Have you ever wondered where the saying, “All politics is local,” comes from? In 1994 former Democrat Speaker of the United States House of Representatives Tip O’Neill published his book called, All Politics is Local. In it he tells the story of his first campaign for public office when he ran for Cambridge City Council in 1935.
It was the only election O’Neill ever lost. In his book he explains why,
This was the only race I ever lost in my life, but in the process, I learned two extremely valuable lessons. During the campaign, my father had left me to my own devices, but when it was over, he pointed out that I had taken my own neighborhood for granted. He was right: I had received a tremendous vote in the other sections of the city, but I hadn’t worked hard enough in my own backyard. ‘Let me tell you something I learned years ago,’ he said. ‘All politics is local.’
Not only did O’Neill win every political race he ever ran afterwards, he became the third longest serving Speaker of the House of Representatives and the only one to win the Speakership five times in a row.
Politics isn’t the only thing that’s local. Professor John Quelch agreed with that thought in his book, All Business is Local. In it Quelch writes, “Today’s business leaders are so obsessed with all things global and virtual that they risk neglecting physical place… now that it’s possible for businesses to be everywhere at once, they need to focus on what it means to be one specific place at a time.” Emphasizing location matters, and as I briefly mentioned last week, it’s one of the components that is necessary in order to do economic development the right way.
Governor Pritzker has consistently said that Illinois cannot tax, borrow, and spend our way into prosperity. We have to grow jobs. I agree.
The American Legislative Exchange Council (ALEC) also agrees that tax increases aren’t the best way to create prosperity, or even generate tax revenue. In the 10th edition of their annual report, “Rich States, Poor States,” it compares the Obama era tax increases to the Kennedy and Reagan era tax cuts. Economic growth as a result of tax increases was about 50% of the economic growth generated by across the board tax cuts. State and local revenue grew at less than 10% of the Kennedy era growth and less than 20% of the Reagan era growth. So yes, we have to grow our economy and jobs.
I think there are two challenges in economic development that should be overcome in order to grow and attract the right businesses in the right places with the right workforce and physical infrastructure to support long term job growth. The first, according to the Brookings Institute report I referred to last week, is to “Get the markets right.”
Study after study tells us that incentives for their own sake are not the catalyst for growing jobs. I am convinced of this because many governments are in an incentives race to land the next Amazon or Boeing. The Brookings report’s author, Amy Liu, thinks they should have a narrower, sharper focus. She writes, “…economic development is most effective – and cost-effective when it focuses on improving the shared assets that support clusters and advanced industries, rather than providing subsidies and solutions to individual firms.” If we’re going to offer incentives, they should be focused on projects that are truly local, meaning that they’re right for their respective community. We shouldn’t set projects up to fail. We also shouldn’t limit ourselves to attracting new business to relocate because, as we discussed last week, growing existing firms means more stable job growth long term.
The second challenge is to get the incentive right. For a business to apply for an Economic Development for a Growing Economy (EDGE) tax credit in Illinois, they have to meet a “but/for” requirement. That means they have to demonstrate “but for the incentive the project would not occur in Illinois.” Many states have “but/for” requirements to qualify for economic development incentives. Indiana has them. The difference in Illinois is in how a business proves it. Our law says, applicants must show “the magnitude of the cost differential between Illinois and a competing State,” “provide evidence the Applicant has multi-state location options or demonstrate that at least one other state is being considered for the project,” obtain an incentive package from a competing state that includes, “state, local, private, and federal funds available.”
So, for a business to apply for this credit in Illinois, they have to explore incentives in other states. This is like a store telling you in order to buy something that’s on sale, you have to go and see if it’s on sale in other stores. I’m sure you can guess what the result might be. By shopping around to other states, we’re providing those states with the opportunity to beat our incentives and discouraging economic development in Illinois. That’s why I filed Senate Bill 1926. It deletes the “but/for” requirement.
We can’t tax, spend, or borrow our way to prosperity. We need to grow our local economy and grow good jobs. To do that we need to make sure we’re focused on the right markets in the right place. If we’re going to offer incentives, we should eliminate restrictions that hurt economic development. These are common sense solutions for us to move forward and avoid punitive tax hikes.
Speaking of tax hikes, you may have heard that the Governor has announced his progressive tax rates. I’m convinced this is only the first round, and will tell you why next week.
If you have any additional thoughts or ideas, you can visit my website at www.senatorstewart.com and use the form to send me an e-mail.