The Next ARM Growth Market: State and Local Governments

The fiscal crisis that is impacting financial institutions, corporations and consumers worldwide is also severely impacting numerous state and local governments. Across America, government financial officers are paralyzed when accessing cash to balance their budgets. Funding is simply not readily accessible.

According to Elizabeth McNichol of the Center on Budget and Policy Priorities, state budge gaps for the rest of 2009 and into fiscal 2010 could reach $100 billion. Locally, the U.S. Census estimates there are approximately 35,000 towns and municipalities in the United States, excluding public school districts and county governments. Most of these local governments derive their revenues from three primary areas: federal funding, state aid, and local sources. Funding at this level is severely impacted too.

All indicators point to increasing potential for private sector ARM companies to collect even more government delinquent receivables. Of course, many in the industry are already ahead of the curve (“Higher Government Deficits Leading to Opportunities for ARM Companies,” Nov. 5).  Following property taxes, receivables such as delinquent traffic and parking citations, child support payments, library fines, and unpaid court costs (including fees and fines) have become increasingly important to the finance officers and collection managers around the country as secondary revenue streams. Did you know that collectively, municipalities generate roughly $1.25 trillion in revenues each year, a surprising 11% of U.S. GDP. The amount of delinquent receivables owed to U.S. municipalities has been estimated at approximately $40 billion.

Since governments can’t borrow in today’s market, spending will be cut and important projects will be put on ice or scrapped altogether. When governments are faced with a choice of cutting spending, raising taxes or collecting past due debts, I am quite sure some will choose what’s behind door number three.

Need proof? From April 1 through the end of June 2008 there were more than 80 state contracts released for bid. Here in the greater Washington DC region, my neck of the woods:

• Prince William County is reviewing proposals for the purpose of establishing a contract with a qualified service provider to collect on delinquent tax accounts. The County does not currently have a contract for collection services.

• Montgomery County Md., one of the wealthiest counties in the country, last month sold about $5 million in tax debts of residents and business owners. A similar auction last year sold about $3.6 million in tax debts to debt purchasers.

• Prince Georges, Co., Md., sold last month about $14 million in tax debts, up from the $10 million it put up for sale in 2007, according to the Examiner.

• Public libraries in Staunton and Waynesboro, Virginia, began referring unpaid library fees of greater than $25, and delinquent for more than 42 days, to collection agencies in March 2007. Since 2003, these and other libraries in Augusta County have accumulated more than $100,000 in costs from unreturned items. That figure represents more than half of the county’s annual budget for new library materials.

Consider the potential expansion opportunities for your business by approaching state and local governments in your own region to address their own collection needs. There is a growing need and increased receptivity among government officials to work with collection agencies and debt buyers. Sounds like fertile ground to me.