GO TO 2040 establishes coordinated strategies that help the region’s communities address transportation, housing, economic development, open space, the environment, and other quality-of-life issues.  The metropolitan Chicago region’s ability to implement GO TO 2040 is significantly shaped by decisions made at the state level.  While the Illinois budget's largest spending areas are health and human services and education, the State also plays a significant role in maintaining the transportation system, promoting economic development, and preserving natural resources.  All of these programs are jeopardized if the State does not address its unsustainable Medicaid program and exponentially growing pension liabilities, which are usurping its overall budget.

A recent Illinois State Comptroller’s Quarterly newsletter stated that Illinois is “essentially treading water” with regard to the mismatch between the State’s revenues, expenditures, and future obligations.  The statutorily-required contribution to the State’s retirement systems for FY 2013 is nearly $1 billion more than the required FY 2012 contribution.  To make up for years of underfunding, Illinois statute requires a contribution schedule that will result in the State’s retirement systems being 90 percent funded by 2045.  Meanwhile, a recent Civic Federation budget analysis indicates that the Illinois Medicaid program is underfunded in the current fiscal year by an estimated $1.5 billion. 

At the end of the past several fiscal years, the State has had a significant backlog of unpaid bills for which payments were delayed because of shortfalls in State revenue relative to appropriations.  According to the Comptroller’s Quarterly newsletter, Illinois currently holds approximately $9 billion in total accounts payable, including payments to universities, to Medicaid providers, and for employee health insurance. 

These spending pressures crowd out other spending priorities, such as badly needed investments in transportation infrastructure.  One of GO TO 2040’s major recommendations is that our system must be modernized so the region can compete economically with other U.S. and global economic centers.  Unfortunately, the State’s recently announced multi-modal transportation program, Transforming Transportation for Tomorrow, is significantly impaired by growing pension contributions.  Illinois Department of Transportation (IDOT) Secretary Ann Schneider recently announced this statewide $9.6 billion multi-year transportation improvement program, which is funded at a level 16 percent lower than the previous six-year program.  The program is an estimated $800 million less than it would have been had pension contributions remained at 2003 levels.  IDOT anticipates that its annual pension contributions for the department's employees will reach $400 million by 2019, which is untenable considering that IDOT's total expenditures for FY 2011 were $2.1 billion.

Credit rating downgrades due to fiscal programs have impeded the State’s ability to cheaply issue bonds.  Moody’s has downgraded the State’s bond rating four times in the last three years, including in January 2012.  Fitch Ratings issued downgrades in 2008, 2009, and 2010.  Standard and Poor’s issued two downgrades in 2009.  According to a 2010 report by the Civic Federation, bonds issued between September 16, 2009 and July 14, 2010 cost Illinois $551.3 million, or 20.9 percent, more than it would have if the State had maintained its 2008 credit rating.  A recent position paper by the Illinois State Treasurer reported that the State’s downgrades have also increased the cost of borrowing for counties and municipalities within Illinois.  Rating agencies have stated that future downgrades may occur if efforts are not made to improve the State’s fiscal condition.  Ongoing spending pressures may affect the State’s liquidity, and therefore its ability to repay bondholders. 

The General Assembly is currently deliberating on proposals that would improve the State’s budgetary outlook, including reforms for the State’s retirement systems and changes to the Medicaid program.  CMAP encourages the Governor and the General Assembly to find long-term solutions for improving the State’s fiscal condition, which must be stable in order for our region to maintain public services and move forward with infrastructure investments.  

Local service coordination, and where appropriate consolidation, is one of several coordinated investment strategies emphasized in GO TO 2040 for local governmental units to create efficiencies and adapt to a future of increasingly limited financial resources. In northeastern Illinois, 307 public school districts collect nearly half of all revenues from local governments (over $18.5 billion in FY 2009).  Yet there is broad agreement that the quality of education in our region -- as measured through student achievement and overall educational attainment -- is lacking and in many cases getting worse.

Last fall, the Illinois General Assembly created the Classrooms First Commission with the following objectives:

• Reduce the money spent on duplication of efforts.
• Improve the education of students.
• Lower the property tax burden.
• Provide recommendations as to what the net cost savings of realignment is to Illinois.
• Provide input to school districts on reorganization.

In April 2012, the Commission released preliminary findings on different cost saving options for districts throughout Illinois.  The options include providing tools for districts to increase efficiencies without consolidation, reducing some of the barriers that hinder voluntary consolidations, and encouraging “virtual” consolidations whereby districts can share administrative services and educational resources. The commission found that these strategies would reduce duplicated efforts, would improve student performance, and could save the state over $1 billion annually.  This projection exceeds the $100 million in savings originally sought by Governor Quinn in his earlier proposal to mandate the consolidation of over 500 of the state’s 866 districts. 

The Commission notes that its work is part of a long-term effort in Illinois — the state has 866 districts in 2011, down from 1,008 in 1984, according to a January 2012 report.  Illinois does have some financial incentives and approved measures in place for consolidation, including general state aid for a newly formed district, subsidies for consolidations of districts carrying budget deficits, and support for increasing salary schedules of teachers from the lower-paid district to achieve parity in the newly formed district. However, the commission identifies several barriers to consolidation and outlines strategies to streamline the processes.

CMAP will continue to monitor the Classrooms First Commission, whose final report is due on or before July 1, 2012.  This effort to pursue coordinated investments is important to the region’s long-term vitality.  In the face of constrained public resources, schools must still find ways to deliver high quality education that prepares students to become civically engaged and contribute to the region’s economy.  The Classrooms First Commission is scheduled to meet again on May 22 at the Illinois State Board of Education in Springfield.

Nurturing the region’s industry clusters is one of the main recommendations from the Human Capital chapter of GO TO 2040.  The plan directs CMAP, with the support of its partners, to perform “drill-down” analyses into specific established industry clusters, including freight, advanced manufacturing, and biotech/biomed, to better understand them.  CMAP is focusing on freight as the first in its series of cluster studies.  This Policy Update discusses the preliminary findings of that research, which will be published in June 2012.

Background on Cluster Studies

Clusters are interdependent firms that are in close geographic proximity, share common resources and technologies, and depend on a similar labor pool and institutions. The Chicago region's freight cluster contains not only core modal industries (i.e., rail, truck, air, and water freight transportation), but also the customers served by freight industries (e.g., wholesalers), the companies that supply and support core industries (e.g., transportation equipment manufacturers or logistics firms), and the companies that indirectly support these industries (e.g., road construction firms).   

The bubble graph below shows the growth and concentration of these core freight industries in northeastern Illinois, as well as the larger industries involved in moving goods through the region. The horizontal axis measures employment change from 2001-11, and the vertical axis shows the 2011 location quotient, which measures how concentrated an industry is compared to the national average. The size of each industry’s circle is based on 2011 employment figures. As of 2011, the local trucking industry had over 60,000 employees, while the air freight industry had less than 1,000 employees.  Overall, over 200,000 people are employed in the region’s freight cluster.  This represents four percent of regional employment.

Study Objective

CMAP’s drill-down analysis explores the connection between the freight cluster and the regional economy, examines how national and international developments are affecting freight in the region, and identifies key infrastructure, workforce, and innovation challenges and opportunities that affect future cluster growth. The report also surveys major efforts to support and strengthen the cluster and evaluates how these efforts align with identified challenges and opportunities. The final report will conclude with strategies for the region to better align resources and investments with the needs of the cluster so that the cluster can continue to remain competitive and grow. 

Key Findings

Cluster Dynamics 

The freight cluster is a driver of economic growth in the Chicago region -- in the past decade, employment in the cluster has increased by seven percent while overall employment in the region has increased by less than one percent, according to CMAP analysis of Economic Modeling Specialists, Inc. (EMSI) data. EMSI’s numbers are based on Bureau of Labor Statics (BLS) counts and have been integrated with roughly 90 other sources to improve accuracy and allow for more precise analyses. Furthermore, metropolitan Chicago is the nation’s freight hub. Between a quarter and a third of all U.S. freight tonnage originates, terminates, or passes through the Chicago region (see map of freight movements).

Source:  Federal Highway Administration. http://ops.fhwa.dot.gov/freight/freight_analysis/nat_freight_stats/tonhwyrrww2007.htm. Click image for larger version.

National and International Developments

Globalization and increased consumption continue to drive enormous demand for freight, which is expected to double within the U.S. in the next 20 years. Efforts to address this increased demand in freight are underway in the U.S and abroad.

Some of these external efforts, such as expansion of the Prince Rupert port in British Columbia, will likely increase the volume of freight coming through the region. In contrast, the Chicago area is also facing competition to capture increasing freight demand from other regions, such as Memphis.  Developments like the widening of the Panama Canal may also direct freight flows away from Chicago. To stay competitive, the northeastern Illinois region must stay abreast of international and national developments in freight movements while developing proactive strategies that enable the region to benefit from these developments.

Challenges and Opportunities

Despite metropolitan Chicago’s role as a leading freight hub, a number of serious issues may inhibit growth in the freight cluster relating to infrastructure, innovation, and workforce challenges.  Infrastructure is the most significant challenge facing the cluster because of the region’s congested transportation system, which was discussed in a recent article from the New York Times. Currently, our region ranks amongst the most congested in the nation. Regional congestion is exacerbated by fragmented freight land use and by a dwindling stock of industrial/freight land. Because almost every industry relies on the freight cluster for efficient movement of goods, the rising costs of moving goods through the region will affect the competiveness of the greater regional economy.

In addition to infrastructure issues, innovation is rapidly changing the needs and operations of businesses within the cluster. Technology is increasingly being used to control supply chains that are global in scope. Improvements in carrier and terminal operations are being adopted to realize new efficiencies. External and internal pressure to ”green” the cluster is leading to a slew of innovations, such as increasing fuel efficiency and reducing emissions. To stay competitive, the regional cluster must stay ahead of the curve in adopting freight innovation and addressing the barriers that inhibit the creation of innovations.   

The changing dynamics of the freight cluster are altering workforce needs. The increased technology-intensive nature of the freight cluster means that workers need new skillsets to be competitive. This is an important opportunity for the workforce, yet the region is having difficulty attracting technology-savvy workers to manage complex supply chain movements. 

Other major workforce challenges and opportunities include retention issues and the high number of projected job vacancies.

Cluster Support

Significant resources across the region are targeted toward strengthening the freight cluster. Policies on freight are often determined independently based on jurisdiction. The consequences of these policies, however, have regional repercussions. Because implementation efforts often occur at the local level, freight support structures tend to be siloed as efforts are concentrated on specific issues or geographies. Better understanding the existing priorities and strategies will reveal opportunities for regional coordination and strategic investment to support the Chicago region’s status as a leader in freight and logistics.

CMAP’s freight drill-down report will build on these preliminary findings and will conclude with strategies on what the freight cluster needs to remain competitive and grow, as well continue to return economic benefits to the region. Upon release of the freight drill-down in June 2012, CMAP will work with partners and stakeholders across the region to organize strategic efforts to support innovation and growth in the freight cluster.

Negotiators from the U.S. Senate and U.S. House of Representatives will meet on May 8, 2012, to reconcile their respective versions of a new surface transportation bill, H.R. 4348, which were recently approved by the two chambers.  The House passed H.R. 4348 on April 18, 2012, as a three-month extension of the current federal transportation program.  The Senate received H.R. 4348 from the House on April 19, struck all language in the bill after the enacting clause, and replaced the text with S. 1813, Moving Ahead for Progress in the 21^st Century (MAP-21).  MAP-21 is the $109 billion, 1.5-year transportation reauthorization bill that was passed by the Senate in March 2012.  The Senate approved its version of H.R. 4348 on April 24.

The Senate has named 14 conferees to negotiate with the House.  These senators include the most senior members of the Environment and Public Works Committee, as well as those from the Commerce, Banking, and Finance Committees.  This group also includes senior Illinois Senator Richard Durbin.

The House rejected the Senate’s amended version of H.R. 4348 on April 25, and the Speaker appointed 33 conferees the same day.  This group includes top lawmakers on the Transportation and Infrastructure Committee; Energy and Commerce Committee; Natural Resources Committee; Science, Space, and Technology Committee; and the Ways and Means Committee.

For a list of major legislative actions on H.R. 4348, please consult the Library of Congress bill tracking system, THOMAS.