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Behind the Pritzker administration’s quest to signal Illinois is ‘open for business’

July 8, 2024 in News

Link to Herald & Review article.

Contact: Brenden Moore, State Government, Decatur Reporter

brenden.moore@lee.net

Illinois Gov. J.B. Pritzker shaking hands with TCCI President Richard Demirjian

Behind the Pritzker administration’s quest to signal Illinois is ‘open for business’

SPRINGFIELD — Illinois Gov. J.B. Pritzker could tell he had a tough crowd.

By the time the owners of family-run, Decatur-based TCCI Manufacturing sat down with him in 2021, they were eyeing Tennessee to build a production facility for electric compressors, a growing part of their global business as federal policies incentivize the electrification of the transportation sector.

They already had a site selected and a “great” incentive package on the table there, said Kara Demirjian Huss, the company’s senior vice president of global marketing, sustainability and public affairs.

But at the suggestion of Deputy Gov. Andy Manar, Demirjian Huss and her family allowed the businessman-turned-governor to make his pitch for the company to invest in Illinois.

“The sense I had in that meeting was that they started out real skeptical because the history for companies in Illinois has been like ‘state government doesn’t help,'” Pritzker told Lee Enterprises in an interview. “And I think they came at least out of that first meeting, saying, ‘maybe, maybe,’ as opposed to where they came in, which was, ‘no, this is not going to work.'”

Pritzker made clear that he wanted to help. After all, he was already seeking to rev up Illinois’ economic engine and change a decades-long perception — and often reality — that the state was unfriendly for business.

Conversations continued and by the end of 2021, Pritzker had signed the Reimagining Energy and Vehicles in Illinois (REV) Act, a new tax incentive program for companies like TCCI.

Gov. J.B. Pritzker speaks during a Sept. 6, 2022 news conference at TCCI Manufacturing in Decatur, where he announced the state’s first tax incentive package under the Reimagining Electric Vehicles Act.

Eight months later, the company was awarded the first REV tax credits to retool its 1940s-era Decatur facility — originally used to build Sherman tanks — for electric compressor manufacturing. The company’s subsequent investment has been upward of $20 million, qualifying for more than $2.1 million in credits.

On top of that, the state pitched in another $21 million to make the facility a larger “EV Innovation Hub” that will also house a full-scale climatic center and a training program through Richland Community College. The hub is scheduled to open in October with classes commencing in January.

“I think Illinois has really from a collaborative standpoint said ‘What are Illinois resources? What are we best at? And how do we all collaborate between government, academia and industry to win in Illinois and change the trajectory of where we’re going?'” Demirjian Huss said. “Not for today, but for five years from today.”

“I think that’s what’s gotten me most excited about the governor is his excitement around those areas and his strategic vision for that and the way he collaborates and brings business and industry in,” she said. “… He’s very centered on building that ‘Team Illinois.’ And I think that’s really what got us excited about staying.”

The TCCI project is just one example of a refocused state-level economic development effort that, by taking a unified approach across government, industry, labor and academia, has leveraged Illinois’ built-in strengths.

Private investment resulting from the state’s tax credits programs increased from about $2 billion in 2019 to just under $7 billion in 2023, according to data compiled by the governor’s office.

As the state grapples with stagnant population trends along with unemployment and economic growth rates that lag the rest of the country, the sales pitch from “Team Illinois” is all-the-more crucial in making the state a destination for industries of the future and the people who will fill those jobs.

This is the story of how Pritzker’s team built an economic development engine that, through targeted incentives, investment in state economic development agencies and a governor with a penchant for making sales pitches personally, is beginning to show results.

Pritzker, who has embraced the role of chief marketing officer for the state, said the eventual aim is to get to a place where “the flywheel goes by itself.”

Herald and Review TEAM ILLINOIS article

TCCI Manufacturing Chief Operating Officer Dennis Flaherty highlights ongoing construction work in this photo taken late last month in Decatur. The company was awarded the first tax credits under the state’s Reimagining Energy and Vehicles in Illinois (REV) Act.

“My grandfather used to say it takes a lifetime to build up a good reputation, but about five minutes to screw it up. And I think Illinois kind of screwed up its reputation somewhere along the way in the last 20 years,” Pritzker said.

“And guess what? It’s gonna take us more than a few years to get people to see,” he continued. “But it’s starting. I can feel it. People are changing the way they perceive Illinois.”

Laying the groundwork

When he entered office, some things were immediately clear to Pritzker. Among them: the state’s economic development apparatus, as he saw it, “was nearly non-existent.”

Illinois did not have a state-level economic development corporation, which is a nonprofit tool used to attract business through tax credits and other economic incentives. These entities also typically house information for site selectors, such a database of properties available to companies.

Illinois did not have this either.

And the state’s original tax incentive program, known as Economic Development for a Growing Economy (EDGE), was not set up to attract businesses in industries expected to drive future economic growth.

But an even more primal step was first needed to address both a real and perceived reason the state was missing out on big economic development projects. That, of course, was the state’s messy finances.

Pritzker, even more bluntly, said step one was “showing that we can govern ourselves.”

Illinois’ reputation had been tarnished by a two-year budget impasse in the mid-2010s that decimated the state’s already-shaky finances, nearly junked its standing with the nation’s leading credit agencies and cemented its reputation as an unstable place to do business.

But even before that, exploding pension costs, lack of discretionary spending discipline and a pair of global recessions that impacted revenue coming into state coffers combined to make unbalanced budgets — or budgets balanced via short-term borrowing — the norm in the previous two decades.

The headline of a Governing Magazine article from April 2018 asked “Who Ruined Illinois?”

“So I had to begin by addressing those challenges,” Pritzker said, adding that the state had to show that it could put itself “on a trajectory that was positive and that would provide a stable foundation for businesses that are already here, not to mention the businesses that might want to think about Illinois.”

In the past few years, the state’s fiscal ship has steadied. Budget documents show that after running a $38 million deficit in pandemic-impacted 2020, the state has run surpluses in each of the past four budget cycles, including nearly $3 billion in 2021, more than $2.7 billion in 2022 and more than $2.2 billion in 2023.

This robust cash flow, fueled in part by robust post-pandemic economic activity and the cushion of federal pandemic stimulus funds, allowed the state to entirely eliminate its bill backlog, which had climbed as high as $16.7 billion in 2017. Lawmakers also injected more than $2 billion into the state’s previously-empty “rainy day” fund.

Due in large part to the paydown of the bill backlog, the state ended fiscal year 2023 with a general fund balance of more than $2.2 billion. That marked the first time since 2001 that Illinois ended a fiscal year with a surplus.

The nation’s leading credit agencies have taken notice, gradually upgrading Illinois’ bond rating nine times from just above junk status to its current “A” grade.

Beefing up state agencies

While Pritzker and state lawmakers worked to get their fiscal house in order, they began a buildout of the state’s economic development infrastructure.

Pritzker described the Illinois Department of Commerce and Economic Opportunity (DCEO) as “mostly a grant-making organization” when he came into office. At the same time, public-private group Intersect Illinois largely functioned as a marketing arm “but wasn’t doing a very good job of marketing the state, in my opinion, at the time,” Pritzker said.

Outside perspectives were also sought, with Pritzker and his staff holding a series of meetings with site selectors working for Chicago-based firms like Cushman & Wakefield and JLL.

State officials chiefly wanted to know if Illinois was on site selectors’ radar when companies called about a relocation or new facility. The answer was almost universally “no,” Pritzker said.

Among the most damning revelations was that Illinois had never submitted information to site selection databases, which is one of the first tools a firm uses when retained by a company exploring a new site.

The state did not even have its own database, placing it figuratively and literally off the map.

Other issues had to be cleaned up too. Most notably, the state’s incentives and tax credits were unclear and not targeted towards attracting the industries of the future. And there was no organized marketing endeavor to promote the state’s skilled workforce to prospective companies.

“While we’ve had economic incentive tools in the past that could have won big projects, it wasn’t in the realm of understanding the needs of what’s in the market today,” said Meredith O’Connor, a site selector for JLL who was at the table for many of those discussions.

After taking “a lot of good notes,” Pritzker and his team got to work.

They determined early on that creating a new state-level economic development corporation “was going to take too long.” So the reworked apparatus would be housed within existing state agencies.

It starts with the governor’s office, with Manar and first assistant deputy governor Claire Lindberg quarterbacking the effort day-to-day. Pritzker gets personally involved in pitching Illinois to CEOs and serving as a go-between different companies across the state when necessary.

Gov. J.B. Pritzker, left, talks with RJ Scaringe, CEO of Rivian Automotive, about the company’s innovative electric vehicle chassis during Rivian’s public rollout of its new prototype vehicles in Uptown Normal Sunday, Oct. 13, 2019.

Next, it goes to Intersect Illinois and DCEO.

Intersect Illinois has been modified to operate more like an economic development corporation, housing the state’s site selection database, which was launched within six months of Pritzker taking office.

DCEO has been built out to provide “white glove service” to prospective and existing Illinois companies looking to relocate to or expand their footprint in Illinois.

In effect, this means streamlining bureaucratic processes by getting businesses in front of the right state and local entities on issues like permitting, property tax abatements and gaining access to resources like water and electricity.

The agency has also been armed with a boosted menu of incentives and tax credits to make the state more competitive in business attraction.

“So that’s something that rarely gets talked about, but you know, it’s not like we just send a flyer to a company or a single piece of paper to a company and wham, bam, boom you’ve got an agreement to build in Illinois,” Manar said. “This is very detailed, very tedious, very time-consuming work that takes an entire team of professionals at the Department of Commerce to do each and every day.”

The agency has also hired dedicated staff to administer programs in specific areas, including Lisa Clemmons Stott to drive the state’s electric vehicle programs.

Early reviews among companies in the state’s EV ecosystem have been positive, with Demirjian Huss praising the “the collaborative, concierge-type mentality that I’ve started to see” at the state level.

“(Pritzker’s) put the people in place for us to be successful,” Demirjian Huss said. “We have the resources now that we maybe didn’t have before. He’s been able to put in not only the vision but the people and the processes in place so that we can execute and implement. And that’s different.”

Incentivizing industries of the future

As the COVID-19 pandemic started winding down in 2021, Pritzker directed Manar to explore changes to the state’s incentive packages to focus “on some industries that we really could be great at… and have the workforce for.”

“It wasn’t like ‘OK, let’s pass this so we can go run out to this company and show them we did the one thing that they might like,'” Pritzker said. “It was more like, ‘We need to really reset here how we think about what we’re attracting. What are the priorities for the state?'”

The effort began in earnest in 2019 with a data center tax credit that, according to a study from Virginia-based Magnum Economics, has directly resulted in 13 projects and $4.2 billion in new investment in the state.

But the major industry Illinois had circled was electric vehicles.

The state had a head start in some ways, given significant investment from electric automaker Rivian Automotive. The California-based company bought a former Mitsubishi plant in Normal in 2017 after signing an EDGE tax incentives agreement with former Gov. Bruce Rauner’s administration. The package was for up to $50 million in tax credits over 10 years.

The company in September 2021 launched the R1T pickup, the world’s first battery-electric truck.

Lion Electric, a Canadian company specializing in electric school buses, also announced plans to open its first U.S. manufacturing facility in suburban Chicago in 2021. The plant opened in July 2023.

An electric school bus at the Lion Electric facility in Channahon in December 2021.

With these anchors, state leaders saw an opportunity to not only attract even more electric automakers, but the battery makers and parts suppliers that will make up the industry’s supply chain and create a larger EV ecosystem.

And the timing was right as businesses in the EV industry were making decades-long investment decisions within a relatively short period.

“We knew at the time, especially following federal action, with the Inflation Reduction Act and the CHIPS Act and other things that the Biden Administration has put in place successfully, we knew that we had to catch up with what was happening elsewhere in the country,” Manar said.

With other states moving aggressively to offer incentive packages to locate in their states, the administration and Illinois lawmakers worked to craft the state’s own targeted incentive program.

This led to REV, with incentives including payroll tax credits for the jobs created and retained by a company’s investment for up to 30 years. It also includes credits for the cost of employee training and exemptions on building materials and state utility taxes.

There was a deliberate sliding scale meant to attract larger companies, like Rivian, and those of more moderate size, like the parts suppliers such as TCCI.

Though similar to EDGE, companies eligible for REV will have access to the tax credits for a longer period. Manar said this was a necessary change due to the longer ramp-up needed to electrify the transportation sector.

Employees and others watch as Rivian Automotive CEO RJ Scaringe, second from right, shakes hands with Illinois Gov. J.B. Pritzker. Pritzker appeared at the Normal production facility on May 2 to announce $827 million in state incentives for the electric automaker.

“The transition to electrification will take time,” Manar said, “and as companies make choices about where they are investing billions of dollars of private capital, they need the assurance that the incentive will cover the time it takes to transition.”

REV also gives local governments explicit authority to abate property taxes.

Since REV was enacted in late 2021, 10 agreements have been inked to provide more than $1 billion in tax credits to EV producers and suppliers. The deals could result in the retaining of nearly 7,200 existing jobs in the state and the creation of more than 4,600 jobs, according to the agreements.

Mike Zalewski, a former Democratic state lawmaker who is now a lobbyist, was the lead sponsor of the legislation. He said that the state’s robust transportation network, access to energy and educational institutions among other factors made the state a strong candidate for EV businesses. But without incentives to kickstart the effort, that potential could have been left unfulfilled.

“I think the governor foresaw the proliferation of electric vehicle manufacturing and understood that EDGE, which was our traditional economic development recruitment tool, wasn’t quite working in the way he needed it to work for these types of companies,” Zalewski said. “So he set forth on a plan to develop a more targeted economic incentive that really went after electric vehicle manufacturers, battery manufacturers, solar panel manufacturers. And it’s been really successful.”

Part of the reason has been the state’s willingness to make changes along the way.

TCCI was the only REV agreement signed in 2022. While state officials preached patience as the program worked to get off the assembly line, they soon acknowledged that more firepower was needed. Larger companies, like EV producers and battery makers, were generating major competition among states.

So Pritzker went back to the legislature in January 2023, receiving approval for a $400 million “deal-closing” fund meant to get large economic development deals across the finish line.

“It put us on the map nationally,” Manar said. “It was a clear message to companies across the country and beyond that Illinois is open for business, and that we want business, and that we want the jobs to come to Illinois. So it changed the perception of our state without question.”

And the investment paid off in September 2023, when the state struck an agreement with Chinese company Gotion for construction of an EV battery plant in Manteno. It is expected to create 2,600 jobs.

The deal included up to $213 million in REV Act credits and $125 million from the closing fund.

O’Connor, who worked on the Gotion deal for site selection firm JLL, said that “incentives will never make a bad location good” and are never the sole reason a company locates somewhere. But, in the case of Illinois, they served to augment the state’s natural strengths.

“We are neck-and-neck with every state out there that wins a lot of projects, whether it’s Texas, the Carolinas, Indiana, Michigan,” O’Connor said. “We are neck-and-neck with them on getting, we’ll call it ‘at-bats.’ Where before governors really didn’t get the chance to compete.”

And in a sign that momentum is building, Rivian announced in March that it would pause construction on a long-anticipated $5 billion factory in Georgia and instead bring production of its new R2 truck to its existing Normal facility.

Weeks later, the company had an agreement in place with the state to invest more than $1.5 billion into the facility and create 550 new jobs in exchange for up to $634 million in REV incentives and $75 million from the closing fund.

It is the largest incentive package awarded to this point and replaced the company’s existing EDGE agreement, for which incentives were never issued.

“It’s one thing to have a vision; it’s another thing to execute it,” Zalewski said. “And it’s been well-executed.”

Another leap to the future

The state is taking a similar approach with another growing industry: quantum computing.

Call it a “quantum leap,” but Pritzker in particular is bullish on the rapidly-emerging technology, which harnesses the laws of quantum mechanics to solve complex problems.

That faith is so strong that state lawmakers included $500 million in the fiscal year 2025 capital budget to establish a quantum computing campus near Chicago.

Just last month, Pritzker signed a massive economic development bill that, along with boosting the existing EDGE and REV incentives, would create an enterprise zone around the proposed quantum campus.

Companies would be eligible for sales, utility and building material tax exemptions for up to 40 years.

With the incentives to sweeten the pot, Pritzker and state economic development officials believe Illinois, already home to top research facilities such as Fermilab and Argonne National Laboratory, could be uniquely positioned to take advantage of coming private and federal government investment in quantum.

Kate Timmerman, executive director of the Chicago Quantum Exchange, a consortium of universities, national labs, and industry partners, said “there’s a huge economic opportunity for the state” if it can get “quantum technologies out of universities and out of national labs.”

“I actually think that EV is a great example of having investments in economic development for a specific technology (that) can actually result in real jobs,” Timmerman said. “And quantum is another area where that could happen and, honestly, one where it could happen to an even greater extent because of how early the investment from the state of Illinois is and how much potential for growth that there will be.”

“It goes without saying no other state is making the level of investments that the state of Illinois (is) making,” she said. “And I think it takes real leadership in order to make those commitments.”

An economic ecosystem

Illinois’ refocused economic development strategy, though boosted by incentives and the buildup of state agencies, leans heavily on the state’s existing assets, including its business community, workforce and academic institutions.

“The governor has done a great job making sure that we’re all reading from the same hymnal, so to speak,” said Illinois Manufacturers Association President Mark Denzler, who adds that Illinois is “well-positioned” to take advantage of what he expects will be a “manufacturing supercycle.”

The idea is to remove silos and get everyone on the same page and figuratively rowing in the same direction. DCEO director Kristin Richards describes it as ” a very all-hands-on-deck approach to working with companies in our business development pipeline.”

“It’s this united Team Illinois front that’s helping us really present our strengths and assets in a comprehensive pitch to companies,” Richards said. “And we’re really seeing the results of that.”

Brian Robb, director of government relations for Lion Electric, said this was “one of the main reasons” the Canadian company decided to locate in Illinois.

“When you’re talking about site selection, I mean there’s always going to be the Texases of the world that I’m sure have a decent incentive package, but they do not have our workforce and they do not have the community colleges that feed pipelines into that,” Robb said. “So it’s all a web.”

One of the biggest difference-makers in creating this web has been the personal involvement of Pritzker, who will often hop on the phone with CEOs to pitch them on the state and encourage leaders in Illinois’ business community to do the same.

“I’ve heard that the difference often between us winning and losing can be that ‘Yeah, they got the governor of some other state on the phone or they showed up at a meeting,’ but that person didn’t really know anything about the deal,” Pritzker said. “They showed up because it’s nice for everybody to have a picture with the governor or whatever.

The EV Innovation Hub under construction in Decatur, shown last month, will house a training program through Richland Community College.

“But the sense that I think people get, because it’s real, is I’m going to be there not just before you’re making your decision and while you’re making your decision, but after — helping you attract customers, helping you meet the other businesses that are in Illinois so that you can maybe add them to your supply chain, lower your costs, etc.,” Pritzker said.

When Lion Electric was considering a move to the state, Pritzker connected the company’s CEO with several Illinois companies with which Lion wanted to do business, including TCCI.

The result of that is that every school bus Lion makes at its Channahon factory will feature an electric compressor produced at TCCI’s Decatur facility.

“We’re all in this network,” Demirjian Huss said. “And I think that’s been a really important piece of what the governor has created, too, is collaboration amongst these businesses in Illinois to help each other and to do business with and for each other as well.”

The collaboration is multi-faceted, with the state also leaning on its academic institutions and trade unions to support economic development through research and the development of workforce pipelines in key industries.

Case in point: TCCI’s partnership with Richland. The community college will operate a training academy that’s embedded within the company’s electric compressor facility.

Several two-year degree programs will be offered, and agreements have been reached with the University of Illinois at Urbana-Champaign and several other four-year universities to ensure seamless credit transitions. There will also be direct-to-work tracks for those not seeking a four-year degree.

“That is something completely different than what we’ve seen anywhere in the U.S.,” Demirjian Huss said, adding that “we can teach better, more practical hands-on immersive learning” and “help us advance those jobs faster.”

Though not every community college will have a classroom literally on the factory floor, the state is making investments elsewhere. Heartland Community College in Normal, for example, cut the ribbon on an advanced manufacturing center in February. Among other assets, it includes an electric vehicle lab.

The state’s fiscal year 2025 budget also includes $24 million for the buildout of similar manufacturing training academies across the state.

Gov. J.B. Pritzker, left, and Adam Campbell, dean of career and technical education at Heartland Community College, speak during a tour in the robotic area at the State Farm Electric Vehicle Lab on the campus of Heartland Community College in Normal in February.

Turning the crank

Illinois still faces significant headwinds.

The state’s unemployment rate, though below the 5% marker typically considered “full employment,” continues to lag behind the rest of the country.

Though Pritzker and his team strongly dispute U.S. Census estimates showing a decline in the state’s population since the last decennial count, there is no question it has stagnated in recent decades. Pockets of downstate Illinois in particular have experienced significant losses.

And even with a boosted menu of tax incentives, competition among states for large-scale economic development projects remains fierce. But, Pritzker said, Illinois needed to start somewhere.

“I don’t think that anybody — it must be for 20 years — has really put together an economic development endeavor for the state in a concerted way,” he said. “It’s one thing to react to one-off opportunities. It’s another thing to have a machine that’s out there working on it.”

Business leaders and longtime observers of Illinois politics say Pritzker’s economic development effort, both in style and substance, is reminiscent of former Gov. Jim Thompson, a Chicago Republican who relished promoting Illinois on trade missions and lured companies like Mitsubishi to the state.

Greg Baise, a longtime Thompson aide who later served as president of the Illinois Manufacturers’ Association for nearly three decades, said that Pritzker’s efforts are “very reminiscent of what Jim Thompson was about.”

“My background is on the Republican side of things, so not one to necessarily be a cheerleader for the governor,” Baise said. “But I do give him credit that he has brought a more focused effort on economic development in trying to work with both sides of the aisle and with business and labor.”

Denzler, who succeeded Baise at the IMA, praised the steps taken to boost incentives and build up ‘Team Illinois,’ but said that “the most important thing is the perception of Illinois has changed.”

“Some of the policies, REV and EDGE, for example, and the closing fund are helpful,” Denzler said. “But Illinois’ perception has changed dramatically in the last five years. And when you talk to site selectors, for example, they tell you that Illinois is on the radar.”

Years into the endeavor, Illinois still has work to do.

But Pritzker believes a foundation has been laid and the state is once again in the economic development game.

“You have to start by turning the crank,” Pritzker said. “It’s like an old motor. You got to start turning it and, eventually, the flywheel goes by itself – you don’t have to stand there and crank on the motor. And that’s kind of where we are.”

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