Pay Government Employees When You Pay Suppliers

Recently the city of Scranton, Pennsylvania (yes, home of the fictional “Office”) was forced to pay employees $7.25 per hour (minimum wage)

As a desperation measure to keep the city’s books balanced

Employees were furious and took the mayor to court, until a “rescue”
plan was put into place where the state gave a one time $250,000 grant and a $2M state loan, enabling the city to pay back the short paycheck. The plan raises Scranton property taxes by 33% over three years.

It is interesting that any sort of pay delay merits a large article in a major news media source (the WSJ), and yet paying SUPPLIERS late isn’t news at all.

The state of Illinois, for instance, is famous for delays to various suppliers, and it hits small businesses particularly hard, since they generally have a lower cash “cushion” to begin with. There has been a periodic scuffle about this issue, but not a long term plan to fix it.

In Europe under austerity it has gotten so bad that there are many cases of business people committing suicide, at least per this article (originally appeared in the NY Times).

The Italian state alone owes more than $90 billion to entrepreneurs. Some have been waiting to be paid for up to two years.

There doesn’t seem to be a compelling moral basis for why any government would routinely pay their own employees regularly while waiting an interminable amount of time to pay suppliers, who are citizens and taxpayers, too. Late payments to these suppliers don’t raise hackles, and in fact is “business as usual”, while delays of even a single paycheck cause howls of protest and are written up in newspapers.

If paying employees late is such a heinous act, then apply that same logic who provide services to the government but AREN’T government employees and treat them with respect, as well. Failing that, pay both the employees, the elected officials, and businesses at the same time.

Cross posted at LITGM

14 thoughts on “Pay Government Employees When You Pay Suppliers”

  1. @Michael – as a small business owner I would never even think about accepting a voucher as payment.

    As states demand infinite terms, small businesses that have a lot to offer will just eventually tell the states and municipalities to forget it (like we have with IL). This leaves the states with fewer vendors to deal with, who will charge them more up front to pay for the delay in payment (duh).

    In the end, the taxpayers are the ones taking it in the shorts, as always.

    On a personal level, we don’t do business with the State of IL unless it is on a credit card (and who is giving them credit? I guess that is a different thread haha).

    The State of Wisconsin promptly pays their bills in under 30 days, and typically it is two weeks.

  2. Cities are applying the same logic to vendors as to employees. The logic is this: Spend the public’s money where it does your political future the most good.

  3. The vouchers arrived in the mail instead of checks and said they were redeemable in 30 days or some such. You weren’t asked permission. After I retired, in 1995, I was getting Medicaid checks (for about 10% of the bill) for two years. Same idea.

  4. Is Scranton, birthplace of one Joe Biden, and home of the Yankees AAA team, such an amazing place that they can just jack up property taxes 33%?

    Instead of Joe Paterno Pennsylvania needed a Howard Jarvis.

    And MK is right, California under Pete Wilson, used “IOU’s” when we had budget impasses. If memory serves they paid 5% until a budget was finally passed.

  5. Here’s the obvious question that someone needs to ask: what do the terms of the purchase orders state? If the state pays with an IOU, as they did in California, cant the vendor go after them for breach of contract? Is there a channel to repossess no consumable physical assets? You better bet your sweet toukas if the roles were reversed the 5-0 would be busting down your door and seizing your assets.

  6. Interesting question, Mike H – I used to work for a small company that was a small-business vendor to mostly government offices in Texas, which were almost always pretty good about paying, assuming that there was no problem from the end-purchaser with an authorized purchase order number from their central finance authority. (There was a purchaser who managed,somehow to finagle a purchase order number which looked legit enough for us to procure the goods and ship them to her, but which baffled the organizations financial office, because it turned out to be that it wasn’t and THEY couldn’t figure out how the end-purchaser had manged to pry it out of their computerized system. It wasn’t that this particular purchaser was any sort of computer genius anyway … in fact, quite the reverse…)

    Anyway – although Net 30 are the standard terms enforcable terms, there was usually a bit of slippage either way, once the invoice was presented for payment. The supplier I worked for would already have been invoiced for the goods drop-shipped to the state end-user, and if it was a huge purchase – which the company would have to pay for within thirty days or a reasonable facsimilie thereof – we would start chewing on our nails until the payment from the state came through.

    A state agency stalling on paying for goods already delivered? That would be a recipe for disaster for the vendor, especially a small company without much cushion. The place I worked for, usually did have a comfortable margin … but I remember reading about (and I cannot remember where or when, or what state comptroller was involved) a small company without much margin was stalled so long in a large payment that the company went under entirely. Some of the commodities we handled were big-ticket, and if a state agency had stalled on a quarter or a half-million dollar final payment, it would have put it in a world of hurt.

    So, two things happen when a state agency comptroller starts stiffing vendors: some of the vendors go under, and when word gets around, selling to state agencies does not seem like a viable business plan. All a small vendor can do, practically, is not vend to the state agency any longer. As for getting payment through the courts, I assume the golden rule applies: them as has the gold, makes the rules.

    It all reminds me of Vanity Fair, actually – that the vendors sell to the well-connected, who stall on payments and are certain that vendors will just suck it up in hopes of being paid … someday.

  7. The limitations with going to court to enforce terms are a) it costs money and b) it takes time. Neither of which is readily available to a typical small business, particularly the kind that is going to get hurt badly when the government starts stalling on payment. Just another way in which ostensibly “anti-big business” progressives create a playing field in which only big businesses have the resources to survive the caprice of the state.

  8. Unfortunately, the NY Times article is true: many small business owners and sef-employeds like myself have made that last choice. We are way poorer every passing day and, while taxes rise along with property seizures, being paid from the public or the private sector is getting harder and harder.

    Once firmly middle-class, I find myself – as many fellow Italians – in queue with Eastern European immigrants to pay for my food shopping in no-brands supermarkets. From time to time, I have to make a choice as to what to buy to have enough money to pay for energy and telephone bills. Just a few years ago, I could buy my beloved Citroen cabriolet with cash in my hands. Same job, same tasks, same long workhours, same lifestyle and 15 years ago I was able to throw (earned) money from the window, lend it to friends at no interest while in the past 12 months I had to ask twice to my parents to help me financially. Small sums, but still…
    It’s depressing and, to add a cherry on top of this indigestible cake, in these hard times you have to make a choice: keep the client, keep working almost for free or sue them. Just to save my already battled stomach from ulcer, I opted for the second with my most important client. They seemed almost offended. Not much as me, anyway, as I’m waiting for 2011 and 2012 payments for which I had to pay taxes.

    I’m seriously considering to move. Where, I have yet to decide. But as Italians are a conservative people, I’m not expecting much from the 2013 elections: my fellow countrymen will vote for the ex communists and demo-christians or the Berlusconi’s ex socialists and demo-christians. Sure, a small liberal surge is awaited but surveys don’t let so much space for hope.
    Ah, any suggestion as where to move is appreciated. And, please, even if that Romney doesn’t seem the brightest diamond in the bucket, vote for him. The only chance for European economy at the moment is to have America retaking her usual rhythm.

  9. Sejo

    Go where there is growth and sustained sensible policies.

    That would probably be Australia, Canada, Singapore, and the like. If more adventurous perhaps somewhere in Central or South America. Also other parts of Asia or the more open parts of the Middle East.

    You can also hustle up in the US. Go to the South, somewhere like Texas, or perhaps South Carolina. If you can stand the cold, the Dakotas have all the oil and shale gas.

  10. I’ve got a friend in Toronto. He moved quite a few years ago: in Italy he had published a few books but his curriculum vitae, although very brilliant, allowed him perhaps a few years as a 9-months contract, year after year, high school professor. He earned a PhD there – in Italy it is very rare as they are managed and allowed by the professors themselves – and is going to teach in a university. That would be – no, it is indeed – impossible in our dear homeland.

    A couple of guys I know moved to Australia. Another one moved last month in New Zealand. The authorities in Oceania are looking, it seems, for European immigrants. Will have to check at the Australian embassy what with immigration conditions, as I would sell all my bunds and bonds – German and other EU public or private obligations, that is – to start, who knows, a small HoReCa (a cafè, a restaurant?) shop somewhere. But, Lord, it seems so far from my family, spread as it is from Paris to southeastern Italy and Milan in the middle.

    Central or South America, I’ve thought about that. I wouldn’t have problems with the language, less than with English anyway, but I’m afraid of finding the same submissive-to-State mentality there. And the same bureaucracy and corruption levels I had to live with in Italy.
    Quite the same in Israel, a land I love as much as Italy and Greece, as it is the only place in the Near or Middle East where I could think to resettle. No racism here, but I’m definitely not going to live in a Muslim country. Things in France, as in Netherlands and Scandinavia, are getting hotter with the Muslim minority and I wouldn’t feel safe as a both ethnic and religious minority even in Dubai.

    The USA? Now, that would be a dream. I’d almost cry with joy if I could manage to move there. I’d feel safe, or at least safer, and I would save a lot in shipping of magazines and books from Amazon and the likes. Yes, I can eat pasta al burro everyday – that means: super-cheap meals – but cannot bear to quit reading and learning and reading.
    Still, I don’t think I could qualify as an economic immigrant in the States: if I recall correctly, half a million US$ is required as a proof of investment and nobody would at the moment buy also my home. Not with the current credit crunch. The obligations don’t cover but 60 or 70% of that sum.

    [sigh] It’s not easy. Thinking of letting four decades of education, relationships, culture and habits behind is a heavy burden. But I suppose I owe it to my aspirations and to my stomach as well: being part of a new «lost generation» is a chance I’d rather not take. I have to make plans, ask the embassies and visit some places.

    Carl, thank you very much for your kind reply – and to you all for allowing me to leave my rants free. This immaterial place is precious as can be.

Comments are closed.