Governments Stuck Holding $180 Billion Tab

Stepnaie Eidelman

It probably comes as no surprise to ARM industry professionals—particularly those that collect government receivables–that nationwide, government entities are owed a total of approximately $180 billion. But seeing that figure in black and white is a bit astounding, even to those in the debt collection industry. To be sure, there are some people who owe money that simply cannot pay.  But it is also true that some can, and do not, for a variety of reasons.  One reason is that they are not held accountable.  This situation is especially challenging at the local level.

There are many things local government does well including funding parks, fire stations, and police, cleaning the streets, and picking up trash.  There are other activities at which local governments are less than proficient. One of those is collection of past due receivables such as property taxes, utility fees, court fines, etc.

As we all know, local officials today are pushed to do more with less.  Less money.  Less staff.  Less resources all around.  They have three options: 1) raise taxes, 2) eliminate services, or 3) collect more of what’s owed to them. While always under discussion, the first option is simply not tenable these days.  The second option has already occurred.  The only thing left to do is get better at the third.

There are a litany of reasons why government agencies tend not to be so effective at collecting past due receivables.  One of them is that the individuals responsible would prefer to not to alienate their neighbors.  A second is that they lack the technology and systems to do so efficiently.  A third is that they have little incentive to do so.  Unlike private collectors, government employees do not earn bonuses or incentives for doing a better job.  And chances are, especially at the local level, those who collect also have other responsibilities.  Debt collection is likely their least favorite of the bunch.  Wouldn’t all of us naturally avoid our least favorite task, given no incentive, not to mention a bunch of disincentives (i.e. If I do a good job collecting, they’ll ask me to do more of it)?

But here’s what this is akin to: My employer agrees to pay me a $50,000 salary.  At some point, they simply stop paying, or they pay me less than what they committed to in exchange for my services.  Perhaps the company is having a down year.  Perhaps they are losing money and don’t have enough cash.  Perhaps they just think they could get away with it.  Would you just let it go, not wanting to make waves?  Would you continue to provide your services, with no promise – or at the very least a discussion — of how and when payment will be made?  Of course not.

In my opinion, this is a big opportunity… To read the rest of this article visit insideARM’s blog on Forbes.com.

Stephanie Eidelman is the president and publisher of insideARM.com. She wouldn’t work for free either.