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What’s the Future for Chicago in a Mess of a State?

Illinois is bleeding residents, and changes to federal tax policy could make that even worse—particularly in wealthier suburbs like Oak Park, which could see a big drop in home values. Meanwhile, Chicago is adding jobs and downtown residents. Can this continue? UIC government expert David Merriman weighs in.

Downtown is proving a tourism and job magnet, but can the state keep up?   Photo: John J. Kim/Chicago Tribune

While Illinois is bleeding residents, Chicago is seeing relative stability—and in some neighborhoods, considerable growth from both jobs and residents. These trends could be further driven by changes in federal tax policy, which, by enforcing a relatively low cap on state and local tax deductions, effectively raises taxes in states where those are high. And with some of the highest property taxes in the country, that is likely to hit affluent suburbs of the city hard.

That could drive even more residents out of state. But it could also drive more into the city, by removing one more reason to live outside it. David Merriman, a public administration expert at the University of Illinois-Chicago, talked with Sam Cholke about the city’s surprising downtown success and its prospects within a state that’s struggling.

Why do you think we’re seeing higher job growth in the city, particularly downtown, compared to the suburbs?

I think that it’s driven more by the labor force than anything else. People want to work in the city. And I think you know that could be partly [because] crime rates have gone down and cities have become a more attractive place. It seems like a cooler place to live and so the labor force, particularly the young labor force, wants to work in cities. And in Chicago, although we have a high crime rate in the city as a whole, we don’t have a high crime rate downtown.

How much credit do we give to Rahm Emanuel for the growth in jobs?

I think it’s very difficult to know the answer to that question. I will say this: Chicago is doing better than one would expect given all the state and local fiscal difficulties in terms of attracting jobs. […] If you’re just saying has downtown Chicago has done better than we would have expected under Emanuel, I think the answer for the last few years is yes.

If the city is growing in jobs despite all these headwinds that we’re up against, why are people still choosing to leave?

One thing is people are rightly recognizing is that we have large, unfunded pension liabilities at the state level and also at the city level. We’re not rebuilding our infrastructure. Those are things people are, to some extent I think, running away from. Also just frustration that it doesn’t look like the government’s competent—I’m not saying the city, I want to be clear about that, I’m saying at the state level it looks like the government can’t get it together.

Would our job growth be higher if the state were more on top of its budget and functioning in a little more of a stable way?

Despite the significant headwinds from a non-functional political system, the downtown is growing, which just shows you how strong the trend towards downtown is and what a great competitive position Chicago is in. Chicago is actually doing well even relative to other big cities. And I would expect Chicago to be incredibly blossoming if we could fix the fiscal problems of the state and of the city. The city’s had big fiscal problems, too—they have a lot of unfunded pensions, too. Despite that, people are betting on the city, which you can imagine would be a much bigger bet if it weren’t for that.

Chicago wants people to choose to live in the city over relocating to the suburbs. If the economy is slowing and housing prices are falling in the suburbs and it looks like a little less of a good investment, is that good for Chicago?

Yeah, I think potentially the city could benefit from that. People might feel like the benefits of living in the suburbs with really good school systems have been reduced because it’s really hard to raise enough money to fund the schools in the new environment. Houses in the suburbs, which looked like a more secure investment, may look like a less secure investment.

That just might make the city a little more attractive and might make people willing to deal with the inevitable hassles of how to find good schools in the city and what do you do about traffic and noise and finding a neighborhood that you know is safe. It might change the balance a little bit, and so more people might be willing to move in from the suburbs, and that could potentially also have a kind of a snowball effect which could make the city a more and more attractive place to live, and hence also encourage employers to move in. If you can get people to move here then the employers will also be more willing to move here.

With all the new changes happening at the federal level how do you think that’s going to affect continued job growth in the city and the suburbs?

I think the federal tax policy change is likely to help the city compared to the suburbs because the suburbs will be hit more by the cap on state and local [property] tax deductions, which is likely to lower housing prices in the suburbs and make it less profitable to invest in housing in the suburbs….

My back of the envelope toying with it is that housing prices in high-tax suburbs like Oak Park can easily drop 15 to 20 percent—just a huge and I mean massive hit. I think people are not going to be happy. They’re going to see their housing values decline and in general they’re just going to be ornery about all sorts of things, including paying their taxes.

So is that driving an even more pessimistic view for job growth in suburbs compared to the city?

It could snowball in that way, yeah. You’ve already got an area where growth is less rapid and they aren’t trendy and people are moving into the city. Now you start to see house prices fall because of that. People cut back on consumption, businesses start to fail in the suburbs and you’ve got suburbs that are doing much less well, which could intensify the movement into the city.

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