Profit sharing bump GM reported a record profit yesterday, which means UAW members at GM will get a record profit-sharing bonus. Bloomberg News says union workers at all three Detroit carmakers are eligible for bonuses this year, and that could give the Midwest economy a lift.

Hospital expansion The leader of Henry Ford Health Systems in Detroit is considering a $175 million expansion to its resort-like hospital in the suburb of West Bloomfield.

Nice way to repay Sears laid off 100 employees in its Chicago headquarters this week. It’s been two months since the state approved a $150 million tax incentive to keep the company in Illinois.

Unseasonably warm “Nice” weather isn’t helping Midwest winter tourism businesses.

Brain boom Wright State University plans a $37 million neuroscience research hub.

Cleaning up An environmental advocacy group says Ohio making progress on clean energy, but it has some harsh words for one of the state’s utility companies.

Medicuts The New York Times has a look at how proposed cuts to Medicaid will hurt Illinois

Bowing out Chrysler says it will no longer seek a loan from the federal government to develop hybrid vehicles.

Young and successful The South Bend Tribune sits down with a 29-year-old developer who’s working to revitalize the city.


The incentives war between the Midwestern states has heated up over the past few months, especially between Illinois, Indiana and Ohio, which, are fighting over Sears and the CME Group. Here is a look at how states use incentives to keep or steal companies, and how that effects overall economic development.

Think back to Political Science 101 and what you learned about game theory. If you need some help, think about the premise of one of my favorite 1980s movies: War Games.

Remember the ending? (No? Keep reading.) The movie’s  star, Matthew Broderick, wants to show Joshua, the computer, that there’s no way to win a zero-sum game. He gets the computer to play itself, first Tic Tac Toe, then a simulation of a nuclear war between the then-Soviet Union and the United States. In the end, Joshua realizes no one can win.

Keep game theory in mind, because we’ll come back to it later. But that’s kind of what’s happening between Illinois, Ohio and Indiana. These states have spent the past few months waging an economic incentives war worth millions of dollars and thousands of jobs.

The Chicago Board of Trade is one of several financial exchanges owned by the CME Group, which has been courted by the state of Indiana to move out of Illinois. (Niala Boodhoo)

The most recent round ended yesterday, when the Illinois Senate approved more than $200 million in tax breaks – specifically designed to keep Sears and the Chicago Mercantile Exchange from leaving Illinois.

The CME Group owns the Chicago Board of Trade, the Chicago Mercantile Exchange, as well as the Chicago Board Options Exchange.

Last week, at a news conference with Gov. Pat Quinn and Senate President John Cullerton, Chicago Mayor Rahm Emanuel echoed their sentiments that much is at stake.

“Chicago Mercantile Exchange allows Chicago and the state of Illinois to be a leader in the futures and risk management industry,” said Emanuel.

Indiana offered CME a reported $100 million to leave Illinois. Ohio offered four times as much to try to lure Sears.

An ad campaign by Indiana's Economic Development Corp.

But it doesn’t just happen with big companies. Indiana’s Economic Development Corporation earlier this year spent $50,000 on ads asking lllinois businesses if they were “Illinoyed” by the state’s taxes.

States find themselves over a barrel when officials feel the need to offer millions to lure and retain companies.

That’s a mistake, said Jennifer Bradley, a fellow with The Brookings Institution’s Metropolitan Policy Program.

Bradley said that in the case of incentives, governors and public officials face a classic “prisoner’s dilemma”.

“Governors would probably all be better off, or state economic development authorities would probably all be better off, if nobody got into these kinds of bidding wars,” she said.

In Illinois, the current tax package for Sears was set to expire. The legislation has extended those credits for 10 years for one set of credits, as well as 15 years for a special taxing district in regards to property taxes.

But Bradley says the effort to win jobs from other states may be misguided. She says most research indicates that 95 percent of a state’s typical job growth comes from existing or new businesses.

And here we’re back to the prisoner’s dilemma: with the current game of incentives, though, no one wants to budge.

“If you can’t count on everybody to do the right thing, then nobody’s going to do the right thing,” she said. “So companies have incentives to ask and individual states have incentives, temporarily, to make the offer.”

But some states are playing differently. Michigan is trying something that might break the Midwest out of this prisoner’s dilemma. In his first State of the State speech in January, Gov. Rick Syner rejected the “up the ante” mindset.

“We need to put more emphasis on economic gardening as opposed to hunting,” he said to much applause. “For those unfamiliar with economic gardening, it means we’ll focus first and foremost on building businesses that are already in the state.”

Since that address, Michigan has eliminated almost all of its tax credit incentives – including its much publicized film incentives.

(We reported on film incentives in our first Changing Gears story last year. You can hear it here.)

“We’re really trying to provide key access to tools that will help a business’s customer base grow as opposed to just providing them money and hoping that they will be able to grow their business,” said Michael Finney, president of the Michigan Economic Development Corp.

For Finney, that means the focus is more on providing help with accessing export markets, debt financing, and the like. He hopes this approach will also make it easier for the Midwest to work together.

“I happen to think if we worked together as a Midwestern region we’d be much more successful,” he said.

It’s not unprecedented for states within a region to cooperate. Take the South.

“Our former director used the term ‘coop-er-tition’,” said Kathy Geltson, Deputy Director of the Mississippi Development Authority. “We cooperate in instances where it makes sense, but there are instances when it’s a true competition.”

She’s talking about several specific alliances Mississippi and several southern states have formed for industries like the automotive or aerospace center. There, the states work together to bring companies to the region, and don’t try to compete, at least in this case, with incentives.

For Michigan, cutting those hundreds of millions of dollars out was a necessity given its fiscal state. But it works – if Michigan can show that this new strategy will still lead to comparable job growth –maybe other Midwestern states will start to follow suit.

What do you think about incentives? Should it be every state for itself? Or would the region be better served following other models?

And because I can’t resist, in case you’re nostaglic: that final scene from War Games:

 


Illinois Vote: The Illinois Senate is set to vote today on an incentives package meant to keep the CME Group (better known as the Chicago Mercantile Exchange) and Sears in the state. The vote follows the Illinois House’s approval of the package on Monday.  Barring a last minute glitch in the political process, listen for a report from Changing Gears’ Niala Boodhoo on the incentives situation tomorrow.

Michigan Liquor:  The State of Michigan is considering changes to the state’s liquor laws, which restrict sales on Sunday and allow local governments to set limits on who can get liquor licenses. The Detroit News reports the Liquor Control Rules Advisory Committee is looking at “anything and everything,” according to one state official. The review is not open to the public, however, and the News says that’s causing some consternation among groups that want the state to take a conservative approach to reforming liquor laws.

Arts Money: Sixty-six arts and cultural organizations in Cleveland’s Cuyahoga County will be sharing nearly $14 million in grants for 2012. Our partner ideastream is among five organizations getting grants of $1 million or more from Cuyahoga Arts and Culture. The group gets its funding from a tax on cigarette sales. Dan Bobkoff reported earlier this year on the unique way the grants are funded.

 


Three stories making news across the Midwest today:

1. Lansing-area Local 602 could authorize strike. Members of UAW Local 602 are voting today and tomorrow on whether to authorize a strike. The union, which represents approximately 3,430 employees at the General Motors assembly plant in Delta Township, Michigan, has failed to reach an agreement on a local contract with plant management. According to the Lansing State Journal, a strike authorization gives union leaders the authority to call a strike, but does not necessarily mean one is imminent. Changing Gears profiled Local 602, one of the three locals that defeated the GM-UAW contract, in September.

2. Illinois lawmakers regroup. Lawmakers will give a second effort to keeping CME Group and Sears in Illinois. After rejecting two bills that would have provided the Chicago-based companies with $250 million in tax incentives last week, they announced the House would hold a special session Monday in hopes of trying again. House members have now raised the prospect of splitting the bill into several pieces of legislation and holding multiple votes, our partner station WBEZ reported. The two companies have threatened to relocate elsewhere in the Midwest if a deal isn’t done by the end of the year. Illinois Gov. Pat Quinn said Ohio offered Sears $400 million in incentives to relocate to Columbus.

3. Milwaukee capitalizes on workspace-sharing trend. A Milwaukee developer is bringing a  West Coast trend of small businesses sharing office space to the Midwest. Soon, William Waldren will open the Hudson Business Lounge, where 180 small-business owners have already signed up to share work space, according to the Milwaukee Journal Sentinel. “There’s definitely been a pickup in people wanting to do this,” said James Carlson, who runs Bucketworks, another Milwaukee-based shared workspace building. Hudson offers various levels, starting at $55 per month for part-time access to group work tables to a $795 per month package that includes private office space. Across the U.S., 450 to 500 co-working sites exist, according to the newspaper, but most cater to tech people. Walden wants to broaden the appeal to other businesses.

 


Three stories making news across the Midwest today:

1. Kasich downplays Sears hopes. Gov. John Kasich says he “wouldn’t bet on” Ohio’s chances of convincing Sears to relocate its headquarters within its borders, The Plain Dealer reported today. During a visit to the Ford Assembly Plant in Avon Lake, he said Ohio remains in the running, but that it would be hard to pry Sears away from its long-time Chicago-area home. Last week, news outlets reported that Ohio had offered $400 million in tax incentives to bring the company and its 6,100 employees to Columbus. Illinois lawkmakers had rejected a proposal to give Sears $100 million in incentives.

2. Delays ahead on Detroit-Chicago rail line. Faster service is coming along a 135-mile stretch of train tracks between Dearborn and Kalamazoo . It’s just going to take a while. Construction will begin on a series of improvements in May or June, officials said yesterday, but the project will not be completed until 2015 or 2016. In the meantime, passengers can expect more delays. The Detroit Free Press reports today the project to fix tracks, cross ties, grades and crossings will cause further disruption. In four years, Amtrak expects new locomotives, new cars, smoother tracks and better signaling along the route. The improvements were funded as part of $403.2 million Michigan received from the federal government.

3. Indy community protests gas station development. The difference between refurbishing a dilapidated building and continuing a community eyesore? It’s largely in the eye of the beholder in one Indianapolis neighborhood, where residents of Northside are fighting the rebuilding of a gas station on the corner of 16th Street and Central Ave. In a lawsuit filed last week, opponents say the gas station no longer fits the area, and that they want something more friendly for pedestrians, such as shops or outdoor cafes, according to the Indianapolis Star. The newspaper reports the suit underscores the area’s progression from a “fixer-upper to up-and-coming.”


Three stories making news across the Midwest today:

1. Dayton seeks immigrant influx. Among industrial Midwest cities seeking to stop a population hemorrhage, Dayton, Ohio hardly stands alone in its attempts to attract highly educated immigrants. What’s unusual in Dayton is that the city wants the rest of the immigrants too.  City Manager Tim Riordan tells our partner station WBEZ that welcome all immigrants regardless of skill or wealth will create “a vibrancy” in the city. Dayton’s population sank 14.8 percent over the past decade to 141,527 in the 2010 U.S. Census, a steep decline from its all-time high of 262,000 in the 1960s. Currently, foreign-born residents account for 3 percent of the city’s residents. But Riordan says newcomers are already building foundations in the western Ohio city.

2. Chrysler sales skyrocket. Driven by rising consumer confidence, Chrysler reported today that sales rose 45 percent in November year over year. Brand sales rose 92 percent thanks to increased demand for the 200 and 300 sedans, and Jeep sales increased 50 percent from November 2010. General Motors and Ford are both expected to release monthly sales numbers later today. “Consumer confidence is really what’s going to underpin us as we go into 2012, so we’re really pleased to see that showing up,” GM’s Don Johnson tells our partner Michigan Radio. Industry sales appear to be on pace for 13 million units in 2011.

3. Ohio courts Sears. Two days after Illinois lawmakers jilted Sears Holdings Corp. in its attempt to win tax incentives worth $100 million from the state, the Chicago-based company has a new suitor. Ohio has offered Sears incentives worth four times that amount to relocate its headquarters and 6,200 jobs to the Buckeye State. Texas is another state aggressively courting the company, according to the office of Illinois Gov. Pat Quinn. His counterpart, Ohio Gov. John Kasich, declined to confirm or deny an offer to Sears, joking with The Columbus Dispatch that, “we are somewhere between $0 and $400 million.”


Three stories making news across the Midwest today:

1. Midwest Economy Gains Ground. The Midwest Economy Index showed improvement in the regional economy in October for the first time in six months, according to the Federal Reserve Bank of Chicago. The monthly index, a combination of 134 state and regional indicators, ticked upward from -0.37 to -0.33. Manufacturing was the only sector measured to make a positive contribution to the index at +0.20, although it had ebbed from +0.23 in September. The pace of manufacturing activity decreased in Iowa and Wisconsin, but increased in Illinois and Michigan. Indiana held steady. The service sector and consumer spending showed improvements overall, while construction and mining activity fell.

2. Emergency Manager Takes Over Flint. Michigan Gov. Rick Snyder appointed an emergency financial manager for the city of Flint on Tuesday. On Thursday, Flint’s former mayor, Michael Brown, will begin serving in the position. Under the state’s revamped emergency manager law, Brown will have authority to control the city’s operations and finances, including the power to terminate employee contracts, merge departments and reduce pay. It’s the second time an emergency manager has been appointed in Flint, which had a $15 million deficit in the 2010 fiscal year. Emergency managers are already in place in Benton Harbor, Pontiac, Ecorse and Detroit Public Schools.

3. Illinois Lawmakers Reject Incentives Bill. Two of Chicago’s most visible companies, CME Group and Sears Holdings Corp., have threated to move elsewhere if they weren’t given tax incentives to stay. Illinois lawmakers are calling their bluffs. The Illinois House of Representatives rejected a bill, 99-8, that would have provided $200 million in incentives Tuesday, the final day of the legislature’s fall session. House Republicans wanted the bill to focus solely on tax breaks for businesses they hoped would lead to job growth, while Democrats wanted tax relief for workers and low-income families included, according to the Chicago Tribune. Gov. Pat Quinn said “ample” time remained to reach a deal, but in a written statement, a Sears spokesperson said, “Our timeline for making a decision about our future by the end of the year has not changed.”


Three stories making news across the Midwest today:

1. Upper Peninsula’s mining boom. The mining industry in the Upper Peninsula of Michigan is enjoying a renaissance more than a century after its best days passed. New technology demands are creating demand for gold, silver, copper and nickel, the Detroit Free Press reports today. Foreign companies are finding them in abundance in both new and reopened ore mines. Mineral rights on more than 1 million acres have been leased for prospecting. But many of the mines are near rivers and Lake Superior, sparking concern among environmentalists. “I’m not anti-mine. I’m anti-mining pollution,” one advocate tells the newspaper.

2. Busy finale ahead for Illinois legislators. The Illinois state legislature could end its fall session Tuesday with a flurry of activity. Lawmakers are expected to vote on several pieces of legislation that have garnered attention for months, including a bill that would expand the Earned Income Tax Credit, which extends larger refunds to working families. Our partner station WBEZ reports the legislature could also tackle a package of tax incentives designed to keep CME Group and Sears based in in the state. Both have been wooed in recent months by Indiana and other competitors. A vote on legislation that would expand gambling in the state could also take place.

3. Walker plots recall strategy. A possible recall election may not take place until next summer, but Wisconsin Gov. Scott Walker is wasting no time in campaigning to keep his job. Walker is running television ads defending his 11-month record and Republican volunteers are going door to door canvassing likely voters. USA Today reports Walker’s office is trying to learn from the only two successful gubernatorial recalls in U.S. history. They believe California Gov. Gray Davis (2003) and North Dakota Gov. Lynn Frazier in 1921 both started campaigning too late to save their jobs. “There’s this momentum that builds, and once it builds it’s very difficult for things to reverse,” David Schecter, a political scientist at Cal State Fresno, tells the newspaper.


Remember the list of Midwest companies we gave you last month that won incentives to stay put? Now, add Sears Holdings to the group that is looking at options elsewhere.

Sears on State Street, Chicago (Niala Boodhoo)

According to the Washington Post, Sears, which is based in Hoffman Estates, Ill., is considering a site in the Washington D.C. area. Sears is the parent of Sears and K-Mart.

It has a new CEO who says he wants to give the 108-year old company more of an online identity. Our Niala Boodhoo looked at Sears earlier this year.

Sears is one of 110 companies with tax breaks from the state of Illinois that are set to expire. At its current headquarters, the Post says, Sears occupies 2.4 million square feet and employs 6,200 people. It has played the incentive game before. About 20 years ago, it announced plans to move its headquarters from the Sears Tower to North Carolina, and wound up with a package that prompted its relocation in the Chicago suburbs.