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  • Illinois Leads The Way – “Factoring” our State’s Receivables

    Posted by Carl from Chicago on March 23rd, 2013 (All posts by )

    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, in an attempt to finally deal with their unending fiscal decline. 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. Indiana has made fiscal prudence, right-to-carry, and right to work laws a centerpiece for many years, with commensurate success. Yet while these midwestern states attempt to reform, Illinois (mostly) stands pat.

    Illinois’ litany of woe is so long that I won’t bother summarizing problems that you can find for yourselves on the internet. We recently bucked trends in the region with a giant tax increase, designed to fix our immediate fiscal hole. The immediate problem is 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 LITGM

     

    8 Responses to “Illinois Leads The Way – “Factoring” our State’s Receivables”

    1. Dan from Madison Says:

      We stopped doing business with the State of Illinois a looong time ago. One side effect of this is that by pissing off companies, competition declines and the prices the state pays goes up up up as those who are left doing business with them will raise their prices to cover the inevitable 180 day wait (or more) to get paid. Money ain’t free.

      Also we very very carefully plan our taxes so we never are owed anything by the State of Illinois. Just don’t want to wait forever for a refund (if you get it at all).

    2. Mike K Says:

      What happens to this start-up if the state defaults ? I guess that’s part of the risk management department.

    3. Whitehall Says:

      Anyone want to bet on how long before this practice spreads to California?

    4. pst314 Says:

      “One side effect of this is that by pissing off companies, competition declines and the prices the state pays goes up up up as those who are left doing business with them will raise their prices to cover the inevitable 180 day wait (or more) to get paid. Money ain’t free.”

      I suspect another factor is that the best companies will be the first to stop doing business with the State, and Illinois will end up doing more business with second- and third-rate companies.

    5. pst314 Says:

      “second- and third-rate companies.”

      Owned by cronies?

    6. zenpundit Says:

      “which chip away at the education monopoly and cause competition”

      No.

      Competition requires a market and independent buyers and sellers where most ppl are free to enter (assuming they have capital) or refuse to participate. Charters are not competing against each other or against public schools (or private/parochial ones) in any economic sense.

      The charter system here and in most states is now intended to allow political cronies of governors and mayors to privatize locations within a monopoly system without competition in a captive market and with taxpayer subsidies. The largest charter operator in Chicago was Obama’s finance chair in 2008 and Mayor Rahm’s biggest donor in his race, whom he then appointed to the CPS school board. Customers do not have choice, only the charter operator does who sends costly customers (low performing, behaviorally challenging, disabled students) back to the public part of the monopoly which cannot refuse them. Generally, in most states the charter operator can also pocket the year’s state aid for the kids they kick back to the public system even if is on the first day of school (the money does not “follow the student” after they enroll in a charter) providing a financial incentive to “counsel out” expensive or difficult students. Nor is there an incentive for charters to provide better ed service as there are no refunds and no market penalty for underperforming, only a political one (if you are embarrassing the politicians they will close you)

      Charters were originally introduced and justified to help kids on the bottom and in places like NY and Chicago they are the ones most frequently excluded. There are some charters out there which are praiseworthy on the educational merits (KIPP in particular is noted for good performance) but statistically, many of them are underperforming and given the set up it is not hard to imagine why.

    7. VSSC Says:

      The Reactionary position demands a complete Separation of School and State.

      I think that’s the only way out of the morass.

      Aid for the indigent children at the local level only.

      Surely no serious person can still contend education in America is about the children, it’s about Power.

      And also money.

      Public Education is a recent invention of man, and not an improvement.

    8. Mike K Says:

      “Anyone want to bet on how long before this practice spreads to California?”

      You’re late. This was standard practice for Medicaid 25 years ago. There was a deadline for submitting claims (90 days) and an astonishing number of claims from our trauma center (I didn’t take Medicaid privately) were lost or deemed late. We tried sending the claim forms registered mail but they refused to accept them. I retired in 1993 and was getting checks from MediCal (the Medicaid version in CA) for three years after.