Owing the Government, Money for Nothing

Many government agencies can and should do a better job of making sure that those who owe government money, pay it.
by , | December 2, 2010 AT 3:00 AM
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In normal life, people tend to make sure they get paid what they are owed. This isn't always the case with government.

Consider Louisiana, which is likely looking at a budget gap of $1.5 billion next year. According to state Treasurer John Kennedy, one way Louisiana can close this gap is by doing a better job of collecting money owed the state.

"Currently, $1.52 billion is owed Louisiana citizens in the form of accounts receivable, spread across state government agencies," notes Kennedy on the Treasurer's website. "This amount is fairly consistent over time, and rarely falls below $1 billion. The debts include delinquent taxes, unpaid fees, fines, medical bills and bad checks." Kennedy estimates that 58 percent of this debt is over six months past due.

Such collection isn't easy. In many cases, the individuals who haven't paid their bills to the state aren't in good financial circumstances -- they may be indigent, transient or on some form of public assistance.

Even those who can pay sometimes don't. In many cases, once a person owes money, getting them to pay it is an exercise in frustration. If a public health clinic provides services and later mails a bill for the copay, they are a lot less likely to collect than my doctor's office, which requires payment at the time services are rendered. The government's reputation for laxity on collections contributes to this. Fail to pay your electricity bill, and your lights go out. Fail to pay your library fine, nothing happens.

But there are techniques -- Kennedy cites consolidation and modernization of outdated record-keeping systems in various agencies -- that could improve collections by a sizable amount. A 20 percent improvement in collections would translate into $300 million for Louisiana, hardly small change.

According to Kennedy, success in debt collection requires something else: "A greater focus on collecting debts. It requires a state to view delinquent debt management as a core function of government rather than a lower-priority activity."

This is tricky territory. In the late 1990s, the federal IRS was brought before Congress and was grilled for its overly enthusiastic debt collection practices. The hearings were a very public beatdown for an agency that one could argue was simply trying to collect what was owed.

Even President Clinton piled on, criticizing the agency for its "unfair treatment and unresponsive service." Said Clinton in a radio address in May 1998, "I was outraged by testimony at last week's congressional hearings on the IRS, by the stories of our citizens harassed and humiliated by what seemed to be an unaccountable, downright tone-deaf agency."

Lessons from Massachusetts illustrate the challenges of public debt collection. This can be particularly true for sub-groups that aren't noted for their voluntary compliance with the rules.

Like dope smokers, for instance.

Since a 2009 law change in Massachusetts, possession of less than one ounce of marijuana by adults is now punishable by a non-criminal fine of $100. If police come across someone smoking dope, they can write them a ticket, much like a parking or speeding ticket.

Except for one thing: Almost nobody is paying the tickets, and there isn't much the police can do about it. According to a Boston Herald report, of the 760 tickets issued in Boston so far this year, 645 -- or about 85 percent -- remain unpaid.

Unlike motor vehicle tickets, which trigger consequences at the Registry of Motor Vehicles if left unpaid, the consequences of not paying your marijuana ticket is...nothing. Marijuana smokers may be irresponsible, but they aren't stupid. They have figured out that the government is not serious about collecting what it's owed and are acting accordingly.

For Boston alone, that's $64,500 in uncollected fines -- enough to pay for a teacher. Moreover, given the poor collection rates, many police officers don't bother to issue tickets in the first place, sending a message unintended by the law.

The contrast with collections at the Registry of Motor Vehicles couldn't be more striking. According to a 1994 article in Wired, the Massachusetts Registry of Motor Vehicles enjoys a collection success rate of 99.9 percent in collecting more than $660 million in fees and fines. One Registry official is quoted as saying,"How can you afford to stiff us? We'll pull your driver's license. We'll take your title. We just don't have bad debt."

Not all public agencies have that kind of power to make life miserable for deadbeats. But there is little question that many government agencies can and should do a better job of making sure that that those who owe government money, pay it, so that those of us who are following the rules don't have to make up the difference.