Higher Government Deficits Leading to Opportunities for ARM Companies

As state and local government deficits rise in a battered economy, more officials are turning to outsourcing the accounts receivable management function to outside collection agencies.

Patrick J. Swanick, chief executive officer of the government ARM firm Municipal Services Bureau, said debt has grown so much that governments are increasingly bringing in third party debt collection agencies to collect money that is owed to government entities.

“Using outside resources like third party collection agencies is a good move for them,” he noted. “Government entities outsourced their collections before. But many government entities are looking for extra assistance in collecting this money in the current environment.”

As budget deficits swell – spurred on by lower tax collection in the face of job losses and business cutbacks — more government debt will be available to work.

Swanick noted that there has even been discussion on selling government debt to companies, which would create a new sector in the debt purchasing arena.

Other companies also sense an opportunity for quick growth in the government ARM sector. Debt purchasing giant Portfolio Recovery Associates (PRA) completed two fee-for-service acquisitions in the government services sector in the last quarter alone: MuniServices, LLC, a provider of revenue administration to local governments, and Broussard Partners and Associates, Inc., a provider of audit services to local governments.

In an exclusive video interview with insideARM, PRA’s Executive Vice President Craig Grube said there is a slight trend in the use of debt collectors by municipalities. But the real opportunities are coming in helping local governments identify all sources of revenue.

“Municipalities are looking to enhance revenue without adding cost,” said Grube. He noted that PRA’s government services arm is auditing local business to ensure they are paying the appropriate level of taxes.

(To view the entire interview with Grube, please see, “VIDEO INTERVIEW: Craig Grube, Portfolio Recovery Associates,” Nov. 5)

Last month, a group of ARM industry leaders also identified the potential of the government collection market and launched an association that will cater exclusively to the sector (“Industry Leaders Launch Non-Profit Association for Government Collections,” Oct. 15).

“It’s not unusual to see governments outsourcing their collections,” Kendall Tierney, board member of the Government Revenue Collections Association, told insideARM. “I don’t think that is a trend that’s going to change. Governments are becoming more and more serious about recovering those receivables.”