Capitol Fax.com - Your Illinois News Radar

* UPDATED x2 * Mendoza wants repeal of Prompt Payment Act

Posted in:

Illinois
Updated Posts

* Capitol News Illinois…

Illinois Comptroller Susana Mendoza is calling for repealing a law that imposes a 12 percent interest whenever the state is late paying its bills, along with a program that allows private investors to purchase the debt owed to vendors and collect that interest penalty.

Speaking to a Senate budget committee Tuesday, Mendoza said the state is nearly caught up on its bill backlog and that those two programs are no longer needed.

“This program has allowed private lenders to loan money to state vendors, then rake in the 12 percent interest that state taxpayers were on the hook for with these late bills,” Mendoza said. “Now happily the days of connected private lenders profiting off the state’s financial problems can and should be over.”

Mendoza was referring to a 1993 law known as the Prompt Payment Act, which says that whenever the state fails to pay a bill within 60 days, the state must pay an interest penalty of 1 percent per month, or 12 percent per year.

Just a nitpick here, but the word “backlog” really needs to be retired until we actually have one again. The state is paying its bills within a couple/three weeks, so we have no actual backlog today.

* From Mendoza’s testimony…

(W)ith the Governor’s $900 million for the Group Insurance backlog and the fact we are paying our general fund vouchers on time, it’s time to phase out the state’s Vendor Payment Program.

This program has allowed private lenders to loan money to state vendors, then rake in the 12 percent interest that state taxpayers were on the hook for — with these late bills.

Happily, the days of connected private lenders profiting off the state’s financial problems can and should be over.

This is also an opportune time to revisit the State Prompt Payment Act that affords this generous 12 % interest for late payments beyond 90 days.

Now, I understand that the intent of the Act is supposed have a deterrent effect on budget-makers that forces them to keep a budget living within its’ means….. But, I would argue that this interest expense is not penalizing state government, but rather penalizes taxpayers.

It still bothers me that Illinois spent over $1 billion in late payment interest penalties during the budget impasse that is forever gone. Poof.

Was that $1 billion dollar penalty enough to force a correction on Illinois’ budget?

No.

The days of taxpayers being on the hook for billions of dollars in late payment interest penalties should be over.

At a time when we finally have our heads above water, it is now when we need to take a hard look at what happened and to reform our policies so that taxpayers are not having to pay for these exorbitant costs.

While I fully agree that those interest payments had no real impact on budget-makers and that the private investor stuff made some people big bucks, the law helped convince some vendors to do business with the state at a time of crisis and also helped some smaller vendors keep their heads above water. I am not all that confident in Illinois’ ability to continue down this current path of fiscal sanity.

Your thoughts?

*** UPDATE 1 *** Griffin Slate comptroller candidate Shannon Teresi…

The proposal from Comptroller Mendoza on Tuesday to end penalties on late payments is nothing more than a cheap way to save a buck that will cost taxpayers more in the long run. If the state were paying it’s bills on time, why would Comptroller Mendoza be so afraid of penalties on late payments?

This is the latest example of the Pritzker administration’s rules for thee but not for me. While every Illinois family has to pay interest on our mortgage, rent, and household bills, the state government is trying to create a loophole for themselves. What Comptroller Mendoza isn’t telling you is that under JB Pritzker and her financial “stewardship,” the state has taken on more debt, worsened its financial position, and tries to pass this off as responsible leadership.

In reality, Comptroller Mendoza and Governor Pritzker are trying to use sleight of hand on the people of Illinois.

*** UPDATE 1 *** Greg Hinz has Mendoza’s campaign response to Teresi’s comments…

“The facts are that Comptroller Mendoza has cut the state’s bill backlog by over 80% without using federal stimulus funds, delivered the fastest vendor payment cycle in decades—down from 210 working days to 17 days today—and helped earn the state its first credit upgrades in over 20 years, a clear indicator of the state’s improved fiscal condition,” she responded.

For what it’s worth, the watchdog Civic Federation is siding with Mendoza on this one.

The 12% fee “is an unnecessary guardrail,” said federation President Laurence Msall in a phone call. “It was supposed to be a deterrent, not a way for people to profit from the states overdue bills.”

posted by Rich Miller
Wednesday, Feb 23, 22 @ 9:45 am

Comments

If it’s not longer necessary, it doesn’t really seem necessary to repeal either.

She’s right of course in that it didn’t stop anyone from running up the backlog. But equally it doesn’t sit right with me that at a future date vendors could get screwed over again.

Comment by Nick Wednesday, Feb 23, 22 @ 9:59 am
The Prompt Payment Act interest is meant as a stick to make sure the state pays on time and if they don’t there is the incentive to get it back on track.

It should remain on the books. No worries if the state continues to pay on time so no harm and no reason to repeal.

Comment by Hoping for Rational Thought Wednesday, Feb 23, 22 @ 10:00 am
Agree with the idea that the fiscal sanity now — today — will prevail moving forward.

My guess is that it won’t. I still have (bad) flashbacks from the Rauner years. My sense is that those years could happen again — easily.

And then we’re back where we were.

Comment by Mr K Wednesday, Feb 23, 22 @ 10:01 am
I totally agree that it is premature to eliminate the late payment interest penalties.

I’m retired now but spent 20 years working for a state vendor. On a couple of occasions we had invoices that were 10-12 months past due. That’s not a happy spot for execs focused on quarterly results. I used the prospect of the 1%/month penalty to convince the execs not to suspend services to the State.

There is (unfortunately) no guarantee that we won’t return to that situation at some time in the future.

Comment by Out Here In The Middle Wednesday, Feb 23, 22 @ 10:01 am
Rich’s final comment hit the nail on the head.

Comment by jim Wednesday, Feb 23, 22 @ 10:06 am
The vendors who put cash in the hand of those owed money helped keep those businesses open when the State wasn’t paying its bills. The 1% per month is high, and perhaps could be lowered but these programs are certainly needed for the future.

Comment by Lincoln Lad Wednesday, Feb 23, 22 @ 10:09 am
I think the 2 bills should both stay in place. It would cost the state nothing as long as there is no backlog but if there is a backlog it allows vendors a means to get the funds for the goods they’ve already provided. While it would save the state money to repeal both it would force vendors to in effect loan the state funds.

Comment by Mason born Wednesday, Feb 23, 22 @ 10:12 am
These two acts as they sit are guardrails to be cognizant of what it means to be fiscally responsible.

Keeping them both as is, they are a reminder too, and maybe a cautionary tale the future should remember?

The long game here, “is it better”, should be considered, not just the snapshot of today.

Comment by Oswego Willy Wednesday, Feb 23, 22 @ 10:16 am
Keep it as a tool to be used if in the future shorting vendors is again viewed as a viable way to help avoid hard choices that are more obvious to voters. Gives vendors some degree of comfort they will get paid if elected officials decide ideological matters and budgetary shenanigans trump their obligations to state vendors.

Comment by Derek Smalls Wednesday, Feb 23, 22 @ 10:20 am
Mendoza has done an excellent job.

However, I’d LOVE to see her start pushing for a ’state bank’, similar to what North Dakota has.

Imagine if that interest was being paid to the state instead of a 3rd party. A situation such as this seems like the perfect point to introduce the idea.

To the question about this law specifically, I’d say leave it in place. In the corporate world 1.5% month late fees is common, which is 18% per year. 12% on a late fee is reasonable and as mentioned has other impacts beyond just money - such as stability provided to vendors, which keeps state services stable at a time when they most would need it.

Comment by TheInvisibleMan Wednesday, Feb 23, 22 @ 10:22 am
I’m confident a GOP Governor can resume Rauners backlog buildup. Keep in place.

Comment by Anotheretiree Wednesday, Feb 23, 22 @ 10:25 am
If we’re all paid up this isn’t costing us anything.

Comment by Lew Wednesday, Feb 23, 22 @ 10:25 am
I would be for repealing them. Would the 12% actually encouraged the Rauner administration or a similar version in the future to actually pay it timely or would it simply make our bill more expensive down the road with no change in the time it takes for the payment to go out?

If the latter they don’t seem to be serving a purpose so long as the repealing of it doesn’t result in a bunch of vendors no longer offering their services.

Comment by Seats Wednesday, Feb 23, 22 @ 10:27 am
In the midst of Rauner’s budget carnage, I had to find a new dentist in the Springfield area. It was tricky to find someone who would accept a state retiree with state insurance. My new dentist had around $100,000 that he was owed by the state. My old dentist dropped state employees. Real consequences.

Comment by Langhorne Wednesday, Feb 23, 22 @ 10:30 am
Follow the money. Who were these “private lenders” who profited by arbitraging the difference between 12% and their money borrowed at prime or less? It was they who profited, and it is they who stand to profit again if state payments revert to the slow box. Follow the money.

Comment by SilverStreak Wednesday, Feb 23, 22 @ 10:35 am
12% in 1993 is not the same as 12% in 2022.

Comment by City Zen Wednesday, Feb 23, 22 @ 10:36 am
===Follow the money. Who were these “private lenders” ===

Evil folks like Jim Edgar. lol

Comment by Rich Miller Wednesday, Feb 23, 22 @ 10:37 am
I agree with Mr. Miller. When it’s runnin’ good, leave the hood down.

Comment by Captain Obvious Wednesday, Feb 23, 22 @ 10:42 am
I think its a good idea to keep the law on the books…you never know when it will be needed again

Comment by reddevil1 Wednesday, Feb 23, 22 @ 10:43 am
I would keep the law on the books but I would try to find a way to limit the ability for 3rd parties to profit from the states fiscal problems.

Comment by JS Mill Wednesday, Feb 23, 22 @ 10:43 am
There is a school of thought that government contracts in addition to being onerous, they can really hurt cash flow for a small business. It puts an additional burden on a small business to get a line-of-credit. If we want small businesses to get more of the procurement pie do not repeal it. The bad days could return - easily.

Comment by levivotedforjudy Wednesday, Feb 23, 22 @ 10:44 am
I am opposed to an all-out repeal, for the reasons Rich cited. The issue with the PP Act isn’t that it exists, its that it charges the State wild (credit card-type) interest rates for being deadbeats.

I would much prefer the idea of making the interest rate more reasonable and in line with current rates. For example we could tie the rate to prime plus 2% APR. This means if prime is 4% that the state will pay no more than 6% annually (0.5% per month). If rates go up to 6%, then the Comptroller will adjust and pay 8% annually (0.67% per month). I would also set the 90 days to 45 days, as a result of electronic vouchers being almost universal these days shortening the turnaround time at the agencies.

This is essentially requires the State to fund our vendors for the interest they are paying on the lines of credit needed to sustain their operations during periods where the State falls behind.

Comment by Nameless Wednesday, Feb 23, 22 @ 10:46 am
==the law helped convince some vendors to do business with the state at a time of crisis and also helped some smaller vendors keep their heads above water.==

Rich is right, I can confirm both.

Comment by Monadnock Pigeon Wednesday, Feb 23, 22 @ 10:51 am
==In the midst of Rauner’s budget carnage, I had to find a new dentist in the Springfield area. It was tricky to find someone who would accept a state retiree with state insurance. ==

Not only was that going on during the Rauner impasse, it also was happening as early as the start of the Quinn administration in ‘09. In the midst of the Blago-induced budget carnage and $11 billion deficit. A dentist I was going to at the time (which I no longer do) was requiring all patients to pay for their full care upfront if they had state insurance–even though IIRC he accepted state dental insurance. Eventually patients would be reimbursed. This was back in 2009-2010.

Comment by NonAFSCMEStateEmployeeFromChatham Wednesday, Feb 23, 22 @ 10:52 am
I’d keep the law in place. The interest is needed as a disincentive to overspending and as a compensation to those who are impacted. I also don’t see a problem with the 3rd parties getting the interest if they are the ones providing the funding to the vendors.

Comment by NickNombre Wednesday, Feb 23, 22 @ 10:54 am
I’ll provide the contrarian view here and agree with what Mendoza is suggesting.

The 12% annual penalty doesn’t incentivize the state to pay its bills on time. We saw that with the last administration. It only serves to help quiet those who are waiting to be paid and allows private industry to capitalize on the state’s payable obligations (see Edgar, Jim).

Good governance should be all the incentive we need to pay our bills in a timely fashion. The argument that we need to keep this in place if the next Rauner comes along is misguided. It actually creates an incentive for administrations that wish to delay paying vendors particularly if private lenders can capitalize on these delays. Not that different than those that look to profit off of rating agency downgrades.

Comment by Pundent Wednesday, Feb 23, 22 @ 10:55 am
” I am not all that confident in Illinois’ ability to continue down this current path of fiscal sanity.”
I’m almost certain, given past performance, the current path will most assuredly, eventually be forgotten.

Comment by Bruce( no not him) Wednesday, Feb 23, 22 @ 10:56 am
Take it down to 8% instead of 12%. Most vendors will hang around for 8%, and saves the State 33% on the PPI. Cutting it to any less than that, you’ll start to have vendors deciding it’s not worth the hassle to float the State.

Comment by AD Wednesday, Feb 23, 22 @ 10:57 am
My long–time dentist didn’t accept state insurance so I was waiting for $7K in payments. Very glad to have that interest.

Comment by Old Illini Wednesday, Feb 23, 22 @ 10:59 am
The State loses good vendors due to the mismanagement of cash and budget manipulations. Once lost a vender during the Blago years when after 158 days without payment they sold their $58,000 accounts receivable to their bank for 30 cents on the dollar and shut us off. Vendors deserve interest on past due amounts. 12 percent is cheap compared to the 22 percent charged by medical providers in sangamon county.

Comment by Al Wednesday, Feb 23, 22 @ 11:03 am
I agree with most of the commentators here. I’d rather have the law on the books and hope we never have to invoke it than repeal it and need something in the future to help make sure vendors get paid.

Comment by G'Kar Wednesday, Feb 23, 22 @ 11:04 am
‘For a flat fee of $2500, I’ll move your invoice to the top of the pile.’ Candidate for Gov.

Comment by sal-says Wednesday, Feb 23, 22 @ 11:06 am
Change it from 60 days to 6 months or a year before interest fees are applied.

Comment by Real Wednesday, Feb 23, 22 @ 11:10 am
Changing it to 6 months or longer before interest fees are applied can make it harder on any person’s of special interest hat want to benefit on a backlog.

Comment by Real Wednesday, Feb 23, 22 @ 11:15 am
I’m a retired state employee. A few years back I had a medical provider hounding me for about 2k. They knew they would get it from my insurance, but didn’t want to wait 55 weeks for it. They told me I should pay them and they would reimburse me when they got paid. I told them if I did pay them I would want the 12% vig. After putting me on hold for few minutes, they said nevermind, we’ll wait. Knowledge is power.

Comment by Peoria Man Wednesday, Feb 23, 22 @ 11:24 am
If we do not repeal it the interest penalty should be lowered to something a lot more reasonable than 12%. Maybe 2%.

And I am absolutely in favor of making it so that debt cannot be assigned to third parties.

Jim Edgar seems like a nice guy but it is gross that he made money off the state’s financial woes, especially when he has collected so much taxpayer cash already over his lifetime.

Comment by hisgirlfriday Wednesday, Feb 23, 22 @ 11:25 am
I agree with OW. If these acts are “no longer necessary” they can sit and remain irrelevant for the next century. From where I stand, though, there are quite a few candidates for governor that seem to be in favor of creating conditions where these acts would become very relevant again.

I am not a fan of private investors being able to pay the voucher and then take the interest as their payment, but I recognize that having that option is one of the few things that can make a state vendor confident that they will be able to continue to operate when the state refuses to pay it’s contracts on time because the body politic throws a temper tantrum about the idea of paying for the services it received.

I understand that Comptroller Mendoza is looking for a win — something she can point to as a key indicator of her success in fulfilling the duties of Comptroller, but there is no certainty in the future that promises that the state will not once again see a Governor that refuses to do his official duties, refuses to introduce a budget, who likewise intentionally harms the people of Illinois in order to take a crisis because he didn’t like having to deal with public sector union employees failing to treat him like a Mesopotamian God-King.

Comment by Candy Dogood Wednesday, Feb 23, 22 @ 11:28 am
I know 12% seems ridiculously high to most folks. But in the day , the old widget factory had to tap into a line of credit way too many times. Each and every time I would have begged to be paid rather than endure both the cost and time reqd to get access to some operating cash.

Comment by Blue Dog Wednesday, Feb 23, 22 @ 11:40 am
Any room left on this bandwagon? I was there in those dark days, and agree it should stay on the books, not so much as a punishment to the state, but a lifeline to the really small vendors and one-man-band contractors or consultants who had to wait and wait and still find a way to eat. It hurts nothing to keep that tool in the back of the utility drawer, and it motivates whomever is the Comptroller to keep payments timely.

Comment by Give Us Barabbas Wednesday, Feb 23, 22 @ 11:44 am
How much will Shannon Teresi spend on “forensic audits” if elected? Sorry, unless the opponent is David Duke-esque, I vote against anyone who advocates “forensic auditing” …

Comment by Anyone Remember Wednesday, Feb 23, 22 @ 11:45 am
@TheInvisibleMan
Couldn’t agree more, public banking is awesome and desperately needed.

Comment by Lake Villa Township Wednesday, Feb 23, 22 @ 11:49 am
===…the state has taken on more debt, worsened its financial position…===

Bonding houses… disagree?

Comment by Oswego Willy Wednesday, Feb 23, 22 @ 11:51 am
Teresi’s statement is another wonderful reminder that comparing households to governments is almost always stupid

Comment by Nick Wednesday, Feb 23, 22 @ 11:53 am
Keep the interest provision. Before Quinn got a tax increase, DCFS was so short of cash they could not pay for toner. No toner, no court filings, cases lost.
I have confidence Illinois politicians will muck it up again.

Comment by Last Bull Moose Wednesday, Feb 23, 22 @ 11:55 am
Early indicators seem to be that a lot of our day to day price inflation is coming from corporate price gouging that is not directly connected to increase costs, thus they are having very profitable quarters. Those price increases will show up in sales tax revenues and those profits will show up on income tax returns.

If this continues we should expect to see higher than projected revenues. Every McDonald’s that’s bumped their prices up 10% has also bumped the sales tax revenue they generate up 10%.

Comment by Candy Dogood Wednesday, Feb 23, 22 @ 12:07 pm
Mendoza and Pritzker getting Illinois 2 credit upgrades after Rauner’s 8 credit downgrades “worsened Illinois’ financial condition”??? This Griffin crew really is not ready for prime time.

Comment by Strategy Geek Wednesday, Feb 23, 22 @ 12:12 pm
Teresi is supporting the hustlers. The loan sharks. Not a good look.

Comment by Medvale School for the Gifted Wednesday, Feb 23, 22 @ 12:20 pm
==will cost taxpayers more in the long run==

How?

Comment by low level Wednesday, Feb 23, 22 @ 12:24 pm
candy. please define a lot.

Comment by Blue Dog Wednesday, Feb 23, 22 @ 12:31 pm
===While every Illinois family has to pay interest on our mortgage, rent, and household bills, the state government is trying to create a loophole for themselves. What Comptroller Mendoza isn’t telling you is that under JB Pritzker and her financial “stewardship,” the state has taken on more debt, worsened its financial position, and tries to pass this off as responsible leadership.===

Oof, whoever wrote that has no idea of what they are talking about. If Teresi wrote it, it’s disqualifying. If a staffer wrote it, it’s time to find a new writer, preferably someone with a grasp of how laws work and more than a passing familiarity with the Bond Buyer.

Comment by 47th Ward Wednesday, Feb 23, 22 @ 12:54 pm
Keep it right where it is. If state is paid up then no problem. But don’t remove it. Bad idea.

Comment by Galway Bay Wednesday, Feb 23, 22 @ 1:11 pm
===candy. please define a lot.===

In this instance, I mean more than 50%. Specific data will be difficult to get until a year or so down the road, but corporate earnings calls and earnings reports tend to be pretty revealing including several instances where the CEO boasts about raising prices and how those increased prices drove significant price increases.

My McDonald’s quip is specifically because McDonald’s has announced price increase plans during the same earning call as they announced record revenue. That sort of suggests the price increase isn’t really necessary to cover any of their expenses.

Below are a couple of articles that touch on the topic;

https://fortune.com/2022/02/19/inflation-profits-prices-companies-pandemic/

https://www.thenation.com/article/politics/inflation-price-gouging/

Don’t let people convince you paying someone a living wage is what’s causing you to pay a higher price. The current trend also is bad for mom & pop shops as their suppliers will drive up their costs of goods in order to bank additional profits which pushes the pressure onto the retailer to increase prices.

Comment by Candy Dogood Wednesday, Feb 23, 22 @ 1:27 pm
But if we agree it doesn’t actually change the behavior of the government, and it doesn’t, then why have it? Other than private lenders, the other beneficiaries are large providers with ready access to cash who can look at the interest penalties as investments. So get rid of the penalty or lower it, but include some provision that smaller companies get paid first. Also, the treatment of medical bills is somewhat different and may need to be examined as well.

Comment by vrqouyg Wednesday, Feb 23, 22 @ 1:30 pm
One aspect of the Prompt Payment Act that has not been discussed is the fact that when payments are delayed, community-based organizations that contract with the state are forced into the position of being a lender to the state. Financing state government operations is not included in the mission of any nonprofit human service provider that I am aware of, and that financing has a real cost to it, such as in interest charges and fees for lines of credit. Interest charges and fees are not eligible expenses for state reimbursement, so the interest paid through the PPA acts as compensation for those expenses incurred by doing business with the state of Illinois. Keep the law in place to protect community-based organizations and help reassure them (and their banks) that it is not financially hazardous to do business with Illinois.

Comment by Andrea Durbin Wednesday, Feb 23, 22 @ 1:36 pm
As someone who had to fight to get his medical bills reimbursed because DHS/HFS totally screwed up his Medicaid, then fight for the interest payment, the interest was a matter of justice and fairness.

Mendoza is wrong with her timing now,but she has a point. Many states have no such law requiring interest be paid. And the interest law actually didn’t stop the State from running up a huge interest bill by any stretch, or it’s agencies from dragging their feet trying to make their budgets look good by delaying or denying bill payments, let alone the interest.

Comment by thisjustinagain Wednesday, Feb 23, 22 @ 1:36 pm
=nothing more than a cheap way to save a buck=

Well the last thing we want our Comptroller to do is find cheap ways to save a buck.

Comment by Pundent Wednesday, Feb 23, 22 @ 1:37 pm
Anybody involved in the day to day operations of a business understands the need for a timely payment cycle to keep the business running. The vendors get paid by the state, and they turn around and pay their employees and other businesses who provide products or services to them. One breakdown in the process has an effect throughout the chain.
The dirty part of third parties buying the debt is the fact it is necessary because the state of Illinois wasn’t paying its bills in a timely manner. When tax time comes around, I’m pretty sure I can’t tell IDOR they are at the bottom of my payment priority queue and it’s probably going to be a year or two before I get to them. I know I will certainly be charged penalties and interest if I’m late.

Comment by Leave it Wednesday, Feb 23, 22 @ 1:39 pm
One year we are doing well. Pritzker blowing money on goodies and then this. STOP the nonsense. There is no reason to remove.

Comment by DMC Wednesday, Feb 23, 22 @ 3:34 pm
12% is ridiculous and though there is some sense to allowing the debt to be sold, that policy is ripe for corruption and abuse. Perhaps change the interest rate to an annual rate equal to the prime rate plus a few percent. Don’t want to State to use its vendors as banks, and don’t want to hit the taxpayers for mismanagement like during the Rauner years.

Comment by Anonymous Wednesday, Feb 23, 22 @ 4:11 pm