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The Heavy Costs of State of Illinois Bill Paying

Chicago Daily Observer 29 November 2016 No Comment

From Reuters

The one-of-its-kind, bill-payment program seeks to avert the nightmare scenario for a state in the worst financial shape in the country: a shutdown of essential services such as employee health insurance, a disruption of prison food supplies or mothballing of state trooper cars in need of fuel and maintenance.

But it comes at a heavy cost with unlimited late-payment fees now approaching 20 percent in some cases for Illinois’ cash-strapped government, whose general obligation (GO) low-investment grade credit ratings are the lowest among U.S. states.

payday

Under the Vendor Support Initiative (VSI) program launched last year to replace a similar plan introduced in 2011, state vendors can get paid without delay 90 percent of what they are owed by state-designated financial lenders.

When the state finally pays, the vendors get the final 10 percent, while the lenders keep the late-penalty fees. In Illinois, receivables more than 90 days past due accumulate interest at a rate of 1 percent per month.

For the lenders, the risk is that the state will not pay up and they will need to fight for compensation in courts, but that has not happened yet.

The firms include financial institutions such as Citibank N.A. (C.N) and Bank of America Corp (BAC.N), a distressed debt investor tied to a Rauner campaign donor, and political insiders, including Hillary Clinton’s 2008 campaign manager and a former two-term Republican Illinois governor.

Read more in Reuters

 

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