HomeMy WebLinkAboutIR 7594 INFORMAL REPORT TO CITY COUNCIL MEMBERS No 7594
March 31, 1992
To the Mayor and Members of the City Council
Subject:
Collection of Current Taxes
IR No. 7582, dated February 11, 1992, indicated the staff would evaluate the
costs/benefits of contracting out current tax collections and present a
recommendation to the Council on or about March 31.
Three alternatives for collecting current taxes were considered. These
alternatives are discussed and the costs/benefits are examined in Attachments
A, B, and C.
A Revenue Office - Continue the status quo with the Revenue Office
of the Department of Fiscal Services handling current collections.
The Revenue Office operates efficiently with 15 personnel collecting
current and delinquent taxes, as well as over 30 other general fund
revenues. Approximately 11 full-time equivalent positions are
involved to some degree in the collection of taxes. Of this number,
7 positions could be eliminated the first year if the tax collection
functions were contracted out. The direct budgetary savings (i.e.
costs to continue status quo) from contracting out the tax
0001111 collection functions would be $352,800. (See Attachment A.)
B. Private Firm - Contract out the tax collection function to a private
firm that would do as well or better than the City's Revenue Office.
The estimated cost for contracting out to a private firm would be
$370,000. (See Attachment B.)
C. County - Contract with Tarrant County to collect current and
delinquent taxes for the City. The estimated cost for contracting
with the County is $218,000. This includes an estimated $80,000
as the County's fee, plus $138,000 in lost interest earnings due to
delays in depositing tax payments into the City's bank account
during peak periods and the County's acceptance of "split
payments". (See Attachment C.)
Contracting the tax collection function to a private firm would produce a net
savings when compared to direct and indirect costs. However, it would
increase the "direct cost" over the status quo alternative by $17,200. The
benefits gained by the additional expenditure might Include a more flexible
reporting system and insulating the City somewhat from the unpopular tax
collection process, while retaining City control of collection policies. Overhead
charges (indirect costs) would be reduced, allowing other City staff (particularly
ISS personnel) to direct their efforts to other projects. With an RFP process, it
is unlikely a qualified private firm would be ready to collect the City's 1992
taxes. The benefits from selecting the private firm alternative do not seem to
outweigh the out-of-pocket costs.
ISSUED BY THE CITY MANAGER FORT WORTH,TEXAS
INFORMAL REPORT TO CITY COUNCIL MEMBERS No.. 7594
March 31, 1992
To the Mayor and Members of the City Council Page 2 of 2
Subject, Collection of Current Taxes
Contracting the tax collection function to Tarrant County in FY 1992-93 would
have a direct cost of $80,000; however, the annual loss of investment earnings
from delays in depositing funds into the City's bank account and the County's
acceptance of"split payments" would add an additional $138,000 to the cost of
contracting with Tarrant County. The net savings (or benefit) from contracting
with the County would be $134,000. There are some concerns about an
unproven collection system, delays in deposits (with rising interest rates, the
loss of investment earnings could be greater), the uncertainty of the current
political year (with whom we will be dealing), and what seems to be the political
necessity for an elected assessor/collector to satisfy dissatisfied taxpayers. In
the opinion of staff, the financial savings seem to justify the risks/costs of
contracting with Tarrant County.
Unless the City Council directs otherwise, the staff will proceed to negotiate the
terms of a contract with the Tarrant County Tax Assessor/Collector to bill and
collect the City's property taxes, beginning with the 1992 tax year. If this
action results in the Council's approval of a contract with Tarrant County, staff
would further recommend selecting the County's delinquent tax attorney to
handle the City's delinquent tax accounts. As was noted in IR No. 7582, due to
the coordination complexities involved in the legal pursuit of a massive number
of delinquent tax accounts, It is much more efficient for a single delinquent
collection firm to handle the delinquent collection for all of the major
overlapping taxing entities in the county. The County is considering charging
$.75/transaction (instead of $.40/transaction) for taxing entities using a
different tax attorney than the County.
. 0-n"�L,- Q
1�-- David Ivory
City Manager
ISSUED BY THE CITY MANAGER FORT WORTH,TEXAS
Attachment A
Revenue Office
The Revenue Office collects current and delinquent taxes as well as over 30
other general fund revenue items (e.g. weed cutting fees, paving assessments,
hotel-motel tax, Lake Worth lease fees, Improvement District special
assessments, beer and liquor licenses, municipal parking fees, development
permits, fire inspection/permits, etc.) In FY 1991, the Revenue Office collected
$141.7 million of which $131.4 million was current and delinquent taxes,
penalties and interest.
Projected Potential
FY - 1992 Budget Allocated Savings from
Budget to Taxes Contracting Out
Personnel 1 $405,000 $250,000 $185,100
Supplies 2 72,400 47,000 45,500
Contractual 3 101.500 81,500 81,200
Indirect Costs 4 140,000 130,200 130,200
ISS Forms 13,500 13,500 13,500
Publication Fees 4,000 4,000 4,000
Lockbox Charges 5 23,500 23,500 23,500
Total $759,900 $549,700 $483,000
1 $30.500 is transferred from T/PW to pay for clerks collecting permits.
2 Includes postage of$65,000
3 Includes outside printing of$73,900
4 Estimate based on latest DMG Indirect Cost Study; 93%allocated to tax collection
5 Paid from bank compensating balance
Positions Positions Deleted
Allocated to Tax by Contracting
Revenue Office Collection Out
FTE Position 15* 11 7
*Does not include vacant position.
Costs/Risks:
1. Estimated cost of tax collection $2.97/account. Costs for
collection, including indirect costs, are estimated to be $549,700.
Direct costs (which could be saved by contracting out) are
r7 estimated to be $352,800. (i.e. $483,000 - $130,200)
2. Continued whittling away at Revenue Office staff because of City's
budget difficulties will increase numbers of problems and
complaints coming to City management and Council.
3. Constant staff reductions increase risk of loss from failure of
internal controls.
4. Shortage of staff could delay deposits and reduce investment
earnings.
5. Cutting too many positions too abruptly could hurt capability to
collect other general fund revenue items.
Benefits/Opi)ortunities
1. Operates efficiently with relatively small staff when compared to
other taxing entities.
2. Collects and deposits 91% of levy within one week of January 31.
3. Collects and deposits 93% of levy by end of February.
Iry
4. Collects and deposits 97% of levy by end of fiscal year.
5. Tax system is proven and does what it is required to do. There
would be no need to replace the tax system, incurring additional
costs for software purchase and/or development, transition to a
new system, etc.
6. Direct control over collections and management reporting.
7. Daily deposits of taxes through bank lockbox. Immediate
availability for investments.
8. Control of"waivers" and "installment plans".
9. Will accept no "split payments" and resulting loss of investment
earnings.
10. More immediate response to taxpayer problems and complaints.
Other
Most flexible option relative to delinquent collections. Could elect to renew with
Heard, Goggan, Blair and Williams or request proposals.
Attachment B
Private Firm
A private firm, which presently collects current taxes for several taxing entities
around the state, was contacted for an "indication" of what it would do and the
cost. The services would include:
1. Provide 11 full-time employees, plus 3 temporaries for peak
collection period.
2. Load the City's annual Certified tax roll, and calculate the tax
imposed on each account. Mail tax bills to individuals, mortgage
companies and agents.
3. Load all Supplemental and Adjustment rolls, and mail appropriate
tax bills.
4. Maintain all of the City's tax records on-line in the tax system.
5. Post and receipt on a timely basis all current and delinquent tax
payments, and deposit such in the City's depository bank tax
account.
6. Issue tax certificates as required by law.
7. Prepare and issue a monthly written report of all collections and an
annual report.
8. Prepare a current and delinquent tax roll.
9. Mail one delinquent tax notice in late February or early March and
one 33.07 notice in May of each year.
10. Serve as consultant on tax matters with the City.
11. Contract with the City's depository bank for the operation of a
lockbox system for the collection of tax accounts and interface with
bank personnel.
12. Work with mortgage companies and agents to properly handle the
billing and eventual posting of payments on accounts they service.
13. Supply necessary information to the City's independent auditor to
facilitate the City's annual audit.
14. Provide the necessary space to operate the tax office (probably
about 3,000 to 4,000 square feet)
15. Provide necessary customer service to properly handle all
telephone calls and answer all correspondence.
16. Prepare all the necessary documents for the City to issue tax
refunds to taxpayers.
17. Process all NSF checks timely and correspond with the taxpayers
to notify each of the bad check.
18. Interface with the City's delinquent tax collection firm for the
purpose of collecting delinquent taxes.
roll
Costs/Risks:.
1. $2.00 - $2.50/account estimated. Assuming $2.00/account, the
cost for collecting 185,000 accounts would be $370,000. (Net cost
of $17,200 after deducting direct general fund budget saving. Net
benefit of $113,000 when compared to City's direct and indirect
costs.)
2. Contracting with an inexperienced firm that cannot produce as
promised.
3. RFP selection process time consuming.
4. Impossible to go through RFP process and for a qualified private
firm to be ready to collect 1992 taxes. Would continue status quo
for another year, with private contractor beginning in fall of 1993.
Benefits/Opportunities
1. Maintain control of collection process. Contractor can be fired if
City not satisfied with performance.
2. Immediate access to funds for investment purposes.
3. General fund budget savings of $352,800. Savings, including
indirect costs, would be $483,000. (Net direct costs would be
$17,200. Net savings, including indirect costs, would be
$113,000.)
4. Remove City one-step from unpopular task of collecting taxes.
5. Control of"waiver of penalty and interest" policy and "acceptance of
split payments" policy remains with the City.
6. Potential for fee reductions from long-term contract.
7. Possibility to offset costs by marketing "privatized" collection
system to other taxing entities in the county.
Other
The firm selected to do the current collections would probably dictate the
choice of a delinquent tax attorney. For example, if Heard, Goggan, Blair and
Williams was selected as th,� private firm to do the current collections, It would
probably be financially advantageous to the City to renew Heard, Goggan, Blair
ell" and Williams as the delinquent tax attorney.
Attachment C
Tarrant County
The Tarrant County Tax Assessor/Collector's Office collects taxes for 4 school
districts (the largest being FWISD) in the county, 21 cities in the county, and
various other county taxing entities. The County contracts with these entities
to collect their taxes "in the same manner and fashion as Tarrant County
collects its own taxes". They anticipate no additional personnel would have to
be added at the County to collect the City's taxes.
Costs/Risk '
1. Costs are $.40/transaction. (Because the County accepts "split
payments", this could be $.80 for some accounts.) Assuming
$.40/account, the annual fee charged by the County for 185,000
accounts would be $74,000, plus a one-time set-up fee of $500.
Total first-year fees, assuming some "split payments", are
estimated at $80,000.
2. Costs may be increased to $.75/transaction if City uses a
delinquent tax attorney different from the one used by the County.
3. Delays in depositing tax payments into the City's bank account
would result in lost investment earnings. Assuming a standard 2-
day delay (over current deposit times achieved by the City's
Revenue Office) for non-peak period payments and delays up to 7
days for payments received during peak periods (e.g. January 27-
31), and an interest rate of 4.10% for overnight investments, the
loss of interest earnings would total $67,700. As interest rates
increase, this loss would be greater. An overnight investment rate
of 6% would increase the cost of delays in the deposit by $31,100
to $98,800.
4. The County allows taxpayers to pay half of their taxes due on
November 30, and the remaining half by June 30, without penalty.
It is unclear how many taxpayers would avail themselves of this
option. The County suggests 2% of the tax levy would be "split
payments". A study the City conducted in 1984 suggested 14% of
the City's total tax levy took advantage of the "split payment"
option at the time. Businesses, including mortgage companies,
paid 930lb of the "split payment" tax dollars in 1983. Assuming a
tax levy of $134,740,000, $9,400,000 would be paid 2 months
early and $9,400,000 would be paid 5 months late. At an
overnight investment rate of 4.10%, "split payments" would cost
the City $126,000 in lost investment earnings. At an overnight
investment rate of 6.00%. "split payments" would cost the City
$184,000. Using the County's assumption of 2% "split payments",
the cost to the City at 4.1O% would be $13,650. The loss of
investment earnings from the County's policy of accepting "split
payments" is uncertain. A loss of$70,000 has been assumed.
5. Easier waivers of penalty and interest on delinquent taxes will
result in an undetermined loss of revenue for the City. The City's
policy has been to strictly follow the State Property Tax Code which
provides for no waiver of penalty or interest, except in the event of
an error or omission by the appraisal district or taxing entity. The
County seems to be more ready to waive penalty and interest.
6. Loss of control of the collection process will lead to delays in
management reporting, financial reporting, statistical analysis, and
budget projections. Monthly reports are not presently available
from the County for "3-4 weeks" after the month-end.
7. The County's new computer system still has some 'bugs" in it.
8. This election year creates some uncertainty as to the continuation
of the current Assessor/Collector and management staff into 1993.
r0l, A new Assessor/Collector could change the County's priorities,
objectives and costs.
9. An elected Assessor/Collector may be susceptible to political
influence and pressure, making arrangements on delinquent tax
accounts which would not be financially advantageous to the City.
10. County may not understand data/reporting needs of City.
Benefits/Opportunities
1 Elimination of 7 full-time positions and direct budget savings of
$352,800. Including indirect costs, savings would be $483,000.
2. Net direct savings, after fees are paid to the County are estimated
to be $272,800.
Direct Savings $352,800
Less: Fees Paid to County -80.00
General Fund Budget Savings $272,800
3. Net savings from contracting with County, including loss of
investment earnings from delayed deposits and "split payments"
are estimated to be $135,000.
General Fund Budget Savings $272,800
Less: Delayed Deposit -68,000
Less: Split Payments -70,000
Net Savings $134,800
4. Referral of tax collection "headaches" to the County. The City
could get out of the unpopular tax collection business.
5. County seems eager to please and over time, some of the problems
could be resolved and/or improved.
Other
Contracting with the County would seem to require using the County's
delinquent tax attorney (i.e. Heard, Goggan, Blair and Williams) since the cost
per transaction would almost double, from $.40/transaction to
$.75/transaction, or from $80,000/year to $150.000/year, if a different
delinquent tax attorney was used.
0.101*