SPRINGFIELD, Ill. – For some businesses, Illinois' budget crisis is a disaster. For others, it's an opportunity.
A Georgia company entering the debt brokering business is hoping to profit from the state of Illinois' failure to pay its bills for months at a time by arranging for struggling vendors to sell their overdue paper at a discount.
Sellers would get most of the money owed to them now. The buyers would collect the full amount from the state later. And the company, Alpharetta Industries, would take a cut as the middleman.
Already, the Georgia-based company has a few takers among the thousands of organizations in Illinois trying to stay afloat during the crisis.
"At the end of the day it was better to have some money than no money," said Na-Tae Thompson, whose nonprofit True Star Foundation is waiting on $75,000 from the state that hasn't arrived.
The brokering of Illinois' unpaid debt is the latest symptom of a budget crisis that threatens to cripple the state's network of social services. Other states suffering from severe fiscal problems in the recession have taken a variety of austerity measures but have not stopped paying bills as Illinois has. Across the state, agencies ranging from schools and local health departments to day-care centers and homes for the disabled have been waiting months for checks with no sign when they will arrive.
But the new partial payment offers were decried as unseemly by some organizations, the earmark of an industry that includes payday loans, deadbeat debtors, risky credit and desperate borrowers.
"Vultures feeding on the non-profits' suffering," said Don Moss, executive director of United Cerebral Palsy of Illinois, which represents some service providers around the state.
Alpharetta executives see themselves as contributing to the survival of groups that serve Illinois' poor and needy.
"You do well by doing good," said Thomas Begley, the CEO of the company, named for the Atlanta suburb where it is located. The company is donating 10 percent of its profits to service organizations, he said.
Begley said he doesn't know of any other company arranging for struggling social-service groups to sell overdue government debt.
Eventually, the company hopes to operate across the country, but for now it's focusing on Illinois. That's partly because the state's bookkeeping system is automated enough that Alpharetta can easily work with it, but it's also because the state's awful financial condition creates plenty of potential customers.
"We're going to the places where the need is greatest," said Marianne Spraggins, chief operating officer for Alpharetta.
Alpharetta's proposal, which costs groups at least 8 percent of the money the state owes them, offends many struggling organizations.
"To me, it feels like they're taking advantage of a situation that's already bad for us," said Lora Hurling, executive director of Larc, which serves people with developmental disabilities in Lansing.
Hurling said recently that the state, which has a $13 billion deficit, owes Larc about $825,000, forcing her to lay off four people, cut two full-time jobs to part-time and reduce pay to the organization's disabled employees.
Still, she said, Alpharetta's offer wasn't particularly tempting because she can't accept less money. "The state does that to me enough. I can't do it to myself," Hurling said.
According to Alpharetta's proposal, organizations owed money would register with the company and say how much debt they want to sell. Potential buyers — mostly big banks and hedge funds, the company says — would look at the debt and decide what to buy. The two sides would then seal the deal in a flurry of electronic signatures and account numbers. The organization would immediately get 71 percent of the debt it sold. That means a group that sold $50,000 in overdue bills would collect $35,500 right off the bat. How much more money the seller got would depend on how quickly the state paid off the debt.
One organization planning to do business with Alpharetta is MAGIC, a teen outreach program on Chicago's South Side.
Unless it gets some of the $200,000 it is owed now, MAGIC won't be able to keep helping children who have already seen plenty of broken promises and disappointment, said executive director Bryan Echols. "We want to be the adults who keep their word," said Echols, who said he hopes to make up the discount paid through more fundraising.