Caterpillar CEO warns of discomfort with Illinois

NEW YORK (Reuters) - The chief executive of Caterpillar Inc <CAT.N> has warned the governor of Illinois that state spending and an unfavorable business climate could undermine the competitiveness of Illinois-based companies.

Doug Oberhelman sent the letter last week to Gov. Pat Quinn, noting that four states have invited the Peoria-based heavy equipment maker to relocate since Illinois raised personal and corporate income taxes in January.

"I want to stay here. But as the leader of this business, I have to do what's right for Caterpillar when making decisions about where to invest," Oberhelman wrote in the letter obtained Friday by the Springfield news bureau of Lee Enterprises.

Oberhelman attached letters from the governors or other officials of Texas, Nebraska, Virginia and South Dakota, all of whom cited the recent Illinois tax hikes and offered to roll out the red carpet to Caterpillar.

Caterpillar spokesman Jim Dugan declined to provide a copy of Oberhelman's letter, but said it was not a threat to abandon Illinois -- where Caterpillar employs 23,000 of its 104,000 global employees.

"The letter really wasn't about Caterpillar, but about the state of the state, and our concern about deficit spending and the need to get the state on firmer footing," Dugan said.

Dugan said Oberhelman's letter to Quinn did not specifically refer to the recent tax increases. "It referred to the need for broader reform, and that can and should include tax structure as well as spending structure."

With Illinois facing a potential $15 billion budget gap, the state legislature passed a bill in mid-January that would raise personal income taxes to 5 percent from 3 percent and the corporate tax rate to 7 percent from 4.8 percent.

The four-year tax increase was accompanied by spending limits through fiscal 2015 in the country's fifth most populous state.

(Reporting by Ransdell Pierson; Editing by Marguerita Choy)