Walker Debt Collectors, Inc. The source of another budget hole

If we ever start debating our budget again, there are a couple of items on the docket that deal with the state trying to get money back from people who have either failed to pay taxes, or are skipping out on other responsibilities. Unfortunately, updated information indicates that there may need to be some adjustments in the 2017-19 budget that will likely need to more cuts, because Governor Walker overstated the value of one provision, and may be overcharging Wisconsinites in another.

The first item I want to discuss relates to debt collection. As the Legislative Fiscal Bureau discusses, the state Department of Revenue (DOR) has people whose job it is to try to get back money that individuals owe to state agencies or other governmental entities, mostly for items such as unpaid fines and charges for services.

The SDC (Statewide Debt Collection) program was created as a pilot project in the 2007-09 biennial budget bill. Prior to that time, DOR contracted with private collection agencies to take actions against delinquent tax accounts. DOR believed it could generate a greater return on investment if the state were to use its own compliance and audit staff to aggressively pursue delinquent accounts that would otherwise be referred to private collection businesses. The Department has the authority to take certain actions under the SDC program, such as to attach wages, levy nonwage assets, seize monies and personal property, and negotiate installment agreements, which are not available to private collection agencies. The Attachment shows the types of collection activities that DOR may engage in under current law….

The Legislature expanded the SDC program several times during the 2015-17 legislative session. Funding was provided to DOR under 2015 Wisconsin Act 55 to increase the number of dedicated SDC revenue agents from seven positions to 18 positions and to upgrade its information technology systems so that the Department could collect debts jointly-owed to state agencies and the federal government, such as debts owed the Department of Veterans Affairs and student loan debts owed to the University of Wisconsin. Restitution payments certified as owed by the Department of Corrections or the Clerk of Circuit Court were authorized to be included in SDC agreements pursuant to 2015 Wisconsin Act 355. In addition, 2015 Wisconsin Act 59 authorized debts owed to certain ambulance service providers operating under a contract with a municipality or county to be referred to DOR under an SDC agreement. Table 1 shows information regarding SDC participation and collections since 2013-14.

Now while this sounds good to go after deadbeats (well, unless the state misidentifies the individual and tries to use collections to garnish tax refunds against innocent people….not that I’d know what that’s like), these SDC fees have also been used to bolster the state’s piggy bank in recent years. And Governor Walker wants to do even more of this.

As shown above, the fee paid by debtors to DOR has exceeded SDC program expenses by between $1.6 million and $2.1 million, or by between 157% and 362%. DOR estimates that fee revenues will exceed expenditures in 2016-17 and in each year of the 2017-19 biennium such that the transfer to the general fund will increase by approximately $5 million annually compared to the amount transferred in 2015-16. The administration estimates the additional 8.0 project positions would increase the estimated transfer to the general fund by $750,000 in 2018-19. Based on information provided by DOR, it is estimated that the amount transferred to the general fund from the SDC program would be almost $15 million (almost 400% more than estimated program expenditures) over the 2017-19 biennium if the Governor's recommendation were adopted.

12. The Committee could consider whether imposing a fee that is five times the cost incurred by DOR to collect debts on behalf of state and local units of government is an appropriate method for raising revenues that transfer to the general fund. As a comparison, private sector debt collectors are generally prohibited from collecting a surcharge above the amount of debt owed under the Wisconsin Consumer Act, but retain a portion of the repaid debt owed to the contracted entity.

But if the Legislature wants to reduce the extra fee that debtors have to pay to a level that is near what it costs to run it, the LFB says that this would reduce revenues in the budget by nearly $15 million. Even if the LFB allowed the “profit” from the fee to be limited to twice the amount it costs to run it, there’s still a budget hole above $11 million for 2017-19. And as I've frequently mentioned, there isn't breathing room in this budget to fill most of these holes.

In a related initiative, Walker’s budget has plans to hire more auditors for the Department of Revenue, with the idea of catching more tax cheats and recouping more revenue in the process. However, the LFB says those returns won't be as good as Walker advertised, partly because the new DOR agents will not be on the job for the entire budget.

The administration's estimates for the amount of revenues generated per billing agent appear slightly high, but the amount of revenues generated per central compliance agent appears slightly low. On balance, the annual fiscal estimate of revenues generated by approving these positions appears reasonable. The administration has not accounted for a non-revenue generating training period, which is plausible if most of these positions would be filled by individuals already employed in expiring tax enforcement project positions. However, the administration estimates that revenues generated by these positions would be $32 million in each year of the biennium, even though the positions would only be authorized for nine months in 2017-18. The estimate for revenues associated with these positions has been reduced by $8 million in 2017-18 to account for the shorter period of authorized employment (nine months) in that year.

And that’s assuming the budget would be signed on time for July 1, so the auditors can be hired and trained. That July 1 deadline certainly isn’t going to be met, so the longer this budget stalemate drags on, the larger that $8 million gap will grow.

Yes, these are small amounts in a budget that collects more than $16 billion in General Fund money each year. But all of these little dings hurt a bottom line that can't afford to be hurt, and the idea of the state making money off of people's debts (especially people that don't have the funds to defend themselves or have had bad luck befall them) strikes me as a bit ghoulish and excessive. Especially when these people are charged fees that are more than it costs for the state to collect the debts, which makes it a money-raising scheme instead of an attempt to maintain justice and fairness.