Wisconsin vs. Illinois rivalry extends to politics

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ILLINOIS -- Wisconsin and Illinois form the heart of the heartland, but there is no love lost along the 200 mile border that separates the states. From sports to sausage, there is a rivalry, and now, the border battle extends to politics. The differences begin with the opposite ways both states dealt with budget problems.

Last year, Wisconsin Governor Scott Walker was sworn into office with a promise: no tax increases, and a problem: a huge budget deficit. Wisconsin had a $3.6 billion budget deficit, and Walker proposed closing the gap with massive cuts to education and new demands on union workers, including effectively ending collective bargaining for most public employees. That, of course, touched off a year of political turmoil in Wisconsin.

At the same time, Illinois was dealing with its own fiscal meltdown.

In Illinois, Governor Pat Quinn confronted a fiscal mess four times as large - a $13 billion deficit, including $6 billion in unpaid bills to social service agencies, schools and contractors. His plan was equally controversial: raising taxes by an unheard of 67 percent, and borrowing $3.7 billion to fund the pension system.

Illinois Republicans predicted a mass exodus of businesses.

Illinois tourists bring millions of dollars across the border every year. However, this year, when they get to the state line, they see a new sign: "Wisconsin is open for business." That's the slogan Walker unveiled in his victory speech on election night, and it is the phrase that defines his pro-business agenda. Walker made it clear the state is open for businesses to come to the state from Illinois. "They see not only higher taxes, they see dysfunction in Springfield, and they see a government that can't get their act together, that's out of control, that has no solutions, that has no long-term plan and they want to get out," Walker said.

Walker admits his policies haven't exactly brought political stability to Wisconsin either. "There's a difference. I would say temporary political instability, if it leads to long-term fiscal sanity and economic security is worth it," Walker said.

In the year since the Illinois tax hike, Walker has rarely missed an opportunity to publicly criticize Quinn's course of action. Governor Quinn says the fiscal house was burning, and Democratic lawmakers say raising taxes was the only choice they had.

Outspoken Illinois Democratic State Senator Mike Jacobs says Walker's plan to lure businesses from Illinois is upsetting. "I thought it was ridiculous because some of the people escaped from Wisconsin to my area to hide out from their own governor. What kind of political system are we living in that legislators feel so threatened by their own governor that they need to abandon their state?" Jacobs said.

The Illinois tax hikes gave the state a seven percent corporate income tax rate, putting it just below Wisconsin's 7.9 percent rate. "Illinois, even with our increase, has the lowest overall effective tax rate on new investments in the country," Jacobs said.

Illinois actually has one of the highest rates in the country, because it requires businesses to pay an additional 2.5 percent "personal property replacement" tax. "They say it's seven percent versus 7.9 percent, that is failing. It ignores that there's a 2.5 percent surcharge that is put on every corporation in the state," Walker said.

However, the baseline rate is something different than the effective rate. Almost two-thirds of the businesses in Illinois don't pay the top rate. "The interesting thing has been in the last couple of months, the debate in Springfield has been about going back and carving out exemptions for businesses like a Sears, Motorola and down the line. For us, that shows how bad of an idea it was in the first place," Walker said.

Those are companies that threatened to leave Illinois, but didn't, because Illinois offered side deals. One business that did bolt across the border is the online savings company FatWallet.com. "It was really about getting to Wisconsin and getting to a more small-business-friendly atmosphere," Ryan Washatka, COO of FatWallet.com said.

The 12-year-old company with 55 employees moved to Wisconsin from Illinois to get away from tax increases. "In a quick time frame, we had to find a different state to work in," Washatka said.

The company left behind a brand new building, which now sits vacant in Rockton, Illinois. The company moved its operations, employees and tax revenue five miles north to Beloit. "Small business is going to go where it can flourish. We weren't just going to sit back and play victim to the policies and procedures that were being put on us," Washatka said.

Neither Illinois, nor Wisconsin could provide a list of all the businesses that have moved over the last year, but it has happened both ways. Hotel Compete, for example, moved its operations from Glendale, Wisconsin, to downtown Chicago.

Jacobs says midwestern states should work together and craft a regional approach to economic development. "We're not competing against Iowa or Indiana. We're competing with those people across the pond. Until we realize that, our kids are going to be speaking Chinese. No one's ever going to be speaking Wisconsin-ease," Jacobs said.

"We shouldn't ignore, when you've got such a compelling argument about where one state is headed forward, and one state is headed backwards, we think that's an issue. We should not be afraid to tell the story," Walker said.

Walker points to a stream of bad news about Illinois' economic policies. In January, Moody's lowered Illinois' credit rating, giving the Land of Lincoln the lowest rate of any state in the country, including California. "There is no state worse when it comes to a bond rating than the state of Illinois. In contrast, Moody's called (Wisconsin's) budget credit positive. It is an amazing contrast just a few miles apart," Walker said.

Pew Center on the States recently ranked Illinois as the state with the worst-funded pension system in the country.

"While the governor of Wisconsin is fighting with his own people, and losing thousands of jobs, we in Illinois have acted like adults and done what we've had to do, and that's increase the tax. As a result, people said the world was going to end, and it didn't," Jacobs said.

Senator Jacobs may be right. In each of the last six months for which statistics are available, Wisconsin has lost jobs, leading the nation in that category, while Illinois has been leading the nation in job growth. The U.S. Bureau of Labor Statistics numbers from September to October of last year, show Wisconsin dropped 9,700 jobs, while Illinois added 30,000. "We've seen more permits to open new businesses this year than any year we've ever had," Jacobs said.

Wisconsin and Illinois are tough to compare, as the population of the Chicago metropolitan area is almost twice as large as the entire population of Wisconsin.

Political observers say there's no question Walker is a tough and smart politician, but Jacobs says the 44-year-old governor's penchant for picking fights, whether it's with unions or with Illinois, could end up being his political downfall. "I think you really ought to have grey around your temples, and learn to deal with people and not get into a situation where you're fighting with everybody, or you begin to look like a mad dog. What happens when you look like a mad dog? Eventually, you get shot down," Jacobs said.

Within a month, we may know whether Governor Walker will have to defend his policies in a recall election. In many ways, the campaign has already begun.

Illinois Governor Pat Quinn refused FOX6's requests for an interview for this story.