By Karen Pierog
CHICAGO (Reuters) – Illinois’ inability to pay interest penalties on overdue state bills could sink a program that allows unpaid vendors to obtain immediate cash and keep essential state services flowing, private lenders participating in the program said on Monday.
Lenders qualified by the financially challenged state for its vendor payment program, which dates back to 2011, told the legislature’s Commission on Government Forecasting and Accountability that their ability to purchase state receivables is under stress due to the uncertainty of when interest penalties will be paid.
The program’s four active lenders get to pocket the late payment fees, which can reach as much as 12 percent annually, in return for advancing 90 percent of the invoiced money owed to cash-strapped vendors and service providers.
The aim of the program is to avert a shutdown of essential services such as state employee health insurance, prison food supplies and fuel for state trooper cars, due to the late payment of bills.
“Every day that drags on we have less and less money to put into the program,” said Greg Gac, managing director at Illinois Financing Partners, whose board of directors includes a former governor and a former U.S. Congressman from Illinois.
Gac said the company, which has purchased nearly $1 billion in Illinois receivables since 2015, is currently owed $115 million in late fees and has not received any interest penalty payments in a year.
An impasse between Illinois’ Republican governor and Democrats who control the legislature left the state without complete budgets for an unprecedented two-straight fiscal years. As a result, the state’s unpaid bill backlog ballooned to a record $16.67 billion last year. After enacting a fiscal 2018 budget in July, Illinois used proceeds from a $6 billion October bond sale to deflate the bill pile, which currently totals about $8.15 billion.
Illinois Comptroller Susana Mendoza’s office estimated late payment fees spanning fiscal 2016 through three quarters of fiscal 2018 at nearly $1.14 billion, $100 million more than the late fees the state paid in the previous 18 years. The office made $143 million in late fee payments in 2017 and $86.5 million so far this year.
Jamey Dunn, Mendoza’s spokeswoman, said the comptroller’s office is still in triage mode.
“Providers and vendors all over the state are still experiencing payment delays. The comptroller has been clear that given these pressures, she’s prioritizing funding for programs that assist the state’s most vulnerable residents and education funding,” she said.
The state’s biggest qualified lender, Vendor Assistance Program (VAP), which has bought $3.2 billion in receivables, is owed about $250 million in late fees, according to Brian Hynes, one of the firm’s founders. He said conversations with VAP’s lenders were getting more difficult and that litigation over the lack of payments has been looked at but is not imminent.
Some of the qualified lenders had listed major banks, including Citibank N.A., as funding sources in their state disclosure documents.
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Source: Investing.com
