Local budgets around the state are nearly $7.9 million fatter this year than anticipated, thanks to a state program that deducts from state tax refunds the past-due bills owed by residents to cities and counties. Nearly 46,000 people have been forced to pay off 55,882 debts over the last six months when the Department of Revenue matched their Social Security numbers to bills owed to nearly 200 local governments.
Since the North Carolina Local Government Debt Setoff Clearinghouse was created in 2002, just over $15 million, representing 100,890 delinquent tabs, has been returned to local entities that supplied services but didn’t get paid. Administrators say the bills — some dating back 10 years — are left behind when people move and forget to pay final bills owed at their old address. Sometimes, they say, citizens simply ignore repeated written requests for payment. The outstanding balances typically are parking fees, sewer and water service, property and vehicle taxes, and paramedic visits.
Local officials say they’re attracted to the clearinghouse because it’s more cost efficient than the traditional method of mailing notices to customers. “In many instances, you can spend more than you can get back” using old-style paper and phone follow-up, said Rebecca Troutman of the North Carolina Association of County Commissioners (NCACC), which administers the program with the North Carolina League of Municipalities (NCLM).
“It’s a wonderful, wonderful tool,” said Judy Bingham, director of Tax Collections for Gaston County, which had recouped $981,000 by mid-June, the highest collection rate of any participating county. The funds represented back taxes and other services. “We have an IT person constantly updating our files,” she said of the steady flow of dollars back to the county.
By using the state’s electronic approach, some local resources can be diverted to non-collection tasks. That opportunity, along with the fact that the program is free, has spurred phenomenal growth in participation. In July 2003, 54 cities and towns and 41 counties were enrolled and providing data to support a match to a state tax return. Two years later, the number of cities and towns involved has nearly tripled to 156; the number of counties has nearly doubled to 76. That jump has translated into more and more money being returned each year.
In 2002, just over $234,000 was transferred back to cities and towns. In 2003, the amount jumped to $1,062,875. Last year, $5.8 million rolled in, and with six months remaining for collection this year, the amount recouped has already set a record.
The rules of the clearinghouse are straightforward. Governments can submit any debt that’s more than 60 days old and valued at $50 or more. If an outstanding bill is less than $50 but a resident owes more than one, multiple bills can be combined to meet the $50 threshold.
When a match is made to a tax refund scheduled for payment by the state, the debt is subtracted from the refund and transferred to the city or county. The taxpayer is charged a $15 fee and issued a check for the remaining balance of the refund. The $15 fee is split between the company hired to process program data – Five Star Computing of Columbia, S.C. – and NCACC if the debt was owed to a county, or NCLM if it involved a municipality. The fee split compensates for administrative costs.
The state of North Carolina also uses the system to close out its delinquent accounts. Sometimes, bills are overdue to both a local government and the state. In those cases, the state pulls rank and retrieves its cash first. NCLM’s Chief Financial Officer Tom Medlin characterized the program as an outstanding deal for local budgets, and an issue of fairness for taxpayers who pay on time. “Our cities and counties are able to collect 100 percent of what they’re owed,” he said, noting that some of the debt would have been written off.
Residents can appeal the clearinghouse’s action if they believe the past-due bill is a mistake. Bingham said Gaston County hasn’t received any formal appeals, but sometimes hears from residents. “When they call us, we explain it — why they need to pay it — and they seem to understand,” she said.
Donna Martinez is a contributing editor of Carolina Journal.