City Council Testimony: Controller Recommends Ways to Improve Real Estate Tax Collections

Testimony of
Hon. Alan Butkovitz
City of Philadelphia
City Council
Bill No. 140238
December 1, 2014

Thank you Councilwoman Tasco, Councilman Oh and other members of the Committee on Finance for the opportunity to testify today on Bill No. 140238 regarding the City’s tax collection efforts and enforcement.

As I have previously stated, uncollected taxes, along with fines and fees, are placing an extreme burden on the city’s ability to provide necessary services for all citizens.  My Office has made it a priority to identify hundreds of millions of dollars worth of revenue and saving opportunities related to delinquencies.

However, for the City to realize these revenues, the Administration and all appropriate departments and agencies need to take necessary actions to collect the delinquent balances owed. 

For example, our review of the Department of Revenue’s Delinquent Real Estate Taxes found the City and School District lost a combined total of $120 million over two years (FY2011 and 2012)  as a result of poor collections and enforcement.  This is a serious revenue loss and it demonstrates how the effects of poor real estate collections are hurting all Philadelphians.

The reasons for the poor collection rate included:
• During the time of the review, the City made no attempt to send out late notices to property owners after the March 31 due date and instead had waited nine months to contact them
• Payment plans were ineffective and often difficult to enforce once a property became delinquent
• Once a property was moved from delinquent to foreclosure, it took nearly 2.5 years and sometimes reportedly upward of six years to move the property to more responsible ownership – one of the worst records of any large U.S. city.

While Bill No. 140238 does take necessary steps for the City to become more aggressive in its delinquent tax collections, I would suggest examining additional recommendations that were also provided in our review.  This includes:
• Report delinquent property owners to credit bureaus
• Improve the City’s contractor efforts to contact past-due property taxpayers immediately following the tax deadline
• Annually assess its tax lien digest to identify a poll of redeemable quality liens, and consider the feasibility of redeeming those liens through ha negotiated bulk tax lien sale.

Along with stepping up enforcement procedures, the Department of Revenue needs to provide adequate oversight of the billing and collection functions of other city departments.  As we found in our latest annual financial audit of all departments, Revenue did not routinely provide guidance to the departments to regularly communicate with department personnel performing the billing and receivable duties – some of whom were not trained as accountants.

The Department of Revenue needs to monitor all city departments responsible for billing and collecting tax revenues.

In addition, while I agree with the bill’s current language of requiring the Department of Revenue to provide a monthly report to the Controller’s Office containing any and all tax delinquencies that have occurred in the previous month, the Controller’s Office cannot “assume responsibility for the accounting and transferring of the collection process to a qualified third party law firm or collection agency.”

This would present a conflict of interest between the City Controller’s current authority and duty to the City of Philadelphia to prepare the annual City Accounting Financial Report, which audits the receivables – or delinquent accounts – for all monies owed the City.  More importantly, it would impede our independence which would preclude us from performing any financial opinion audits.

City Council needs to amend this bill as it currently stands and remove this language from Section 19-513, subsection (3).

With that said, in Philadelphia, there is much room for improvement in collecting what is owed.  I believe that positive results can be achieved if appropriate action is pursued.