Saturday, March 23, 2013

Illinois Leads The Way - "Factoring" our States' Receivables

While many states in the midwest are tackling their structural problems head on, Illinois is contentedly doing things the old-school Dem way. Michigan (of ALL states!) recently enacted a right to work law and is taking over Detroit, Wisconsin is famously taking on their state unions (with the usual assortment of hacks picketing the state capitol to boot) as well as implementing a right-to-carry law, and Indiana has made fiscal prudence, right-to-carry, and right to work laws a centerpiece for many years, but Illinois (mostly) stands pat.

Illinois' litanies of woe is so long I won't bother summarizing things that you can find for yourselves on the internet. We recently bucked trends in the midwest with a giant tax increase, designed to fix our immediate fiscal hole, which is so deep that we are not even paying vendors in a reasonable time frame, much less fixing our structural debt issues.

However, even with this giant tax increase, the state is far behind in paying vendors for services. A WSJ article titled "Startup See Profit in State's Financial Woes" summarizes the situation:
A Chicago startup is aiming to mine a silver lining in the fiscal misery hanging over Illinois.

The nation's fifth-largest state is running an estimated $7 billion behind on bills for everything from Medicaid reimbursements to doctors to plates purchased for prison mess halls, forcing some vendors to wait six months or more to get paid.

That is where Vendor Assistance Program LLC is stepping in. The closely held company says it can profit by advancing the money to pay the vendors, then keeping late fees the state owes them. Vendors forego the penalty payments but get their money faster than they would otherwise.
Thus the state of Illinois, which is paying 1% / month on balances over 90 days, is essentially funding this start up. In an era of record low interest rates, our fiscal ineptitude has us paying out these high penalty fees because we cannot get our act together and fund and pay bills on a 90 day cycle.

Given that the state of Illinois funds these programs and creates a budget and just raised taxes enormously, WHY can't they figure out a plan that pays vendors in 90 days? This should be a scandal, but like everything else in Illinois, you just get inured to ineptitude, and this is just another story among a sea of stories of criminal behavior enmeshed with old-school Dem political hacks.

To be fair, one guy that deserves some credit in Illinois is Rahm Emanuel, who is attempting to close 61 schools in the City of Chicago, and is supporting the growth of charter schools which chip away at the education monopoly and cause competition so that some neighborhood schools and selected high schools are actually up to the type of standards that would cause parents' to consider sending their kids locally.

Cross posted at Chicago Boyz

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