3 big headwinds for Illinois businesses this summer

Summer is a season of opportunity for Illinois businesses, but this year familiar challenges are reemerging that threaten to burden suburban businesses with higher costs and greater uncertainty.

Here are three major issues shaping Illinois’ business climate this summer.

A $1.5 billion ask from transit agencies

Despite ridership on Chicago-area public transportation remaining about 30% below where it was before the pandemic, the Regional Transportation Authority is asking taxpayers for $1.5 billion more. At the same time, local campaigns are popping up for and against potential funding mechanisms.

Public transit plays an essential role in the Illinois economy. Commuters rely on it to get to work, and local businesses benefit from traffic brought in by foot traffic near transit hubs. But when service quality and demand fall and costs continue to rise, it raises questions about fiscal responsibility.

Personnel costs are a major driver of RTA’s budget pressures. At the Chicago Transit Authority, labor makes up more than two-thirds of spending and those costs are only going up. By 2026, CTA labor costs are expected to be $300 million more than they were in 2021. Nearly half of CTA’s staff works in administration and management rather than in providing transit service.

In the private sector, a 30% drop in customers would lead to belt-tightening, not budget increases. Instead of demanding more taxpayer support, the RTA should be reassessing operations and eliminating inefficiencies. Instead, they’ve proposed taxing real estate sales in the suburbs — a move that would hit homebuyers and sellers alike, damaging the real estate market and likely raising costs for small businesses. Illinois already has the nation’s highest property taxes.

Transit agencies must adapt to post-COVID commuter patterns. That means considering agency consolidation and eliminating wasteful spending. It doesn’t mean taxing residents and businesses more because the agencies are inefficient.

Government raises outpace the private sector

July 1 marked “raise day” for tens of thousands of Illinois state employees represented by AFSCME Council 31. That 2.5% to 4% pay bump is part of a multiyear package negotiated in 2023 that compounds to over 19.28%.

While fair compensation for public workers is important, this deal has troubling implications for private-sector workers and the broader business environment. Since 2021, Illinois state employee salaries have grown 57% faster than pay in the private sector. In 2024, the average state worker earned $85,689 — nearly $7,500 more than the private sector average of $78,267.

These raises are guaranteed through 2026 regardless of economic conditions. Businesses, by contrast, must continually adapt to changing markets and rising costs without such assurances.

This gap in compensation puts added pressure on taxpayers: state workers are paid through public funds, and many of those taxpayers are also small business owners or private employees whose own wages aren’t growing nearly as fast. This contract should be top of mind in the gubernatorial race, as the next administration will negotiate a new contract with state employees soon after the election.

Pension sweeteners add to business uncertainty

Instead of reining in long-term costs, Illinois lawmakers took a step in the wrong direction. In late May, the Illinois General Assembly passed House Bill 3657, which significantly boosts pension benefits for Chicago police and firefighters.

Gov. JB Pritzker signed the bill Friday, ensuring future Illinoisans are forced to fund the unsustainable sweetener.

The enhancements include final salary spiking and increasing pensionable pay limits. If signed into law, the changes would cost the city $52 million in the first year and add $11.1 billion in new Chicago debt by 2055.

The timing couldn’t be worse: Chicago’s firefighter and police pensions already are among the worst-funded in the nation — putting retirement security at risk — plus the city is staring down a projected $1.2 billion budget hole in 2026. That combination typically yields tax hikes.

Deeper pension debt increases the risk of higher property taxes, which already are a sore spot for Illinois residents and businesses. It means possible downgrades to the city’s and state’s credit ratings, which increases borrowing costs. It creates an environment of uncertainty where employers are hesitant to invest or expand. This could trickle down to suburban businesses and employees.

From expensive transit funding demands to runaway government spending, these issues all share a common thread: increased costs for businesses and taxpayers.

Now would be a good time to offer relief rather than more burdens to the people keeping Illinois’ economy running.

• Matt Paprocki is the president and CEO of Illinois Policy.