What Illinois didn’t tell you about its celebrated early payment of federal loan – Wirepoints

By Mark Glennon*

“Two years ahead of schedule, Illinois Comptroller Susana A. Mendoza has made the final $302 million payment on a $2 billion loan the state took out in 2020 to cover COVID-19 expenses,” said Mendoza’s Wednesday press release.

“When have you heard of Illinois paying ahead of time?” asked Mendoza proudly on Tom Miller’s WJPF radio show.

The press release, summarized in news stories across Illinois, includes high-fives and back-slapping quotes from Gov. JB Pritzker, Senate President Chris Welch and House Speaker Don Harmon.

“Paying back this loan ahead of schedule achieves a level of fiscal prudence not seen in our state for decades,” said Pritzker.

Really? There’s more to the story.

First, Illinois was the only state that had to make use the emergency loan program during the pandemic, which was called the Federal Reserve Municipal Liquidity Facility. So, the net effect of taking and repaying the loan is merely that Illinois alone had to pay interest on the federal help, which ran at between 3.4% and 3.8% on the $2.2 billon loan.

Second, as somebody on Twitter reminded Mendoza, the repayment was made possible by other federal bailout money granted to the state. Mendoza’s communications director, Abdon Pallasch, snapped back by writing, “Embarrass yourself less by reading the news release before drive-by posting: ‘No federal stimulus money was used for repayment – just regular state revenues.’”

Come on. Money is fungible. The $8 billion in direct federal bailout grants has taken pressure off the state across the board; where the direct transfer came from means nothing.

Moreover, using state revenue misses the broader point. State revenues have come in higher than expected and that’s what made the early repayment possible, which Mendoza acknowledged on Tom Miller’s show. But why are they higher than expected? Because the entire state has been flooded with federal money – over $180 billion of it, only $8 billon of which went directly to the state government. That flow of cash jacked up receipts from the income tax, sales tax and pretty much every state revenue source.

In fact, the state originally did intend to pay off the Federal Reserve loan with other federal bailout money from ARPA, the American Rescue Plan Act, according to The Bond Buyer. But the “Treasury threw a wrench in repayment prospects” when the initial federal guidance barred the use of ARPA aid for debt repayment. “The state lobbied for a change in a letter to Treasury Secretary Janet Yellen. But as state tax collections turned rosier, state leaders opted instead to cover repayment with tax collections,” says The Bond Buyer.

The bottom line is that all of us, as federal taxpayers, will bear the cost of the federal bailout, for Illinois and other states, whether through higher taxes to repay the Treasury or inflation created by Federal Reserve money creation. And Illinois will be worse off because only Illinois borrowed extra and incurred interest costs.

So, no, Governor Pritzker, paying back this loan ahead of schedule doesn’t mean Illinois achieved a “level of fiscal prudence not seen in our state for decades.”

Illinois Comptroller Susana Mendoza

There’s a further lesson here about how politicians and their press flaks get away with fooling the public about spurious achievements. The news stories about the loan repayment, published widely across the state, merely restated or summarized Mendoza’s press release. Examples are here from NBC/MSN and WAND. Only Center Square noted that Illinois was the only state to take out the emergency federal loan.

That’s common. Press releases from officeholders are typically published without more. Most state and local media don’t have the resources or inclination to assess them critically. Boasting and baloney thus go unchallenged.

*Mark Glennon is founder of Wirepoints.

9 Comments
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Martin Eden
2 years ago

Susana, there is no victory here. Our state is last (or second to…) by almost every measure of performance. As the article mentioned, the money is fungible – it all goes into the pot… What is the interest rate you would be subject to in a bond offering (non-revenue) – a GO? You did inherit the mess, but, please, do not pretend anything constructive has happened. Your boss, JB, is playing the same dirty game as every Democrat who came before. We had one chance, BR, and we shat all over that… In the private sector, company’s shares reflect the… Read more »

Thomas Sutrina
2 years ago

It is sad that we actually have one party (~95%) media. This is the actual loss. From the founding media like pamphlets, new papers, radio and tv were always a skew to support one of the two parties, however; sufficient media in both camps to balance. So I take every communication provided by a politician as advertising what the want us to believe, not what is true. Today only on the web can we find sufficient information like this post (modern day pamphlet), however; unlike the other forms of media the shear volume and lack of organization results in the… Read more »

E Neiman
2 years ago

Fiscally prudent would be to pay off part of the higher-interest bill backlog instead, and refinance the lower interest loan when it comes due.

NB-Chicago
2 years ago

We call her “Three-card Monte Mendoza” in are household

NoHope4Illinois
2 years ago

It’s starting to eek out in the financial media that under the pretense of ‘Covid Relief’ Biden, Pelosi, and Yellen have intentionally imposed through massive monitized Federal spending, enabled by Mitch McConnell and establishment Republicans, an enormous ‘inflation tax’ on America. This is all by design. Of course large asset holders do not mind the inflation. America is in serious trouble.

Last edited 2 years ago by NoHope4Illinois
nixit
2 years ago

They could’ve repaid the loan quietly, thereby concealing the fact we were the only ones to take out that loan to begin with, and no one would’ve been the wiser. It’s like kids bragging how well they cleaned up after their wild party while the parents were out of town.

Illinois Entrepreneur
2 years ago

Mendoza’s communications director, Abdon Pallasch, snapped back by writing, “Embarrass yourself less by reading the news release before drive-by posting: ‘No federal stimulus money was used for repayment – just regular state revenues.’” I realize that this is how younger people and children talk to each other on social media, but is this any way for the communications director of a major state office to communicate with a constituent bringing criticism? It sounds like a one-upping playground taunt contest between 13-year olds. Whatever happened to taking the high road and encouraging civil discourse? The level of immaturity from these people is… Read more »

Riverbender
2 years ago

Perhaps they use language that appeals to the mental age of a certain block of Illinois voters.

nixit
2 years ago

Comms Director repeats misleading information from his own press release to reiterate his original misleading point. Sounds on point for this administration.

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