https://www.americancityandcounty.com/wp-content/themes/acc_child/assets/images/logo/footer-logo.png
  • Home
  • Co-op Solutions
  • Hybrid Work
  • Commentaries
  • News
  • In-Depth
  • Multimedia
    • Back
    • Podcast
    • Latest videos
    • Product Guides
  • Resources & Events
    • Back
    • Resources
    • Webinars
    • White Papers
    • IWCE 2022
    • How to Contribute
    • Municipal Cost Index – Archive
    • Equipment Watch Page
    • American City & County Awards
  • About Us
    • Back
    • About Us
    • Contact Us
    • Advertise
    • Cookie Policy
    • Privacy Statement
    • Terms of Service
American City and County
  • NEWSLETTER
  • Home
  • Co-op Solutions
  • Hybrid Work
  • Commentaries
  • News
  • In-Depth
  • Multimedia
    • Back
    • Podcasts
    • Latest videos
    • Product Guides
  • Resources/Events
    • Back
    • Webinars
    • White Papers/eBooks
    • IWCE 2022
    • How to Contribute
    • American City & County Awards
    • Municipal Cost Index
    • Equipment Watch Page
  • About Us
    • Back
    • About Us
    • Contact Us
    • Advertise
    • Cookie Policy
    • Privacy Stament
    • Terms of Service
  • newsletter
  • Administration
  • Economy & Finance
  • Procurement
  • Public Safety
  • Public Works & Utilities
  • Smart Cities & Technology
  • Magazine
acc.com


Scaling the liening tower

Scaling the liening tower

When New Haven, Conn.'s current administration took office in 1994, it inherited a dismal record in tax collection. "Sixteen percent of the taxes went
  • Written by Beth Wade, Managing Editor
  • 1st July 2000

When New Haven, Conn.’s current administration took office in 1994, it inherited a dismal record in tax collection. “Sixteen percent of the taxes went uncollected,” says Frank Altieri, budget director for the city. “We had an accumulation of back taxes, and we felt that the best way to get a quick infusion of funds was to do a securitized sale of our tax liens.”

In 1995, the city (which bills $120 million annually for real estate taxes) did just that. In a securitized sale of its oldest real estate liens, New Haven received $19.5 million for a $25 million portfolio. It followed up in 1996 and 1997 with bulk sales of additional real estate liens, and, a year later, it added collection outsourcing to its menu of tax-recovery tools.

New Haven is not alone in the battle to recover delinquent taxes. A January 2000 article in The Bond Buyer reported that estimates for uncollected local property taxes run as high as $15 billion nationwide.

When taxpayers do not pay their bills, cities and counties employ several strategies for encouraging quick turnaround. “Everything you do that you haven’t done before generates revenue,” says Verone Cloutier, tax collector for Marlborough, Mass. The government might begin with taxpayer notification, follow up with written reminders and calls, and offer the taxpayers financial counseling and payment plans. When those efforts fail to generate payment, a lien commonly follows.

Liens or notices to foreclose may be enough to prompt delinquent taxpayers to reconcile, but, if not, the accounts typically stall – the governments lacking cost-effective means of pursuing them further. “A municipality does not have the personnel and means to really chase these hard cases,” Cloutier notes.

Property seizure and foreclosure are prospects that local governments are generally loath to entertain. Few want to face the legal expenses; fewer want to act as property managers or, in the case of a business, negatively affect employment; and no one wants the image of a Big Bad Wolf. After all, the goal of tax recovery is to reconcile the account and return the taxpayer to current rolls.

Fortunately, as in New Haven, several tools are available to local governments seeking to collect their die-hard delinquencies. All involve third parties; not one requires huffing and puffing.

Need cash quick?

With a backlog of tax liens, a government has three choices for collection, Altieri says. They are: * Bulk sale. The government sells its liens as a single package for a discount, forfeiting the difference between the discount and full value. The seller receives a lump sum; the buyer owns the portfolio outright. * Securitized sale. The government sells its liens, at discount, to a trust. The trust issues bonds, and bondholders are paid with revenues collected on the liens. The government receives a lump sum for the sale, and, if there is residual money after the bondholders have been satisfied, it receives that as well. * Outsourced collection. The government hires a third party to collect the liens, and it pays a percentage of the collected revenues for the service.

“With those options in front of me, I like the last option the best,” Altieri says. “But the choice depends on the kind of cash infusion a community is looking for.”

“I definitely like the idea of selling better because you get your money right away,” Cloutier says. “If you outsource, it could take them 10 years to collect because, bear in mind, you’re giving them liens for which you’ve exhausted all means of collection. If you sell in bulk, the buyer can’t pick and choose; they have to take everything. And, when they take everything, they also have to pay you everything.”

Marlborough – which has an annual real estate tax base of $48 million – has used both bulk sale and outsourcing successfully. In 1998, it sold $1.8 million worth of real estate tax liens (the first such transaction in Massachusetts) to Norcross, Ga.-based GLS Capital. It then outsourced its remaining real estate liens, totaling $766,000, to McLean, Va.-based JER Revenue Services, which also is working with New Haven.

“We outsourced things that were withheld from the bulk sale,” she explains. “They were hard cases – they either had possibilities of [environmental liability], or people had made payment agreements prior to the bulk sale and defaulted. I didn’t expect to collect any of them.” To date, the collection firm has recovered $360,000.

Retaining control

Like Marlborough, New Haven has used sales and outsourcing to combat its delinquent taxes. Unlike Cloutier, however, Altieri would not undertake another sale. “I’m not sure I would have made a different decision in 1995, but today I would outsource,” he says. “In a bulk sale, you give up any residual, although, in a securitized sale, there’s potential for the residual to come back to the city. In both cases, we found that we had little or no control over the liens that we sold.

“In Connecticut, the first lien has precedent,” he explains. “Let’s say you sell liens up to 1995, and, in 1996, 1997 and 1998, you have to place additional liens on some of those properties. If [the buyer] is not collecting those liens aggressively, you get backed up because you can’t collect your money until they collect theirs.”

Additionally, when liens are sold, the seller has no control over the way in which payment is pursued. That is not the case with outsourcing, Altieri says. “We’re more familiar with the properties than a lien purchaser would be,” he explains. “With a servicer, we give direction to the individuals who are doing the collection; we determine the degree of aggressiveness [with which they can] collect.”

In 1998, New Haven outsourced $8 million in real estate tax liens, and, to date, it has recovered nearly two-thirds of that. (New Haven outsourced accounts from the backlog of inherited delinquencies, as opposed to Marlborough, which outsourced only those accounts that Cloutier believed were hopeless.) “The servicer contacts the taxpayer, offers credit counseling, puts the taxpayer in touch with banks, and it will do reverse mortgages,” Altieri notes. “Also, we have a Mayor’s Night In, [during which] delinquent taxpayers are invited to come to City Hall, and we have people available to help the taxpayers meet their obligations.”

Since its initial experience with outsourcing real estate taxes, New Haven has begun to outsource back taxes on personal property and motor vehicles as well. “As we review our files, we are giving [the firm] some older delinquencies that are out there,” Altieri says. “I think they have about $12 million now to collect.”

… a pound of cure

While some cities are successfully rejuvenating their tax rolls with sales and outsourcing, the best remedy for long-term tax delinquency is prevention, says Kevin Appel, chief deputy treasurer and legal counsel to the treasurer for Arlington County, Va. Since 1983, the county’s tax delinquency rate has decreased steadily, thanks in part to the Taxpayer’s Assistance Program (TAP) and Tax Busters – initiatives that focus on delinquency prevention and recovery of freshly delinquent accounts.

With an annual tax levy of $264 million, the county has a tax delinquency rate of 1.6 percent. Of course, it doesn’t hurt that, behind the tax-collection measures, the county treasurer has the power to seize assets directly.

“In Virginia, a local government treasurer can seize a bank account, a paycheck, business machinery and equipment,” Appel says. “The state legislature provided local government treasurers with administrative authority that is pretty profound. We do not have to go to court.” However, he notes, “We don’t want to be in a position where we have to seize people’s property or money, so we started a delinquency prevention program.”

He is referring to TAP, which was launched in partnership with a local branch of Virginia Commerce Banks in 1998. Under the program, taxpayers who are in danger of defaulting or have defaulted on tax payments can apply for an interest-free loan to meet their obligations. “The taxpayer completes an application with us, providing us information on their residence, employment and banking,” Appel says. “They are charged a $10 enrollment fee (for application processing) plus 10 percent of the taxes that will be financed. The 10 percent is where the bank gets its money.

“The bank pays the full amount of the taxes owed, clearing the liability, and the taxpayer makes monthly payments to the bank,” he says. “It’s an interest-free loan that must be paid off over six months.” If the taxpayer defaults on his payments to the bank, the unpaid portion of the loan is remanded to the county, which will then employ its power to seize assets. “We’ve got the information from the application process to assist us in doing that,” Appel notes.

“By entering into TAP, [the taxpayers] actually end up paying less than they would if they became delinquent,” he adds. “If they become delinquent, they are going to be hit with a 10 percent penalty, by law, plus interest. Even though there’s a 10 percent fee [for TAP], they’re not going to have to worry about paying interest.”

Since TAP’s inception, more than 1,000 Arlington County tax bills (more than $400,000) have been financed through the program, with no cost to the Treasurer’s Office. Although TAP is intended to assist taxpayers before they default, the program will assist people with first-time delinquencies. “It’s not for repeaters,” Appel says. “We’ll help out [the first-timers] if we can, and we’ll help them plan for the future.”

Pre-dating TAP is Arlington County’s Tax Busters, a program focusing on new delinquencies. Each year, from November until mid-February, 10 treasury staff members – the Tax Busters – contact taxpayers who have not paid their current bills. “They send them a notice, call them – all kinds of things,” Appel says. “Then, if we don’t get some kind of response, they start doing research for lien sources.” Bonuses from the county’s general fund are paid to the group and support staff, based on the collection goals achieved.

“Most of the staff is doing this year-round, but there’s a concerted effort on these accounts that have just recently become delinquent,” Appel says. “The quicker you go after them, the more likely you are to collect them.”

Creative measures such as those used by Arlington County can help prevent tax delinquency. However, no government is going to eliminate back taxes, and none has the manpower and monetary resources to devote to collecting the “uncollectibles.” When weighed against the cost of protracted in-house recovery efforts, options such as lien sales and outsourcing could provide cost-effective relief from governments’ most burdensome accounts.

For more information about procedures and policies for collecting delinquent revenues, contact the Government Finance Officers Association in Chicago. Call (312) 977-9700, or visit the association’s web site at www.gfoa.org.

Tags:

Most Recent


  • New York mayor announces city-wide curbside composting program, impacting 8.5 million residents by 2024
    On the heels of a successful 3-month-long pilot program in Queens, New York City has announced the largest curbside composting program in the United States. The initiative will begin following a winter-long hiatus of the Queens pilot, which is set to return permanently March 27. Curbside service to Brooklyn will begin Oct. 2, followed by the […]
  • Phoenix
    Federal funds help fast-growing Arizona city address several infrastructure challenges and needs
    Joe Giudice, public works director for the city of Phoenix, says the influx of new residents is driving a lot of construction in his community. “Phoenix is the fifth largest city in the United States. It is one of the fastest growing cities in a fast-growing region, which influences infrastructure product and service demand. This […]
  • How 5G is making cities safer, smarter, and more efficient
    This article first appeared on Urgent Communication. It’s a scenario we’ve all experienced: an ambulance with a blaring siren racing against time to get a person in medical distress to a hospital through traffic. What we don’t see is 5G connectivity enabling paramedics to communicate with hospital staff via video conference and coordinate care in […]
  • Shifting city demographics present an opportunity to build coalitions, address inequality
    Minority-majority cities are driving American growth. New York City, Los Angeles, and Chicago, for example, combined for an estimated 16% of the nation’s total gross domestic product in 2021—future projections anticipate a continuation of this trend, and an opportunity to create coalitions to address injustices. Between 2015 and 2020, 22% of U.S. cities were majority-minority, […]

Leave a comment Cancel reply

-or-

Log in with your American City and County account

Alternatively, post a comment by completing the form below:

Your email address will not be published. Required fields are marked *

Related Content

  • VCPWA Water and Sanitation to install money-saving battery energy storage system
  • NACTO announces 10 winners of Streets for Pandemic Response and Recovery grants
  • Why state and local governments need to future-proof their sales tax processes with technology
  • ASCE releases new manual to plan and design for hazards

White papers


Modernizing government services for today’s resident expectations

24th January 2023

Preparing Your Community Now for the Next Generation of Older Adults

18th October 2022

Helping Government Fleets Achieve Their Goals

30th September 2022
view all

Webinars


How To: Evaluate Digital Government Service Delivery Technologies

23rd January 2023

Using Technology to Enhance Communications

29th November 2022

Learn the benefits of transforming and automating your Contract Management process

4th November 2022
view all

PODCAST


Young Leaders Episode 4 – Cyril Jefferson – City Councilman, High Point, North Carolina

13th October 2020

Young Leaders Episode 3 – Shannon Hardin – City Council President, Columbus, Ohio

27th July 2020

Young Leaders Episode 2 – Christian Williams – Development Services Planner, Goodyear, Ariz.

1st July 2020
view all

GALLERIES


Report: While remote work is causing offices to empty out, walkable cities are still in high demand

26th January 2023

10 American cities with a great downtown

24th January 2023

Miami leads the way in FT-Nikkei ranking of best U.S. cities for foreign companies

20th January 2023
view all

Twitter


AmerCityCounty

New York mayor announces city-wide curbside composting program, impacting 8.5 million residents by 2024 dlvr.it/ShhRk1

30th January 2023
AmerCityCounty

Federal funds help fast-growing Arizona city address several infrastructure challenges and needs dlvr.it/ShhBtf

30th January 2023
AmerCityCounty

How 5G is making cities safer, smarter, and more efficient dlvr.it/ShYNcx

27th January 2023
AmerCityCounty

Shifting city demographics present an opportunity to build coalitions, address inequality dlvr.it/ShYMMm

27th January 2023
AmerCityCounty

Spending American Rescue Plan Act funds: A primer for municipalities dlvr.it/ShXzvl

27th January 2023
AmerCityCounty

Report: While remote work is causing offices to empty out, walkable cities are still in high demand dlvr.it/ShVhBW

26th January 2023
AmerCityCounty

Managing landslides along road corridors using remote sensing dlvr.it/ShTpL6

26th January 2023
AmerCityCounty

Report: Prioritizing neighborhood infill, expanding transit options increases neighborhood resilience dlvr.it/ShRrFM

25th January 2023

Newsletters

Sign up for American City & County’s newsletters to receive regular news and information updates about local governments.

Resale Insights Dashboard

The Resale Insights Dashboard provides model-level data for the entire used equipment market to help you save time and money.

Municipal Cost Index

Updated monthly since 1978, our exclusive Municipal Cost Index shows the effects of inflation on the cost of providing municipal services

Media Kit and Advertising

Want to reach our digital audience? Learn more here.

DISCOVER MORE FROM INFORMA TECH

  • IWCE’s Urgent Communications
  • IWCE Expo

WORKING WITH US

  • About Us
  • Contact Us

FOLLOW American City and County ON SOCIAL

  • Privacy
  • CCPA: “Do Not Sell My Data”
  • Cookie Policy
  • Terms
Copyright © 2023 Informa PLC. Informa PLC is registered in England and Wales with company number 8860726 whose registered and Head office is 5 Howick Place, London, SW1P 1WG.