Sunday, October 14th, 2012

Improving Chicago’s Business Climate

This article is part of the State of Chicago.

Chicago is a tale of two cities when it comes to the business climate. If you are a high profile Loop business, things are great. The city will move mountains for you, permits won’t be an issue, and a healthy heaping portion of TIF dollars might even be coming your way. If you are a small business or someone without connections, it’s a different story. Improving business conditions, especially for small business and especially in the neighborhoods, is critical to the city’s economic future. I’ll outline here a few thoughts on how to do this.

1. No more kryptonite. What I’m talking about here are things that may not matter much on substance, but send a high profile message that Chicago is not friendly to business. Fighting to keep Wal-Mart out for so long. Having Gov. Quinn walk the picket line at the Congress Hotel. Alderman Moreno and Mayor Emanuel saying Chick-Fil-A isn’t welcome in Chicago. Alderman Burke speculating on using eminent domain to seize mortgages from banks. All of these send a very powerful message to prospective investors: you are only welcome in Chicago if you do what we tell you to – don’t forget who your masters are. Who wants to put up with that level of political risk?

2. Curtail aldermanic privilege. Speaking of political risk, everything from zoning to sidewalk cafe permits to garbage collection are under the control of the alderman. Having someone responsible for service coordination in a ward isn’t necessarily a bad thing – Jane Jacobs suggested something similar – but when routine permits needed to operate can be denied at the whim of the alderman, that’s a problem. It’s also a clear recipe for corruption, which is why so many alderman have gone to jail. And even for those who don’t engage in quid pro quo, you can believe many small businesses consider political donations to the alderman and the ward Democratic organization a wise insurance policy. Whenever a developer comes in and wants a zoning change, either a) it happens under the radar so fast nobody knows what’s up or b) the neighbors go ballistic and the whole thing is only resolved by negotiations by all parties with the alderman. When getting things done in the ward requires a sit down with the alderman, that’s bad. The city really needs to figure out how to make most permitting decisions via a transparent, predictable administrative process. Not, as is the case now, by having the alderman introduce a one-off ordinance at the City Council. Not only is this bad for business, it’s bad for the city as the City Council shouldn’t be spending over 95% of its business on so-called “ward housekeeping” tasks – but it does, per a Chicago Reader investigation.

3. Red tape reduction. I talked about this in my City Journal piece, so won’t go into details. But what has struck me about the reports of red tape problems experienced by businesses like Day Frog, Logan Square Kitchen, and Scooter’s Frozen Custard is that these are high end business catering to Chicago’s “creative class” – they are right down the rails of the upscale global city Chicago wants to be. Yet even they get caught in a quagmire of regulation. If these folks struggle, I can only imagine what a Latino entrepreneur on the Southwest Side must go through. Mayor Emanuel already announced some reductions in permitting, which is excellent. But this is something that needs major focus. If you want to get just a small taste of what it’s like to be a small business in Chicago, read this article on awnings. Among the reforms I’d make is looking at minimum parking requirements – which has led to the strip malling of Chicago – and radically reducing the scope in which you are required to get a Public Place of Amusement license. (This should apply to only very large venues). Also, the health code needs revising to be more rational. Elotes stands shouldn’t be illegal. Neither should limited use of home kitchens.

4. Bureaucratic Efficiency. Even during the depths of the housing crash, it still took two months to get a zoning meeting with city officials. It apparently now takes two years to process a foreclosure in Cook County. Friends who have done work on their homes have told me about having to hire “permit expediters” to get a building permit. Even if you assume this isn’t about corruption (which I wouldn’t assume, btw), the fact that there are people making a living doing this is crazy. There shouldn’t be a job for permit expediters in Chicago or any other city. The administrative machinery of the city needs to function effectively.

5. One Stop Shop Permitting. Wouldn’t it be nice if a business could go to one office and get all the permits they needed to operate? Maybe that’s too much to ask in the short term. However, some sort of an office where you could get a written statement from the city on the exact list of permits you need to operate would be a good start. If you comply with this list in good faith, then you should have safe harbor protection against citations for not having a permit if it wasn’t on that list the city gave you.

6. Permit Pricing Rationalization. Permit fees should be set equal to the cost of administration. Fines should be equal to the cost of enforcement plus reasonable deterrence. (If there is a scarce resource involved, then pricing should be set to allocate capacity according to value). Permits and fines for businesses shouldn’t be used for revenue raising purposes. The city sticker/parking ticket model is a bad one.

7. Deferred Licensing. Most small businesses fail. A lot of them don’t make it a year. Why make it harder and more risky by making people pay for expensive licenses and permits up front? How about making license fees and permits free for the first year? If you’re still in business at that point, then you start paying. Let’s lower the barriers to getting new businesses off the ground.

Obviously items like crime and schools matter to business as well. Business doesn’t thrive in unsafe areas or where the workforce isn’t educated. But I wanted to focus in on more business-specific items. Many of these are under the effective control of the mayor. Unlike say pension reform, they don’t require a lot of outside help. Thus these problems are in theory addressable.

While Chicago has a lot of barriers for small businesses, there’s also good news: New York City is even worse, and California is world-famous for its business hostile regulatory environment. Chicago is actually positioned to be a leader in business friendliness here.

In my piece “Detroit as Urban Laboratory and New American Frontier,” I noted how the collapse in city government effectiveness led to an environment where creative people can actually make things happen. Imagine if a place that has more effectively delivered services made a deliberate choice to nevertheless make it easy to do things. That could be a game changer.

Rather than internalizing the vices as virtues rhetoric of the global city (i.e, high costs and regulatory burdens are signs of health because it shows how in demand our city is that people are willing to put up with this stuff), instead seek to make Chicago the global type city where it is easier to do something new and creative than any other comparable city. Bring the pro-business mode of Houston to the urban environment of Chicago and you could create something really special.

The specifics I mentioned are some ideas. There are certainly more. But what’s really need to change is the overall attitude to business – again, especially small businesses in the neighborhoods. Instead of “Here’s what you’ve got to do if you want to do business in our town” there should be a big neon sign out saying “Welcome businesses – and what can we do to help?”

20 Comments
Topics: Economic Development, Public Policy
Cities: Chicago

20 Responses to “Improving Chicago’s Business Climate”

  1. Eric says:

    Great post and great ideas. I hope people listen.

  2. Is aldermanic privilege re: zoning really all that bad? I could see it going both ways – the arguments against it are obvious, but the arguments for it are that it’s better to have one person to please than having a zillion different constituencies, as is the situation in NYC.

    At the end of the day, Chicago is the most development-friendly big city in America…be careful messing with it.

  3. Stephen, yet despite that it had the worst performance on population and jobs of any peer city in America in the last decade. So clearly you can’t argue that it’s been working. There’s a lot more to business climate than throwing up condos.

  4. But is Chicago’s poor performance on population and jobs a result of its zoning policy?

    I’m not saying aldermanic privilege is a good thing for every aspect of city governance, but specifically with regards to winning zoning variances, it doesn’t seem as cut-and-dry as you’re making it out to be.

  5. Careful, you’re sounding like Tom Friedman there ;)

  6. Patrick says:

    The whole Chicago parking meter debacle – and parking availability in general – also plays a role in your point #3. I’m primarily a pedestrian and mass transit rider, but it still puzzles me how often parking simply isn’t ever thought about in broader plans.

    Mini-strip malls are terribly unattractive and don’t work great in an urban environment, and street parking is OK as a foundation, but in some growing and expanding neighborhoods – Andersonville, South Loop, parts of West Loop, Wicker Park to name a few – parking is a constant hassle.

    I’m not suggesting we pave paradise everywhere we can, but I think in the case of South Loop and Andersonville, particularly, the lack of logical, planned parking at times has had a direct effect on businesses. And *especially* in the case of South Loop, where big chunks of the neighborhood were redeveloped from scratch, the idea that no one had the sense to think about where anyone visiting that area or coming to the new restaurants and/or shops would PARK is stunning.

    I contrast this to Evanston, which has a few well placed, inexpensive parking areas in its downtown core, and which seems to have a very healthy infrastructure there to easily walk to its shops and restaurants. But then again, they didn’t auction their parking rights into infinity to the lowest bidder….

  7. Chris Grant says:

    I find it rather shocking that of all the things that could make Chicago more business friendly, you lead with point #1 by faulting elected city leaders for fighting against a company that regularly exploits its workers and engages in bad environmental practices (Walmart) and for supporting workers fighting for a fair contract (Congress Hotel). Since when did being pro-ubran mean being anti-worker?

  8. Chris, I don’t hate Wal-Mart the way some do.

    However, these moves as I say are less about the substance of the situation than about what they say: Chicago is a place where unions have a powerful hold over politicians, and where your business will find itself opposed by the government if you don’t do what the unions want. If Chicago unions had a reputation for reasonableness, that might not be a problem, but you can believe people know the stories about how for years you had to pay a union electrician to plug in your coffee pot at McCormick Place and such.

    Ultimately, whether Wal-Mart unionizes is a matter for its employees to decide. It’s not for Chicago’s leaders to say Wal-Mart can’t do business in Chicago until it gives into union demands even if those unions haven’t been able to organize Wal-Mart’s workers.

  9. Chris Grant says:

    But we should expect our elected leaders to say something. Listen, one can argue about whether union were being reasonable in seeking to protect jobs at McCormick Place. Likewise, one can argue whether the Mayor was being reasonable in seeking to make it easier to replace existing city school teachers with new hires. But, I for one expect our elected leaders to take a stand, and then we can decide whether we like the position.

    “Whether Wal-mart unionizes is a matter for its employees to decide.” I agree. The problem is that many Wal-mart employees want to unionize and Walmart will not respect that choice. What is wrong with the City backing the workers? We would never say whether Wal-Mart wants to build a giant store, with a thousand parking spaces, and oily run-off, and increased traffic, and no trees, and no pedestrian access near downtown Chicago is up to Wal-Mart. Rather, we would expect city leaders to tell Wal-Mart that it must build a store appropriate for the urban environment.

  10. Chicago is anti small business says:

    Most of the suggestions in the article were relevant. However, I often wonder when Chicago, a city with the most potential of any other American city will look towards itself for innovative ideas and stop trying to emulate other cities. The small business community in Chicago is obviously not a content.

    There’s no doubt that Chicago AND THE STATE OF ILLINOIS are HORRIBLE places to operate a small business. I know this first hand because I’m in the process of launching a new company and after comparing the initial “required” start-up cost, fees, registrations, permits and tax structures to the State of Michigan, I’ve decided to relocate my business to Michigan. I don’t have a ton of money sitting around for the state of Illinois and the city of Chicago to just take for general purposes. If Michigan and most other states can charge a fraction of the cost then what’s Illinois doing wrong? I’m going into business to “hopefully” make money. At the present time, I’m a struggling entrepreneur. Hoping to get rich. The fees in Illinois are literally 100x’s higher that the state of Michigan. That’s ridiculous! If the state of Michigan can charge me 100x’s less than Illinois, then this leads me to believe Illinois and Chicago are trying to take advantage of the small business person. This is called gouging or monetary rape.

    As much as I’d like to base my business in Chicago, I’d be a fool to allow myself to be taken advantage of by crooked local officials.

    If the city wants to have a vibrant small business community, occupied commercial store fronts and a small business community that thrives, then the city and state should reduce the fees of permits, registrations that drive entrepreneurs away. They have to understand, most small business opportunist are broke when first starting out. We most likely have a good service to offer the public but we need the laws to make it easier for us to get started.

    Otherwise, the sklled and talented individuals will just relocate to other welcoming states such as Texas, Arizona, Michigan and Oregan. I’m sure they’re happy to accommodate Chicago’s “lessor up’s” on the food chain.

  11. James says:

    Regarding navigating the city’s bureaucracies: getting a certificate from the water department takes weeks and is a total mess. The city has some of the lowest water rates in America. Keeping rates down prevents the department from doing necessary upgrades to its aging pipes (one of the oldest in America) and its service department. What should take hours takes weeks and it adds a huge layer of cost to doing business in the city on any real estate transaction.

    Too often city leaders look at the demand side of the equation and ignore the supply side. These are just a few examples of where civic leaders have made the bureaucracy suffer by reducing the supply because they wanted to keep the costs down on the demand side.

    Though I must disagree about Chick-Fil-A. That was good PR by the mayor if you buy any of Richard Florida’s creative class ideas. And it is just a sandwich (a rather mediocre one at that).

  12. Jackson says:

    Very well said, and refreshing perspectives. I don’t always agree on every angle you take, but definitely do here, particularly on the first point.

  13. costanza says:

    “Though I must disagree about Chick-Fil-A. That was good PR by the mayor if you buy any of Richard Florida’s creative class ideas. And it is just a sandwich (a rather mediocre one at that).

    This makes a lot of sense to me.

  14. Neil says:

    ^-Still a bad move from a purely business perspective, though, I think Chik-Fil-A would be smarter to shed its ultra conservative image if it wants to expand beyond the south.

  15. Rob says:

    Great article Aaron. I hope the Mayor is reading.

  16. Wanderer says:

    Small businesses Always say the city is unfriendly, that there’s too much red tape in any city that has an inch more regulation than Houston. Sometimes their complaints are valid, sometimes they’re not.

    Point 1–right, if you want to be a rampantly exploitative business whose workers have to go on welfare to make ends meet (Walmare) or you engage in vilification of gays (Chick Fil A) then you’re not so welcome. If you’re a bank that used deception, fraud, and maybe redlining to push people into unsafe mortgages, you should be challenged. That’s a good message for a mayor to send. Would you be OK with a company whose CEO proclaimed the genetic inferiority of Blacks? The Mayor sends the message that Chicago wants companies that are good citizens, a message that would be acceptable or even welcome to the vast majority of businesses.

  17. Stlplanr says:

    A must add– Simplify the change of use permit process, especially for start-ups. A business that changes a space from office to retail, or from retail to restaurant is taking on a lot more risk. At the same time, that start-up or small business is usually adding huge walk-friendly value to a neighborhood.

    Everyone wants more active street walls, but many don’t realize just how difficult the permitting process is for start-ups to actually enliven a previously dead space. Don’t make the desired built environment harder to create. Reward the risk-takers with a code that encourages adaptive re-use, especially where key to city revitalization strategies.

  18. Eli Naeher says:

    All of these send a very powerful message to prospective investors: you are only welcome in Chicago if you do what we tell you to – don’t forget who your masters are. Who wants to put up with that level of political risk?

    Would you prefer to live in a place that sends this message to investors: “You are welcome to do whatever you want in Chicago. You are accountable to no one.”? I certainly wouldn’t. It is absolutely appropriate that major investors–a tiny special interest group–should be accountable to the elected representatives of the people as a whole. I’m speaking as someone who started a (very) small side business in Chicago this year and happily paid the (modest) fees required because they support an urban infrastructure without which my business could not exist and the city would not be an attractive place to live anyway.

  19. GT says:

    All of these points could be made about Milwaukee as well. We really do have more in common than we’re willing to admit.

  20. Anonymous says:

    @ #18

    Your point is useless.

    All we’re saying is make the process more fluid and more affordable. Safety inspectors can still perform their jobs.

    If the Chicago were more business friendly then wouldn’t the city have a better reputation?

    The proof is in the pudding.

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