120 companies by early September. 

In addition, World Business Chicago CEO Jeff Malehorn said his organization is involved in myriad projects with regional partners. He cited the nascent digital lab for manufacturing, led by UI Labs, a public-private consortium that will tap the computer resources of the University of Illinois.

Still, city-suburban distrust and friction persist. World Business Chicago, which receives financial support from the city of Chicago and whose board is named by the mayor, is not perceived as a regional group by some in the suburbs.

"I don't know that it has done anything for us," said Libertyville Mayor Terry Weppler, whose village lost Motorola Mobility to Chicago last year.

And urban affairs expert Dick Simpson, editor of "Twenty-first Century Chicago," a book about Chicago's evolution into a global city, characterizes the region's progress toward collaboration as "sluggish, backward and painfully slow."

"We are evolving," said Simpson, a former alderman and professor at the University of Illinois at Chicago. "But, in my view, we are so far behind every other place that is working in the world. We need to take a big step forward."

Chicago Tribune's John Byrne and former Tribune reporter Jessica Wohl contributed.

kbergen@tribpub.com

Twitter @kathy_bergen

Copyright © 2015, Chicago Tribune

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