Economic Update – Federal Stimulus Helps, Says Illinois Treasurer
- Apr 29, 2009
“We’re seeing things loosen up a bit, but lending by Illinois banks isn’t where we’d like it to be,” said Illinois State Treasurer Alexi Giannoulias Tuesday morning at the monthly breakfast meeting of the Chicago Chapter of the Society of Industrial and Office Realtors, held in Rosemont, Ill., and attended by CPN.Early in the financial crisis last fall, Giannoulias, himself a former community banker who was elected state treasurer in 2006, oversaw the injection of about $1 billion in public money into Illinois banks and other financial institutions, ahead of the federal government’s much larger efforts. Since then, he stressed, his office has been after the banks to actually lend that money, rather than horde it.Giannoulias also spoke at some length about the impact of federal stimulus money on Illinois, much of which will be distributed “within the next few weeks or months,” he noted. A relatively small portion of the money, roughly $900 million, will be going to some 249 public works projects, while a considerably larger amount ($2.9 billion) will help get the state partly out of the hole it’s dug itself in recent years by neglecting to pay Medicare reimbursements. In all, federal stimulus payments will equal about 3.7 percent of the gross state product for 2009, he said.Which won’t be enough to forestall a state tax hike. When asked by an audience member whether state income taxes will go up–an increase to 4.5 percent from 3 percent for individuals, along with other increases for businesses, is being floated–Giannoulias said it was likely to happen, though his office has no part in the decision-making in that matter. “You don’t want to raise taxes during a recession, but revenue is down across the board, and during good times the state took little interest in establishing a rainy-day fund,” he said. He added that he thought concurrent property-tax relief would help ease the burden of the income-tax increase for residents of Illinois.With foreclosures still rising nationwide, on Tuesday the Obama administration unveiled a variety of new incentives for mortgage services to help beleaguered homeowners modify their mortgages. For the first time, the federal government will pay mortgage services to successfully modify second mortgages. The issue of second mortgages, which are often owned by different lenders than primary mortgages, has been bedeviling government efforts to staunch the tide of foreclosures.The rate of foreclosures nationwide has not slowed down recently. Over 800,000 residential foreclosures were filed in the first quarter of 2009, according to RealtyTrac, the most since it started keeping track in 2005.For those with an historical bent, housing markets such as Phoenix in the 2000s are now being compared to the 17th-century tulip mania. The comparison isn’t quite apt–historians naturally disagree about the severity of the tulip bubble, and one can argue that housing has more intrinsic usefulness than flower bulbs–but in some ways a bubble is a bubble.According to the Standard & Poor’s Case-Shiller Home Price Index, home values peaked in Phoenix in June 2006. Since then they have fallen by a bit more than half, dropping 4.5 percent in February 2009 alone. So far, Phoenix is the only city that can make that claim, though other places, particularly Las Vegas (down 48 percent from peak), Miami (down 45 percent) and Los Angeles and San Diego (both down 40 percent), aren’t so far behind. The swine flu scare seems to have worn off Wall Street, at least for the moment, with some of the travel-related stocks that dropped in a hurry on Monday regaining some value on Tuesday. Still, the Dow Jones Industrial Average ended slightly down, losing 8.05 points, or 0.1 percent. The S&P 500 lost 0.27 percent and the Nasdaq was down 0.33 percent.