The City of New Haven Collects Back Taxes With a Smile
Many people don't believe you can put the words "good will" and "tax collection" in the same sentence. There is a natural tension there. But in the city of New Haven, CT, there has been a breakthrough that should serve as a model for cities all over the country that are struggling to collect delinquent real estate taxes. In 1994 New Haven's property tax collection rate was languishing at around 86 percent. Since privatizing the collection of delinquent taxes, it has improved to 94 percent for last year's collection and is expected to exceed 96 percent this year.
In Search of Methodology
The secret of New Haven's success begins with their relationship with JER Revenue Services, which is part of a pilot program involving JER and the State of Connecticut. Collection laws differ from state to state so JER had to make sure they could legally operate in Connecticut. "I approached the State," recalls Diane Champagne, JER's Vice President, Marketing," and said, "We have this program that is more like a collection service. We don't buy the assets; we just provide our expertise to the city. What if we run under your oversight and you can look at this style program."
New Haven was particularly interested in investigating alternatives to the delinquent tax collection programs they had tried in the past--bulk sales of tax liens and securitized sale (where if more money is collected than is originally anticipated, they share in the proceeds). According to New Haven Budget Director Frank Altieri, the city had received $24 million combined from these methods but was looking for a different way to eradicate the back taxes dilemma. "The reason we needed this assistance," Altieri explains, "is that we were very, very far behind. We had people that were delinquent several years. There was no real methodology in place in city government to effectively deal with that amount of back tax collection." Altieri likes the relationship with JER because, unlike most outsourcing arrangements, he still has control. "They do not just go on their own and say 'This is what we're going to do.' They work with us to make sure we are in agreement with what they're doing. Keep in mind we are a public entity and we have taxpayers and voters we have to satisfy as well."
Collection With Compassion
Lest the word 'revenue' in JER's name conjure up mental pictures of them terrorizing the citizenry with heavy-handed letters and ominous phone calls, come again. On the contrary, JER's philosophy is based on redemption-they want to give the delinquent taxpayers the opportunity and the tools to get out of arrears with their property taxes. As part of their "collection with compassion" philosophy, JER offers their Credit Outreach Program. They set up a local network of third-party sources of assistance-credit counselors, third-party lenders who specialize in difficult credit, reverse mortgages-for taxpayers. The goal is to help the taxpayers in any way possible to make up the back taxes and hold onto their property. JER also offers payment plans. But one of their most important contributions is educating the public about their rights and responsibilities as property owners. "A lot of people just don't know," says JER's Champagne. "There are folks who acquire property through a divorce proceeding and don't understand what comes along with that. You have folks that inherit property that they don't even know they own, or they have no idea that they've inherited the responsibility of the taxes and what happens if they don't pay. The vast majority of what happens in our program is volunteer redemptions and collections."
Consistent with JER's theme of good public relations, twice a year the city of New Haven invites banks and credit card companies to its monthly "mayor's night in" to advise delinquent taxpayers about payment options.
A Model Public-Private Partnership
The agreement between New Haven and JER Revenue Services is an annual one with a renewal option, which is typical. They provide a routine report that shows the delinquency portfolio, broken down by where they are in the collection process. They also provide a month-to-month comparison. There are currently about 2,000 accounts in the portfolio, enough to keep JER busy for the foreseeable future. So far they've been quite efficient. "We've had about 2,700 delinquent accounts that we turned over to JER and over the two-year period we've had only 42 foreclosures," says Altieri. "I thought it was going to be much higher than that."
Champagne attributes the success of JER and New Haven's partnership to three factors. One, JER has not only collected delinquent taxes from past years but is also collecting current taxes from tardy taxpayers. Two, because its program is well publicized around the city, those people who are likely to let their taxes slide are giving it a second thought because they know it won't be tolerated. And three, because the city has outsourced delinquent tax collection, it can now beef up its collection programs on other things like personal property tax and motor vehicle tax.
JER has provided additional government solutions for New Haven as well. They have helped them build a database of all the property the city owns. Previously this information was housed in different departments and was not well organized. Now, any one department can see and map the entire portfolio. And under a separate arrangement, JER also markets some of New Haven's surplus properties.
JER and the city of New Haven are proof positive that public-private partnerships can be an effective way for governments to solve their problems. It's all in how you structure it.
Lessons from the Outsourcing Primer:
- By outsourcing, governments can reap the benefits of new and different methodologies to achieve their goals.
- It is important for governments to partner with companies that understand the public relations nuances of performing government functions.
- Under agreed-upon parameters, governments can exert a modicum of control without constraining the outsourcer's ability to do its job.