State Treasurer John Kennedy on Louisiana's pile of uncollected debt In 1998, the City of Walker hired the state DOTD for $1.3 million to relocate some of Walker's utility lines. DOTD didn't send a bill until 2003. After the bill wasn't paid, DOTD sent a second bill 9 years later in 2012. It was finally paid when the Legislative Auditor complained, though it's hard to fault today's Walker mayor and council for something that happened 14 years ago.
This is typical. As of March 31, 2012, $1.4 billion is owed Louisiana taxpayers in past due accounts receivable. Just about every state agency is owed money. This amount is fairly consistent over time, and rarely falls below $1 billion. The debt includes not just delinquent taxes, but unpaid fees, fines, medical bills, prescription drug rebates and services performed by the state. Over half of the current $1.4 billion, or 53%, is 180 days (that's 6 months, folks) past due. No business in the real world could stay in business if it collected its bills the way Louisiana state government does.
Here's what we need to do:
Step 1: Find someone competent to catalogue the state's debt, analyze it, and decide which accounts are so old and uncollectible by the state that they ought to be sold pursuant to Rep. Chris Broadwater's bill that we passed in the last legislative session. Repeat every 3 to 6 months. The state will receive immediate cash for these receivables, albeit at a discounted amount, but something's better than nothing.
Step 2: Centralize collections. Right now every state agency is responsible for its own collections. However, DEQ, for example, is much better at protecting the environment than it is at collecting money, and the same is true for just about every agency. Centralizing collections would allow for uniform automated billing, computerized invoice monitoring, debt prioritization, better data, consistent collection practices, and generally an enhanced focus on collecting debts. It would require the state to view delinquent debt management as a core function of government rather than a lower-priority activity. Michigan, Ohio and Colorado have centralized their debt collection, and have the extra money to show for it.
Step 3: Use offsets. Employ technology to withhold tax refunds and vendor payments from those who owe the state money. Don't give these debtors new state contracts. Prohibit people who owe the state money from running for office or being appointed to a board or commission. Other states have also found that liens, levees, garnishments and license holds have proven successful.
Step 4: Demand current information. Louisiana's most recent receivables report is 90 days old. That's an improvement; until recently, receivables reports were only compiled every 6 to 12 months. Someone in state government needs to monitor debts on a daily basis and that can't be done without current information.
Step 5: Review the state's credit policy. What is the state's policy for extending credit in the first place instead of demanding immediate or pre-payment? Are we extending credit to people and businesses that are already delinquent? Is anyone pulling credit reports before extending large amounts of credit? We need a single new, uniform credit policy for every state agency, and we need to enforce it.
By adopting proven debt collection practices used effectively by other states and the private sector, I believe Louisiana could reduce its uncollected accounts receivable, and therefor improve its cash flow, at least by 10%. That's an extra $140 million a year. A 20% improvement would be a $280 million a year.
Louisiana state government can do better. Louisiana taxpayers deserve better.