Official Website for State of Illinois

Tight Lending

On June 25, 2011, the Wall Street Journal reported that over a quarter of mortgage applications made to top lenders in Illinois are denied, according to an analysis by The Wall Street Journal (“Tighter Lending Criteria Crimps Housing,” June 25). Illinois, at a 25.5% rejection rate, is below the national average of 26.8%. Some states, including Texas, Mississippi, and Vermont have denial rates of 35%.

Tight lending standards are a result of Fannie Mae and Freddie Mac, which together insure 90% of all mortgages, seeking to avoid further losses. Both organizations were taken over by the U.S. government after massive losses in the recent recession and are under political pressure to reverse their fortunes.

Among those who are most likely to be denied, according to the article, are those who are working but were unemployed for a period of time in the last few years and small business owners or contractors (including real estate agents) who have variable income. From the Journal article:

Although lenders were expected to pull back from the freewheeling conditions that helped inflate the housing bubble, some economists argue they are now too conservative, and say that with the U.S. economy still wobbly, mortgages need to be easier to obtain for qualified borrowers, not harder.

“As the noose on credit availability tightens, credit is being choked off at a time when the housing market is extremely fragile,” says Laurie Goodman, senior managing director at Amherst Securities Group LP.

Christopher Thornberg, a housing economist at Beacon Economics in Los Angeles, counters that “banks are doing what they need to do” to change lending standards in the wake of a “crazy bubble. ”

He adds, “You had decades where credit standards were tougher than they are even now.”

Among the would-be borrowers having a harder time are those who have seen their incomes fall or interrupted by a period of unemployment, scenarios that have become increasingly common in recent years. Some self-employed applicants are also hitting barriers to loans—hurdles they didn't face in the past.

Lending standards are still tight in part because government entities Fannie Mae, Freddie Mac, and the Federal Housing Administration, which collectively account for more than nine in 10 loans being made today, are under heavy pressure to avoid any losses.

Those firms don't make loans directly but instead purchase or guarantee mortgages that meet their standards, and so have significant influence over which loans banks are willing to approve.

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Rising Unemployment

Unemployment figures rose across Illinois in June, ending a string of monthly declines in 2011.

The Peoria metro area's unemployment rate in June was 7.9 percent, up from 7.2 percent in May, according to statistics released Thursday by the Illinois Department of Employment Security.

Unemployment in the Peoria area was well below the 10 percent figure recorded in June 2010, the state noted.

June unemployment numbers also were up across the state, compared to the previous month. Bloomington-Normal's June rate was 7 percent, up from 5.9 percent in May and down from 7.9 percent in June 2010, while Decatur recorded 9.8 percent unemployment in June, up from 8.9 percent in May and down from 11.8 percent in June of last year.

The rise in unemployment figures from month to month was attributed to seasonal changes by Norman Kelewitz, a jobs analyst for the Illinois Department of Employment Security.

"A lot of that is due to a decrease in government and school employment. June is the end of the school year. It's a major factor every year," he said.

June marked the 13th consecutive month in which the unemployment rate in metro Peoria has been below the year before.

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Failing Education

Every student in America proficient in reading and math skills by 2014.

It’s a laudable goal, but educators, reformers and politicians alike say it has set the country’s schools up for failure and may be depriving children of a well- rounded education.

As Illinois and other states watch more schools fail under the standards set by the No Child Left Behind Act than state boards of education can assist, President Barack Obama is calling for sweeping changes to the law, also known as the Elementary and Secondary Education Act (ESEA), before most students return to school next fall.

“According to new estimates, under the system No Child Left Behind put in place, more than 80 percent of our schools may be labeled as failing — 80 percent of our schools! Four out of five schools will be labeled as failing. That’s an astonishing number. And our impulse is to either be outraged that the numbers are so high or skeptical that they’re even true. And let’s face it, skepticism is somewhat justified. We know that four out of five schools in this country aren’t failing. So what we’re doing to measure success and failure is out of line,” Obama said during a recent speech at a Virginia middle school.

In Illinois, 720 schools are on the State Board of Education’s academic watch list for schools failing to meet the standards required by the act. However, several of those same schools are on the board’s “honor roll” for high performance or for consistently improving student performance in recent years. This illustrates the primary complaint most have about the rigid standards set under former President George W. Bush: Schools that show substantial improvement are still dubbed as failing.

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Broke Pension System

The number of retired Illinois government employees receiving pension benefits of over $100,000 a year has climbed to 5,294 as of April 1, 2011, an increase of 22% from June 30, 2010, according to the president of Taxpayers United of America (TUA). Of the six state pensions systems, the highest number of affluent retirees, 2,668, belong to the Illinois Teacher Retirement System (TRS).

“The total of retired Illinois government employees pulling in over $100,000 has accelerated. The number of these prosperous retirees took only 9 months to increase 22%, from 4,352 to 5,294,” said Jim Tobin, TUA President.

“When we published our November 2010 study of the ‘Top 100 government pension recipients in Illinois,’ there were 4,352 retired Illinois government retirees receiving over $100,000 in pension benefits as of June 30, 2010, an increase of 21% over the previous year.”

“That’s quite an increase of well heeled retired government employees: from 3,597 to 4,352 to 5,294. And it’s Illinois taxpayers who are footing the bill for these lavish, gold-plated pensions. The huge, temporary 67% state income tax increase passed by Illinois General Assembly Democrats and signed by Gov. Patrick Quinn (D) will pour an estimated $6.4 billion annually into the state’s floundering, underfunded state pension programs. Other than present and future government employees, Illinois taxpayers will not see a cent of the money from this gargantuan state income tax increase.”

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Transparency Resources

2011-2012 Illinois Policy Institute Legislators Guide to the Issues

Illinois Tops Nation in Deficit

SPRINGFIELD — Illinois ended fiscal 2010 as the most broke state in the nation.

Illinois owed $37.9 billion more than all of its assets combined, including cash, investments and property, as of July 1, 2010, according to a recent statewide financial audit by the Illinois Auditor General William Holland and Illinois Comptroller Judy Baar Topinka.

Illinois even shorted unknowing taxpayers of $1.4 billion. An examination of the Income Tax Refund Fund by auditors revealed a $1.4 billion deficit, because the state didn't put enough income tax revenue into the fund, causing a delay in getting the taxes returned to individuals and businesses. The deficit would have been worse without a $3 billion cash infusion of federal stimulus money.

Illinois was one of four states with a deficit when comparing all its debts to assets in fiscal 2010, and of those four, it was in a hole of about $10 billion more that its nearest cousin; New Jersey, which ranked second. A combination of mismanagement and a global recession are the largest factors in Illinois monetary woes.

Former Gov. Rod Blagojevich, who was convicted on corruption charges in federal court recently, came into office in 2003 during a small recession. He immediately promised he wouldn't raise taxes, but he and the Legislature did not cut spending, resulting in a full-blown fiscal crisis.

We had a period, maybe three, four or five years, from 2004 to 2007, where we could have, not solved all our problems, but gotten things under control. But we wasted those years and got deeper and deeper in the hole just because of a lack of discipline,” Fred Giertz, an economist with the Institute of Government and Public Affairs at University of Illinois at Urbana-Champaign.

Another reason for the state of Illinois'; financial misery is how it keeps its books, according to the audit. Ralf Seiffe is the director of research at the Institute for Truth in Accounting, a nonprofit that works to make governments provide accurate financial reports, according to its website.

Bad accounting policies and bad budgeting policies are the means and manner by which legislators and the governor get away with essentially spending more than they should," Seiffe said.

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Other articles: Auditor General: Illinois' Deficit Tops Nation

Lackluster Economic Growth

The Illinois economy has grown more slowly, or contracted more sharply, than the U.S. economy as a whole every year for at least the past 12 years; new data released for 2010 show that the trend continued last year. The U.S. economy grew by 2.55% in 2010, while Illinois posted just a 1.90% increase. Illinois is the nation’s fourth-biggest state economy, after California, Texas, New York, and Florida.

(Click to enlarge.)

The slower growth in the state may be a result of several conditions:

  • Illinois’ slower population growth than other states, particularly in the faster-growing southwest
  • The state’s continued struggles with legacy manufacturing
  • The state’s relatively high rate of taxation compared with neighboring states
  • A recent report from the American Legislative Exchange Council ranked Illinois 47th in growth potential based on policy variables like tax, workers compensation, legal systems, and and minimum wage. It found Illinois ranked 48th in its backward-looking index based on objective measures such as employment growth, migration, and per capita income.

Complete data for GDP by industry are not yet available, but some initial data points are included:


  • The state’s mining, construction, and agriculture industries declined 15%, 9%, and 3%, respectively, from the prior year
  • However, health care, finance & insurance, and wholesale trade–all big parts of the state economy–posted gains of 2.4%, 1.5%, and 3.3% respectively.

Note that GDP is often cited on a quarterly basis and a traditional definition recession is two consecutive quarters of negative growth. GDP by State is reported only on an annual basis. Though we had a recession in 2001 and 2002, it did not result in negative growth for any given year.

Unfriendly Business Climate

Tax hikes are a frustrating reality for small business owners across the state of Illinois, as its lawmakers this week passed the biggest tax increase in the state's history.

The state Senate and House passed a measure that will temporarily (four years) increase individual income tax rates to 5% from 3%, and corporate tax rates to 7% from 4.8%. Lawmakers supportive of the legislation say the move is an attempt to close the state's budget gap, which hit record levels during the recession.  

Kim Maisch, Illinois state director for the National Federation of Independent Business, said that while the state has never been extremely policy-friendly to small businesses and investors, its 3% personal income tax was one of its few advantages.

That was one of the few, and I mean few bright spots for small business in the state, Maisch said. She said the tax hikes are a lose-lose for Illinois businesses any way you look at it.

There are three things small business can do to raise prices, cut payroll or cut benefits, Maisch said. There are only so many dollars they have to work with and not everyone is fat and happy. To put another tax burden on them is squeezing a balloon on one end and popping the other. Maisch also said the hikes will likely chase businesses out of the state.

Bill Strauss, senior economist at the Federal Reserve Bank of Chicago, told FBN the hikes were necessary and that residents shouldn’t be shocked in the least by the increase.

We have a $12 billion shortfall in the state budget, and that is huge, Strauss said. I don't think anyone in Illinois is surprised we are seeing these increases. But it will certainly impact growth and spending by consumers.

The state's low tax rates are what got it in this debt in the first place, Strauss argued, and the increases will bring Illinois up to speed with its neighbors in terms of taxes.

We are basically bringing our tax rates, all in all, to something that is not significantly different from our neighboring states,he said. That is part of the problem, Illinois had such a relatively lower tax rate, and we were generating these huge deficits.

Ray Keating, chief economist at the Small Business & Entrepreneurship Council, said the hikes are a death sentence for business investment and growth.

It's a clear signal to investors and businesses that they should go elsewhere,” Keating said.

Any new business will avoid Illinois like the plague,” she said.

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High Forclosure Rate

Illinois home foreclosure activity rose 4 percent in June compared to the previous month, but was down 25 percent from one year earlier.

A report released Thursday by Irvine, Calif.-based RealtyTrac shows Illinois with 6,541 homes receiving initial foreclosure filings last month.

Another 1,944 properties were scheduled for auction sale and 2,529 properties were repossessed by banks.

Looking at the first six months of the year, Illinois foreclosure activity fell 29 percent compared to the same period last year.

Nevada had the nation's highest foreclosure rate during 2011's first six months, with nearly 5 percent of all Nevada housing units receiving a foreclosure filing.

Illinois also ranked in the nation's top 10, following Arizona, California, Utah, Georgia, Idaho, Michigan, Florida and Colorado.

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Unfunded Medicaid Mandates

The federal government says Illinois cannot ask Medicaid recipients to prove how much they earn or where they live.

The federal Centers for Medicare and Medicaid Services, or CMMS, which manage these programs, told Illinois’ Medicaid managers in June that two of 15 reforms violate federal rules that prohibit states from changing criteria for those seeking Medicaid.

The reforms, passed earlier this year and signed by Gov. Pat Quinn, require Medicaid recipients to prove that they are earning within 300 percent of the federal poverty level — $67,050 for a family of four — and live in Illinois.

U.S. Sen. Mark Kirk, R-Ill., said Illinois’ verification requirements are designed to prevent fraud.

“We are worried, because this will now cost the state of Illinois $800 million over (six) years,” said Kirk. “This is the fastest growing part of the Illinois budget.”

President Barack Obama’s health-care reforms prohibit states from tightening Medicaid eligibility requirements that existed in March 2010. Illinois’ Medicaid reforms were passed in January.

Kirk said at a Monday news conference that he is asking CMMS, based in Washington, D.C., to reconsider, because the state lawmakers’ intent was not to alienate people from seeking Medicaid. If his efforts fail, Kirk said he is willing to push Congress for legislation to change the rules.

State Rep. Patti Bellock, R-Hinsdale, who helped write the Medicaid reform package, said stopping fraud is the first step Illinois must take to contain the skyrocketing costs of Medicaid.

“Fifty percent of all births in Illinois (are) on Medicaid,” Bellock said. “One out of every three children in Illinois is on Medicaid, and one out of every five Illinoisans is on Medicaid.”

Bellock said that in 2006, Illinois spent $7 billion on Medicaid. This year, Illinois is poised to spend $15 billion, nearly half of the final $33.4 billion budget.

U.S. Rep. Judy Biggert, R-13th District, said that with all of the recent focus on federal debt and federal spending, the government should jump at any chance to save hundreds of millions of dollars.

“The state and the federal government have a partnership,” said Biggert. “It should not be a dictatorship.”

Biggert said she wants the Obama administration to reverse the ruling.

“I don’t think this is something that just happened,” Biggert said. “The other side of the aisle wants to make sure that everyone can be on these programs.”

Bellock added that Republicans and Democrats supported Illinois’ Medicaid reform laws, which were signed by a Democratic governor.

Mike Claffey, a spokesman for the Illinois Department of Health Care and Family Services, which runs the state’s Medicaid program, said, “While we are disappointed by the denial, we are pressing ahead to implement these reforms through other means that we believe will receive approval.”

Claffey said the state will use electronic databases to verify income and residency information.

But Bellock said she’s waiting for the other shoe to drop.

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