State and local budget crunches mean government contractors will have to wait longer to get paid, the WSJ‘s Marshall Eckblad reports.
An Illinois non-profit named Springfield Arc Inc. is doing the people’s work, serving the mentally disabled. Trouble is, the people are six months late in paying.
The state of Illinois owes the Springfield-based provider $1.5 million, some of it since July. It’s cost Springfield Arc $50,000 in bank borrowing expenses and lost interest income to prop up its $9 million budget, and keep cutting paychecks to 200 employees. It has also delayed growth plans.
The state “can’t give you money they don’t have,” said Carlissa Puckett, executive director at Springfield Arc, whose services include job placement and training as well as home and foster care.
As falling tax revenues squeeze governments, from state capitols to school districts, the cash crunch is also putting smaller companies that do work for them in a financial vise. In many cases, these Main Street businesses are carrying out the same contract work as they did in prior years – except now, they’re waiting longer to be paid. In some cases, far longer.
The dynamic illustrates how recessions ripple through the economy, in this case displacing government budget troubles onto otherwise functioning businesses that do work for them.
To keep paying bills and employees, affected companies are scrambling to find short-term working capital, with some landing cash from banks and others from less regulated lenders like those known as factors.
Government payment delays are “having a devastating effect on the economy,” said Illinois State Sen. Dan Kotowski (D-Chicago). Kotowski said Illinois’s ability to pay those bills could affect up to 200,000 jobs throughout the state.
Photo by ilco.