EAST PEORIA, Ill. -- Illinois is facing growing concerns among business leaders that its policies hurt the companies that drive its economy, the head of Caterpillar Inc. warned Tuesday as he met with Gov. Pat Quinn.
The meeting was prompted by a letter that Caterpillar CEO Doug Oberhelman sent to the governor about other states trying to lure his company after Illinois hiked its income tax. Oberhelman spoke with Quinn for about an hour, after which he said he expects the Peoria-based heavy equipment manufacturer to remain in Illinois for the long term.
Oberhelman also promised to help make the state more business-friendly, and Quinn vowed to invest in the state's infrastructure, expand its exports and overhaul its workers compensation system.
In his letter, which was leaked to a newspaper, Oberhelman wrote that his warning was not meant as a threat, but rather as a way to initiate a discussion about the state's business environment. The tax increase was approved in January.
"I think Caterpillar is here to stay," said Oberhelman, whose company employs some 23,000 people in Illinois.
Quinn acknowledged that Illinois needs to do more to improve its business environment. He boasted the state added the most total jobs in the Midwest last year, but Illinois ranked eighth in the region in terms of job growth as a percentage of the population.
"When you have a tough recession as we've had, recovery is never easy," Quinn said.
He emphasized the need to reform the workers compensation system and double state exports in five years by increasing trade with Latin America and Africa. Quinn added Oberhelman to a state export council to help reach that goal.
Illinois raised the personal income tax rate in January from 3 percent to 5 percent and the corporate rate from 4.8 percent to 7 percent. At the time, Quinn's office said the tax hike would bring in an estimated $6.8 billion per year and help the state deal with its massive budget deficit. The tax hike led other states, including New Jersey, Indiana and Wisconsin, to appeal openly to Illinois businesses to pick up shop.
Before meeting with Quinn, Oberhelman spoke at a conference on construction and transportation. He told the gathering that during a visit to Hong Kong two weeks ago, Caterpillar's overseas representatives were surprised by the Illinois tax increase and worried about the state's business environment.
"I thought to myself, 'That's not the image or the brand anyone in Illinois would appreciate,'" Oberhelman said.
Oberhelman declined to discuss the tax hike's impact on Caterpillar and to say how much the company paid last year in state and federal taxes, although he said the company did pay state income taxes. Caterpillar has argued the increase hurts the company's employees and makes it harder to attract employees such as engineers.
Illinois' businesses have made it a priority to cut the cost of workers compensation and unemployment insurance, and to cap the amount of money they could be liable for in lawsuits.
Quinn has proposed a 30 percent reduction in employer payments to injured workers, which would still leave Illinois with the nation's second-highest rates. Still, many lawmakers were disappointed Quinn's plan doesn't require workers to prove injuries that occurred on the jobsite were the primary reason for not being able to work.
Despite disagreeing with some of his policies, many business leaders have commended Quinn for listening to their concerns and trying to make the state a better place to operate.
"It is no longer talking at each other. It's really talking with one another," said Amir Al-Khafaji, who introduced Oberhelman and Quinn at the conference and is director of the Center for Emerging Technologies in Infrastructure at Bradley University.
David Vite, president of Illinois Retail Merchants Association, said Quinn has called labor groups together for "significant negotiations" on unemployment insurance reform. He said Quinn has met with various interests to get a better grasp of the issue and how to pay $2.5 billion owed to the federal government for unemployment benefits.
The Illinois Chamber of Commerce wants expanded research and development tax credits. The state's current research and development credit has expired and other states are improving their tax packages, the group says.
Kim Clarke Maisch, Illinois director for the National Federation of Independent Business, questioned the value of small business tax credits for new hires, which Quinn touted Tuesday. She said the $2,500 credit isn't enough to coax businesses into hiring, while ones that already planned to add jobs gladly take the free money.
Still, it would be something for businesses that feel under siege in Illinois, she said.
"It's better than a stick in the eye, I guess," Maisch said.