Originally meant to prevent delays, Wisconsin’s prompt payment law has come to mean hefty payouts for private businesses.
Nearly all states passed “prompt payment” laws in the early 1980s, in response to small businesses and other contractors who complained the states were sluggish in paying their bills. The National Federation of Independent Business – which represents small businesses in Wisconsin – lobbied for the penalty here, which slaps 12 percent interest on any late payment to road builders, lawyers or whomever. Such businesses complained the state often took 60-90 days to pay its bills, delaying their own payments to subcontractors and suppliers.
“In the private sector, we expect payment in 30 days,” says Bill Smith, director of NFIB’s Wisconsin chapter. “The state was dragging.” In the 1980s, he helped to lobby for the prompt payment law, along with construction associations whose members stood to benefit.
In other states, such laws seemed to do their jobs, and quickly. At the time, officials in Oregon and Arizona claimed their requirements had worked so well, they’d yet to pay a late fee. And Smith says the goal for Wisconsin’s 1986 law was the same, not to milk the state but to provide a “significant financial incentive” for quickly paying state bills.
But officials seem to not have learned the lesson. Since fiscal year 2008, Wisconsin has paid more than $700,000 in late fees, according to the state Department of Administration, a number that Smith says colors him “a little shocked.” According to the state’s OpenBook website, the Department of Transportation paid $22,640 in late fees to North American Salt (now Kansas-based Compass Minerals) in 2012 alone, and in 2010, the agency paid We Energies about $32,090 in such fees.
Between 2008 and 2015, the DOT paid a total of $264,224 in late penalties, more than any other department. The sprawling Department of Administration came in second, compensating Madison mechanical contractor H&H Industries with $16,415 in 2015 alone. Most of DOA’s late payments that year, including the aforementioned, stemmed from a fire in a state building.
Although the state should operate “just like businesses” in paying its bills within 30 days, says state Rep. Dale Kooyenga (R-Brookfield), the 12 percent penalty is excessive “in the interest rate environment we’re in. We should look into lowering it.” The federal prompt payment law requires Uncle Sam to shell out only 2.5 percent, and Milwaukee’s rate is just 1 percent.
“[The state] should be able to negotiate the lowest interest rate we can pay,” says state Sen. Lena Taylor (D-Milwaukee), “but in the same breath, we should be able to do what’s right and fair.” Like Kooyenga, Taylor is on the state Legislature’s Joint Finance Committee. “[What are we doing] so we’re not making the payment?” she says. “And where is that issue happening?”
Jim Dick, spokesman for Gov. Scott Walker’s Department of Administration, says that “agencies in this administration are continuously working to lower these payment numbers,” and the state’s new enterprise resource planning system, a new kind of accounting system, “will help track payments to better keep them on time.”
Launched in 2014 as an exercise in transparency, OpenBook (openbook.wi.gov) is said to lay bare some 25 million records that, taken together, reveal much of state spending. Plans call for adding more information – including awarded grants and salary information for the University of Wisconsin System and the Legislature – “in the future.”