By: Mark Glennon*

Here’s another chapter in the mess that is unfolding as the State of Illinois’ revenue collapses.

Under Illinois’ Vendor Payment Program, vendors of goods and services to the state can, at their option, sell the receivable owed to them by the state to private investors. It’s intended to address the state’s backlog of unpaid bills, which currently total about $8.4 billion.  Vendors who need cash promptly can sell their invoices, and the buyer then waits to get paid whenever the state does so.

However, it’s not quite that simple. On all of those invoices, the state is supposed to be keeping current on interest on the money owed – at least as some investors in that business interpret the law.

But the state isn’t always paying that interest, prioritizing other obligations instead. That means the vendors, and investors too, are getting shorted by the state, disrupting invoestors’ ability to function and price their purchases appropriately.

I spoke to Andrew Greta, Vice President of Illinois Financing Partners, one of the firms that buys those invoices. He says IFP has been waiting on legally required interest payments for over two-years despite laws requiring they be paid much sooner.

That late payment causes a secondary problem that jeopardizes the whole program, he says. IFP and similar companies get the money to buy receivables from third party investors – IFP is actually a middleman of sorts – and those third parties bear some of the loss when the state doesn’t pay interest on time, Greta says.

As a result, “One of our funding source has put us on hold,” Greta says, “not because of credit concerns with the State, but because they have no confidence that the State of Illinois will live up to their obligations if their elected leaders won’t even follow their own laws. This has effectively shut down one of our programs to support smaller vendors just at the time when the State may need us most.”

Greta says the problem is not limited to his company. Other purchasers in the Vendor Payment Program face the same problem

Greta says he wonders, as would I, whether vendors themselves will start to feel the same way. In other words, aren’t vendors likely to get more nervous about dealing with the state? Even when they sell their invoices, they retain some of the residual risk in nonpayment if the state doesn’t pay.

This predicament is one aspect of the triage function which is ongoing and left to the office of Illinois Comptroller Susana Mendoza. She makes decides which invoices to pay and when. Presumably, hopefully, she is managing that process rationally so as to maximize federal reimbursements, which are huge for some invoices, and minimize interest and late payment penalties. There’s no incentive for her to pay interest because interest doesn’t accrue normally on past due interest for these invoices.

But she does need to follow the law. Greta says she doesn’t.

He cites Title 74 of the Illinois Administrative Code, Part 900.90(a), which states that “Agencies are responsible for calculating and paying such interest and are to do so within a reasonable time.” And by statute, he says “The Comptroller must issue the interest payment within 60 days after acceptance of the interest voucher.

While this matter is no doubt worsened immensely by the current slowdown in state revenues, the dispute precedes the pandemic. Linked here is a 2018 letter from the Comptroller’s office to Illinois’s Central Management Services. In it, the Comptroller’s office rejects CMS’ position that interest should be paid. Why? The letter essentially says that there are better ways to spend money. It does not answer the legal obligation.

Greta believes that withholding legally required interest payments ultimately causes the state far more damage than whatever it is saving. Many vendors need the program, and undermining it is like cutting the bottoms out of the state’s lifeboats to save weight, he believes.

I won’t opine on the merits of the legal claim. Nor am I passing judgement about whether the savings from withholding interest payments outweigh the damage that apparently is being done to the Vendor Payment Program and to the state’s creditworthiness in general.

The point, instead, is simply to describe what undoubtedly will be just one of countless problems that will arise as the state grows increasingly unable to pay its bills.

*Mark Glennon is founder of Wirepoints.

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tony
7 months ago

sounds like Pritzker needs to check out Peter Francis geraci’s bankruptcy info tapes

Mr_Common_Sense
7 months ago

I predicted this would happen years ago, even though my friends thought I was crazy at the time.

Free advice: Sell your house as fast as you can, because your values will not be going up anytime soon. If you can, move out of Illinois as fast as you can, because the only guarantee in the future is more financial misery.

Hope this helps, and good luck to all of you.

7 months ago

This wasn’t all that well-run before this problem. This has been going on for -years-

Mark Felt
7 months ago

And because of the non-payment for products purchased and interest until these payments are made will further shrink the pool of vendors the state can use and cause the state to pay a higher price for the products it needs. The State of Illinois is like an alcoholic, if you give him more money he will only buy more booze and the end will not be good. Give Illinois more money and they will dig themselves a deeper hole with it.

Governor of Alderaan
7 months ago

Screwed by Illinois? Join the club.

Illinois Entrepreneur
7 months ago

I always get a chuckle whenever I read about laws in Illinois and how they’re written — and followed. The laws are written by the Machine, and they’re not there for everyone to use as guidance in search of equal justice. They are there for the Machine to use against you as needed, depending on where your loyalties lie. They are also there for the Machine to disregard, if it is required. If you are useful to the Machine, these laws are “flexible,” and will bend in your favor. If you are not loyal to the Machine or Himself, then… Read more »

Douglas
7 months ago

Look, if you do business with satan, you shouldn’t be suprised when you get burned. The courts overwhelmingly rule in favor of government, even when the government is clearly in the wrong. The state of dysfunction(IL) owes you money as either a vendor or late payment purchaser? Don’t give your money to IL government or do business with the state in these examples–or buy IL bonds. If you do choose to gamble, you could pay the consequences.

DantheMan
7 months ago
Reply to  Douglas

I was going to write a comment but yours already covered my sentiments. Anyone who does business with Illinois is taking a huge risk.