L.A.’s Deadbeat Tab: Staggering $559 Million

The City of Los Angeles loses out on millions of dollars in uncollected fees, fines, and permits every year due to inconsistent policies, multiple billing systems, antiquated technology, and staff shortages. Reports and studies over the past few years have all recommended the same solution – centralizing the collections process – but it has been slow to be implemented into the city’s bureaucracy. As of Dec. 31, the city had $559 million owed to it with about 20 percent of that amount being current or billed over 30 days or less. It is agreed by city officials and business leaders that the full amount will never be collected. That figure, however, does not include what money may be owed the Department of Water & Power, Los Angeles World Airports, and the Port of Los Angeles. The Fire Department at $223.5 million and the Department of Transportation at $218 million are the two biggest offenders, having failed to collect on ambulance transport fees and parking tickets respectively. Money due the city from other governments, Los Angeles County for instance, would be another source of money the city could use to plug its projected $485 million deficit for the 2010-2011 fiscal year. Licenses, permits, fees and fines contributed an estimated $707 million to the general fund in the 2009-2010 fiscal year. In the 10 years Antoinette Christovale has been general manager of the Office of Finance there has been substantial improvement in the amount of money the city collects. The threshold for referring cases to a collection agency has gone from $100 or less to $5,000 or less, Christovale said. The department has also established seven guidelines for citywide billing and this year started issuing a quarterly accounts receivable report for city officials to see the breakdown by city departments of money coming in, she added. A larger hurdle to get over will be to change the mindset at City Hall that allowed the debt to pile up to begin with. Some bills have gone unpaid for years and not until the city spiraled down into a fiscal crisis did the importance of getting that money open the eyes of policy makers. “There needs to be more oversight and some process where if you ever get behind you pay more frequently,” said Councilman Paul Koretz, chairman of the Audits & Governmental Efficiency Committee. Can’t ignore it In past years, there have been ideas floated to improve efficiencies in the collection process and the city has gotten to a point where it can no longer ignore those suggestions, Koretz added. “The imperative to reform finances has never been greater,” said Ron Galperin, chairman of an ad hoc commission looking at the collection process. “When economic times were better very few people felt the same fire beneath them to change.” The Commission on Revenue Efficiency was formed this spring and meets weekly in a fact gathering stage to prepare recommendations on the collections process and new ways to generate revenues. Various city departments have appeared before the seven-member commission to describe billing and collection procedures. The department representatives have been forthcoming in their deficiencies and are open to making changes, commission members said. The crisis the city faces presents the commission with the opportunity to advocate for meaningful change, said member David Farrar, an attorney with a downtown law firm. “The idea we are there to focus on a single issue creates a sense of urgency that will cause our work to be more effective and respected,” Farrar said. Of the $559 million in unpaid accounts receivables, 8 percent, or $44 million, has been referred to collection agencies. The remainder is up to the individual departments to collect. Of the $223 million owed to the Fire Department, only 4 percent ($8.8 million) is in the hands of a collection agency. Some 46 percent of the full amount is two years or more past due. A report from the Macias Consulting Group released in December found that the city has an average collection rate of 87 percent among 43 bill types. The Bureau of Engineering has a high rate, as did payment for filming permits, taxi permits and fees, and litigation cost recovery in the City Attorney’s office. “There is no amount too small,” said Councilman Eric Garcetti. Years of reports Considering that reports by outside consultants and organizations on the collection process date back to 1991, it raises the question of what more this new commission can study. In 2007, then-City Controller Laura Chick issued a scathing audit that concluded the city doesn’t know its total account receivables. City departments were also lax in complying with an executive order issued by Mayor Antonio Villaraigosa in 2005 outlining the steps the city should take to maximize collection of fees and taxes. Current City Controller Wendy Greuel said her office is now doing a follow up audit to see if departments are implementing recommendations made by Chick. The Macias report detailed weaknesses in the collection process, finding no consistency in city departments, a lack of staff, and state requirements and regulations taking precedence over the city. But there was another explanation as well – city staff didn’t want to anger those owing money. “Many management staff across all departments explained that collection activities do not necessarily receive a high priority because of their interest in maintaining effective working relationships with payees,” the study reported. That didn’t sit well with Brendan Huffman, a public policy consultant and former president and chief executive of the Valley Industry and Commerce Association. After all, the IRS isn’t concerned about making tax cheats angry, Huffman said. “It is disconcerting there is clear lack of will to go after scofflaws who owe money,” Huffman said. “Those who follow the rules will pay for those who don’t.” In 2007, VICA formed an Audit Sub-Committee specifically to follow up on the reports issued by the Controller’s office and chose the collection practices report as the first to pursue because with each passing month the city loses out on the money that goes unpaid. “Collections sheriff” The association flexed its muscles in 2008 to get the City Council to more seriously look at the issue, proposing to put the process in the hands of what was dubbed the “Collections Sheriff.” For Greuel, audit sub-committee Chairman Mel Kohn and others having each department handle its own collections diluted the responsibility to follow up. A single person, on the other hand, would work with all the departments and be there to take credit – or the blame – for what money does come in. “What bothers me is the lack of accountability,” Kohn said. “If you give a service you have to collect.” Centralization is still a work in progress with the first phase consolidating reporting and performance management and making that information available in one place, Christovale. The fire department, Greuel said, will this year begin to use handheld electronic devices for billing for ambulance transport, replacing filling out paper forms in triplicate. (The public information office of the Fire Department refused to confirm this information.) The City Attorney’s office has appeared before the Commission on Revenue Efficiency to discuss using liens against debtors. The office also handled the criminal prosecution of Sohrab Sahab, owner of Prestige Parking Inc., for failure to pay the 10 percent parking occupancy tax. In a list of more than 100 debtors available at the City of Los Angeles website, seven out of the top 10 were parking lot companies owing a combined $95.7 million in business and parking occupancy taxes. Unionized city workers picketed outside Prestige in March over its debt, claiming that the unpaid taxes forced the city to make layoffs and cuts in services. As the city looks to reduce its workforce to save money, it must be careful not to shed revenue producing positions such as in code and parking enforcement. Those positions, after all, have the potential to bring in more money than they cost in salaries and benefits, said Galperin, of the Commission on Revenue Efficiency. “Those are the last people we want to be laying off,” Galperin said