N.O. Inspector General urges in-house collection of late taxes

New Orleans Inspector General Ed Quatrevaux said that using a contractor to collect delinquent property taxes in 2010 ended up costing the city more than if the work had been done in house.

“We found inflated costs and services with unproven effectiveness in the City’s delinquent tax collection program,’’ Quatrevaux said in a news release that accompanied a report made public Thursday.

The report recommended handling the work in-house and, failing that, issuing a new request for proposals for the contract. But Mayor Mitch Landrieu’s administration disagreed with the inspector general on the cost and the conclusion that it should not outsource the work.

New Orleans paid $3.3 million for its 2010 contract with Strategic Alliance Partners, L.L.C. Evaluators, which the IG’s office said was 10 times more than the cost of basic delinquent tax collection.

The inspector general consulted Jefferson Parish and private vendors to determine the cost, which it pegged at $278,987.

“Therefore the program costs approximately three million dollars in excess of reasonable costs each year,’’ the report said.

The city, under former Mayor Ray Nagin’s administration, also disregarded a proposal submitted in response to a request for proposals in 2008 that would have cost approximately $1 million less per year, the report says.

As for how effective the contractor was, the report noted that deadlines seemed to create the largest spikes in payment of delinquent taxes. Phone calls made by the contractor, which are not required by law, were not effective, the report said. The 144,163 phone calls that were made resulted in less than $5,000 in payments, the report said. But placing the calls cost an estimated $19,843.

The report also found that the city did not follow through on adjudicating property that was put up for sale to recover property taxes that were delinquent.

“The city relies heavily on the tax sale as an enforcement mechanism, but because of the costs associated with selling adjudicated property, it has decided as a matter of practice not to adjudicate unsold tax properties,’’ the report said.

But that means that the costs associated with the putting the property up for tax sale are wasted, the report continued, a problem that is compounded if the city puts the properties up for tax sale again the next year. Those costs are added to the delinquent payer’s tax bill, increasing the price of the property and making it less likely to sell, the report said.

The decision not to adjudicate delinquent properties also sends a signal to property owners that they can ignore their tax bills with impunity, it said.

The Landrieu administration took issue with some of the findings.

“The Inspector General’s contention that the City’s delinquent property tax collection and online delinquent property tax sale auctions could be done for $279,000 is not at all on target,’’ Deputy Mayor and Chief Administrative Officer Andy Kopplin said.

“Taking this approach would undoubtedly reduce the City’s collection rate on delinquent property taxes and therefore put increased pressure on the City’s general fund because of decreased revenue collections,’’ Kopplin said in an email.

“In addition, shortcutting the legal reviews required by law by only performing ‘basic collections services’ as the OIG suggests would place the City at significant legal risk, and it would fly in the face of court decisions which specifically detail the City’s obligations to undertake a much more comprehensive approach,’’ he said.

Kopplin stressed that all costs associated with the city’s contract for the collection of delinquent property taxes are paid by the delinquent taxpayers themselves.

“The city’s contractor is only paid when delinquent taxes are collected,’’ Kopplin said. “As such, we believe that having an outside contractor paid solely by revenues collected from delinquent taxpayers remains the best way for the City to collect revenues that are due to it without exposing taxpayers who meet their obligations to the City by our deadlines to any additional costs.

He said the city would issue a request for proposals soon to select the “most advantageous delinquent tax collections firm’’ for the city.

He said that the city agreed to delay issuing the RFP at the inspector generals request, but after reviewing the report the administration still believes outsourcing is the best option.

“We believe meaningful savings may be achieved through this RFP process, but we do not believe that the cost of this work or the associated legal risks should be shifted away from delinquent taxpayers,” Kopplin said.